31 Mar 2015 Understanding the Kraft-Heinz merger: ‘Sleepy food giants must wake up or be gobbled up’
Many of America’s largest food companies have been caught napping and lost touch with tastes as we’ve all become more choosy… here are a raft of articles commenting on the food story of the year, so far, and putting context and meaning to the massive Kraft-Heinz merger, and how it reflects on American capitalism and the massive shifts swirling around the world’s biggest packaged food players.
Buffett buys Kraft Foods: A big bite
Warren Buffett says he likes to buy companies that are easy to understand and are performing well. His latest deal, the $50-billion acquisition of Kraft Foods that was announced on March 25th, passes only one of those tests. Most people can get their heads around the slices of processed cheese and hot dogs that Kraft churns out — indeed Mr Buffett, known to favour plain fare, would probably like to get his lips round them, too. But as a business, Kraft is a bit of a mess.
Last year its revenues were stagnant and its volumes and profits fell. Its chief executive left in December. It generates 98.5% of its sales in the mature markets of America and Canada, where, the suspicion is, a new generation of healthier eaters no longer aches to scoff a Kraft Macaroni & Cheese, followed by a plate of Jello and washed down by a Capri Sun drink.
Kraft’s predicament is in large part a result of its turbulent ownership over three decades, in turn a testament to the hyperactivity of Wall Street’s dealmakers…..
The Economist: Read the full article
‘Sleepy food giants must wake up or be gobbled up’
For all the scary stats and gloomy predictions on obesity and diabetes, there is growing evidence from the big food companies that have been plying us with unhealthy fayre for the last few decades, that the world is slowly weaning itself off its addiction.
At the same time, an increasing number of us generally eat more healthily these days. It’s part of a revolution that is taking place across the western world as consumers shun the convenience food that for decades has dominated our diets, in favour of fresher, more natural fare.
Other changes are taking place in our eating habits too, which are having a profound effect on the way we all shop…..
This seismic shift has had a dramatic impact on the major supermarkets, who are now embroiled in a desperate scramble to regain lost ground. However, arguably the biggest losers from this change in eating and shopping habits are the world’s food giants whose packets, tins, and cartons have been shoved to the back of the supermarket shelves in favour of healthier offerings.
Many of America’s largest food manufacturers, companies like Kellogg, Campbell’s, General Mills, Pepsi, and even Starbucks and McDonald’s, who have dominated the food world for decades, or even generations, have been caught napping and lost touch with their customers as their tastes have evolved and they have become more choosy.
The Telegraph: Read the full article
The creepy reality behind the Heinz-Kraft mega-deal
Now, Heinz and Kraft are in a tough spot. They’re both in the commodities business: selling goods that meet everyday needs, but are hard to differentiate from one another. You can try different recipes, branding, or marketing, but at the end of the day ketchup is pretty much ketchup. This can create what business people bitterly refer to as “commodity hell” — a circumstance in which you can’t compete on anything but price. Everyone underbids each other until revenues begin to bump up against costs and profits vanish.
Kraft’s profits fell 62 percent to $1-billion last year, thanks to higher commodity costs and its employee benefit plans. Meanwhile, Heinz’s sales have been sliding in North America and elsewhere, and both companies have reportedly been hit by the cultural shift towards more natural or organic food products.
Faced with these challenges, you can understand companies retooling or even cutting down their size and operations. What’s less understandable is seeing them do this, not for the sake of maintaining jobs and productive economic activity, but for the sake of rich rentiers….
The Week: Read the full article
Cost-cutting expected after Heinz, Kraft merger
Analyst: “When [3G sees] something that isn’t working, they eliminate it … It’s a very healthy diet for the company, whether it’s in food, beverage or otherwise, and it does work”
When Kraft Foods Group merges with HJ Heinz, they will share a name, a central place in the American kitchen and two headquarters near Chicago and Pittsburgh. But that dual office structure may soon change, according to some industry watchers. If history is any guide, their new owners will wrest an expected $1.5-billion in annual cost savings by 2017 by removing duplicate operations, slashing perks such as the use of private jets, while scrutinizing even the most mundane expenses. “There is going to be a lot of headcount reduction,” said Bob Goldin, executive vice president of food consultancy Technomic. “You will see some portfolio pruning. They aren’t going to have two headquarters for long.”
FoxBusiness.com: Read the full article
Buffett’s junk food binge may not be over
Following Warren Buffett’s investment advice may be smart but nutritionists say that eating too many of the “junk-food” products made by companies he has invested in isn’t quite as wise. His move on Wednesday to inject Velveeta cheese, Jell-O, Lunchables, Oscar Mayer wieners, and Kool-Aid into his portfolio, stuffs an already amply supplied larder. His larder already included everything from Burger King’s Triple Whopper burgers, Coca-Cola soft drinks and Tim Horton donuts to See’s Candies and Dairy Queen ice cream Blizzards, as well as such Heinz brands as Tomato Ketchup, Ore-Ida fries, bagel bites and TGI Friday’s mozzarella sticks. Altogether, Buffett is assembling one of the biggest ranges of snack food brands in the world.
The Fiscal Times: Read the full article
The four challenges that turned Kraft Foods into a merger target
US consumers, driven by the millennial generation, are showing a stronger preference for natural and organic ingredients. That’ left American food giants like Kraft scrambling to respond…
Kraft Foods Group investors are cheering its plan to merge with HJ Heinz, but the deal followed years of sluggish growth and organizational challenges for the once-mighty food giant. Since its spinoff from Mondelez International in 2012, Kraft has been struggling to reignite sales in a mature US market. It’s also coping with a consumer shift toward more natural foods – a difficult transition for the maker of Velveeta, Jell-O and Lunchables. “It’s clear that our world has changed and our consumers have changed, but our company has not changed enough and certainly has not kept pace,” Kraft CEO John Cahill said last month. Here are four of the biggest headaches that Kraft Foods has faced in recent years…
Chicago Tribune: Read the full article
• Warren Buffett’s Kraft Deal Bad News for Struggling Kellogg and Campbell /TheStreet
• Kraft is a big mess. Here’s how the Heinz deal might help /Fortune
• Kraft’s Long and Complicated Deal-Making History /Wall Street Journal (blog)
• What the Kraft-Heinz deal means for food mergers /CNBC