In 2015,
famous investor Warren Buffett and a company called 3G Capital
joined Kraft and Heinz together. Their goal was to create a huge
packaged-food company. At the time, people couldn’t get enough of the
company’s popular products, like sauces, sweet snacks, and processed
cheese. But now, that big deal seems to have been a major failure.
Today, Kraft
Heinz is worth only $32 billion, which is 60% less than when
the companies merged. The company also thinks its operating profit will drop
by 5–10% this year. There are now rumors that the company might split
into smaller parts.
The
situation is bad for two reasons:
- Bad
management over the last ten years — especially cutting
costs too much.
- Big
food companies in general are facing hard times.
In fact,
the 12 biggest packaged-food companies in the American stock market,
like General Mills and Hershey, have seen their stock prices
go down by 9% on average in the past year.
After surviving
the inflation that followed the COVID-19 pandemic, sales are now slowing
down. New, smaller brands and government concerns about highly
processed foods are also creating problems. At the same time, shoppers
are spending less because of inflation and fewer job opportunities.
Why Are People Buying Less Packaged Food?
Since
2021, food companies have been raising prices to stay profitable while
ingredient and labor costs went up. Even though politicians criticized this as “greedflation,”
many Americans kept buying these products.
But now, sales
are not growing. Some are even falling. Why?
- Many
people are struggling with high prices and less money.
- A
new law by Donald Trump (called the “Big Beautiful Bill”) removes food
assistance for about 1.3 million people.
- More
people are using weight-loss drugs that reduce their appetite,
especially for junk food. About 4% of American adults took
these drugs last year, twice as many as two years ago.
New Competition and Tough Retailers
Because
prices of big brands are so high, people are turning to:
- Smaller
or fancier brands
- Supermarkets’
own brands, which are often cheaper
The top
20 food and drink companies in the U.S. had 42% of the market in 2018,
but now have less than 40%.
Big
stores like Walmart, Costco, and Target are also putting pressure
on suppliers. Due to tariffs (extra taxes on imported goods), these
stores are forcing companies to accept the cost increases, while they
themselves do not lose money.
Another Challenge: Government Rules
A new
campaign called “Make America Healthy Again”, led by health secretary
Robert F. Kennedy Jr., is trying to limit unhealthy chemicals like artificial
colors in processed foods.
Companies
may have to change their recipes, which is not always easy. Some
customers may not like these changes. For example, when General Mills
took out artificial colors from Trix cereal, some people were upset.
One expert says food companies must find a balance between what government rules require and what consumers want.
What’s Next for Kraft Heinz?
Kraft
Heinz may separate part of its business — such as ready meals and
packaged meats — and focus on its popular sauces and spreads,
which make more money.
This kind
of company split has worked well before. For example, a few years ago, Kellogg’s
divided its business into two parts:
- WK
Kellogg (focused on U.S. cereal)
- Kellanova
(the rest)
Now, Ferrero
and Mars are buying these parts, and Kellogg’s shareholders
have made over 40% profit since the split.
So, while
some big food companies may get smaller, others might grow by buying new
businesses.
Adapted from The Economist
