Kraft Heinz Prepares To Break Itself Up

The Heinz ketchup and Oscar Mayer hot dogs featured at barbecues this summer are owned by the same company. Next summer, that might not be the case.

Kraft Heinz Co. is preparing to break itself up and spin off a large part of its business into a new entity, people familiar with the matter said Friday. The packaged foods company had said in May it was considering “potential strategic transactions,” but hasn’t said which brands it might separate.

The company has divided its products into a three-tier hierarchy, and it’s likely to stick with those reporting strong growth. Company executives have said they’ve put more focus on brands in its top tier, compared to lagging brands.

Heinz ketchup and other condiments, Kraft macaroni and cheese and Philadelphia cream cheese are among its strongest, while Oscar Mayer packaged meats and Velveeta cheese are on the bottom. In the middle are its brands with modest growth, according to Kraft Heinz, including desserts like Jell-O and drinks such as Capri-Sun and Crystal Light.

“If a split is announced, we think Kraft Heinz could combine its sauces, condiments, meals, and snacking brands,” Erin Lash, an analyst at Morningstar, said in a research note, “while spinning off its commoditized fare.”

The latter category includes coffee, meats and cheese. Kraft Heinz owns Maxwell House coffee.

Kraft Heinz didn’t immediately respond to a request for comment on this story.

Bloomberg's Jen Bartashus reports.

Kraft Heinz Chief Executive Officer Carlos Abrams-Rivera spelled out that the company’s investment strategy has been to deploy its “resources to higher growth and higher-margin platforms to become a sauces and meals powerhouse” at the Consumer Analyst Group of New York conference in February.

“Any potential transactions will be consistent with our strategy,” Abrams-Rivera said last month at a Deutsche Bank conference, when asked about upcoming changes to its portfolio.

Kraft Heinz was formed in a 2015 merger orchestrated by 3G Capital and Warren Buffett’s Berkshire Hathaway Inc. The deal created a packaged-food behemoth with a stable of household names, but the company has battled inflation and consumers shifting away from processed foods, in part due to new weight loss drugs.

“They are sitting on this enormous portfolio of iconic brands, but broadly have been struggling with slow sales and declining profits,” said Nate Rosen, founder of Express Checkout, a newsletter on consumer packaged goods and retail.

Startup Competition

Meanwhile, startup food companies are appealing to younger consumers with savvy marketing, catchy packaging and health claims, according to Rosen.

“Not a single one of them will take over Kraft Heinz’s market share, but all of them together could make a dent,” Rosen said.

If Kraft Heinz does divide its brands, it could follow in the footsteps of the Kellogg Company, which spun off its cereal business as WK Kellogg Co and its snacking brands, including Pringles and Cheez-It, into Kellanova in 2023. Both are now on track to be acquired by closely held companies. Mars Inc. announced that it would buy Kellanova last August, while Italian candymaker Ferrero International SA agreed to purchase WK Kellogg last week.

“We expect other packaged food companies to follow this playbook, as it may offer a faster path to unlocking shareholder value,” said Arun Sundaram, senior vice president at CFRA. “Packaged food companies are increasingly turning to brand divestitures and corporate reorganizations, such as spinoffs, amid persistent sales weakness and underwhelming equity valuations across the industry.”

The value of deals in the consumer staples sector has risen by more than a third this year to $138 billion, data compiled by Bloomberg show, bolstered by food companies.

Bloomberg News reported Friday that Performance Food Group Co. has attracted takeover interest from US Foods Holding Corp., a potential deal that would create a food distribution company with combined sales of roughly $100 billion.

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