Kraft Heinz plans to split into two distinct companies, a significant development following a series of challenges and scrutiny over its business practices. Almost ten years have gone by since Kraft Foods Group completed its merger with H.J. Together, this merger created a $46 billion dollar giant in the food industry.
The cut has drastically improved the stream of operations. It further raises the visibility of the company’s iconic portfolio, which includes ubiquitous brands such as Heinz, Philadelphia and Kraft mac and cheese. Kraft Heinz chief exec Miguel Patricio spoke directly to this urgency for transformation, declaring,
“Kraft Heinz’s brands are iconic and beloved, but the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas.”
This reorganization comes on the heels of a difficult stretch for the company. Consider that in February 2019 the Securities and Exchange Commission served a subpoena to Kraft Heinz. This investigation focused primarily on the company’s accounting policies and internal controls. Nestlé announced its own dramatic write-down of $15.4 billion on its Kraft and Oscar Meyer brands. This latest action sheds light on their continued, very real financial struggles.
From the beginning, the merger proved problematic as joint U.S. sales started to drop off almost immediately following the merger. Recently, Berkshire Hathaway’s Warren Buffett acknowledged that his company had overpaid for Kraft, especially in light of last week’s stock plunge. This surprise admission begs many questions—not only about the merger’s long-term sustainability but about Kraft Heinz’s overall strategy.
Kraft Heinz recently announced a dividend split and moved quickly to shore up its financials. They cut their dividend by 36%, showing extreme commitment to right their financial ship. Beyond transforming their portfolio on the buying side, the company has a deliberate plan to reinvigorate brands such as Lunchables and Capri Sun. Their goal is to increase these products’ market penetration.
Of the resultant entities, one will be focused almost entirely on shelf-stable meals. Experts estimate this segment will yield approximately $10.4 billion in net new sales revenue by 2024. This strategic shift aligns with broader trends in the food industry as companies seek to adapt to changing consumer preferences.
From the looks of it, Kraft Heinz had its split all planned out too. This decision comes at a time when other leading industry players are reassessing their structures. Last month, Keurig Dr Pepper made headlines for its decision to reverse its 2018 merger with the owner of 7 Up. The coffee giant is getting ready to split after closing its $18 billion acquisition of Dutch coffee company JDE Peet’s. Likewise, Kellogg separated its snacks business into Kellanova while renaming itself WK Kellogg just two years ago.