U.S. food giant Kraft Heinz, which has struggled with poor performance for a long time, will split into two listed corporations. This means the giant company, formed by the merger of two food companies, is returning to its appearance from 10 years ago.
Kraft Heinz announced on the 2nd (local time) that it plans to spin off its slow-growing North American grocery sector as a separate corporation. Another spun-off corporation will include the company's popular brands such as Heinz ketchup, Philadelphia cream cheese, and Kraft Mac & Cheese. This partitioning is expected to be completed in the second half of next year.
According to The Wall Street Journal (WSJ), Carlos Abrams-Libera, CEO of Kraft Heinz, will lead the North American grocery business worth $10 billion (approximately 14 trillion won). Another institutional sector, which generates annual revenue of about $15 billion (approximately 21 trillion won), will focus on 'taste elevation.'
The company stated that this spin-off is intended to create a more focused and simplified business structure, reversing a long-standing strategy in the food industry to pursue mergers and acquisitions for expansion. With around 200 Kraft Heinz brands dispersed across 55 categories in 150 countries, it has been difficult to invest adequately in each brand.
CEO Abrams-Libera said, "This measure will enhance the influence of our brands and maximize business potential." Miguel Patricio, chairman of Kraft, also stated, "We can allocate the right level of attention and resources so that each brand can reach its potential and achieve better outcomes."
Kraft Heinz was formed in 2015 through the merger of food company Kraft and the 'ketchup kingdom' Heinz, led by Warren Buffett's Berkshire Hathaway. Berkshire currently holds a 27.5% equity stake, making it the largest shareholder.
The company was noted as the world's largest food corporation with annual revenue of $28 billion (approximately 39 trillion won) at the time of the merger, but has consistently struggled with poor performance since shortly after the merger. As American consumers have increasingly prioritized health, they have turned away from Kraft Heinz's main product line of processed foods.
The New York Times (NYT) reported, "Most major food corporations are struggling due to declining consumer purchasing power," and noted, "Since inflation, consumers are carefully choosing which groceries to spend money on, with many excluding highly processed foods."
Moreover, 3G Capital Partners, the Brazilian private equity firm that led the merger alongside Buffett, initiated aggressive cost-cutting under the guise of improving management efficiency, resulting in a decline in the quality of Kraft Heinz products. The Financial Times (FT) assessed the merger, stating, "The emphasis on cost-cutting over innovation has led to years of poor performance."
The company has been making various efforts for business normalization. In 2020, it sold part of its cheese business for $3.3 billion (approximately 4.6 trillion won), and the following year, it sold its nut business for $3.4 billion (approximately 4.7 trillion won). However, despite these efforts, the poor performance persisted, and it reported a year-over-year decline of about 2% in global net sales for the second quarter announced in July.
Buffett expressed disappointment over the spin-off. In an interview with CNBC, he said, "It has turned out that the merger of Kraft and Heinz was not a wise decision," while adding, "Splitting the company will not solve the problem." On this negative assessment from Buffett, Kraft Heinz's stock closed at $26.02, down 6.97% from the previous day.