For generations, Cool Whip topped pies. Tropical punch Kool-Aid was served at children’s birthday parties. And an Oscar Mayer bologna sandwich was a lunchbox staple.
But in recent years, the big packaged food brands that dominated American pantries and refrigerators for decades are struggling as consumers spend less on brand-name cookies, spaghetti sauce and cream cheese.
The companies are grappling with a number of stressors. Shoppers, feeling pinched by higher food prices over the past two years, are cutting back or trading down to less expensive private labels. Others are eschewing highly processed foods for healthier, more natural items. And the continued rise of weight-loss drugs like Ozempic are reducing cravings for sugary and salty snacks.
Among the debates consuming executives in boardrooms of U.S. food companies is which brands consumers are buying and avoiding — and how large and lasting the impact of the weight-loss drugs will be, said Charlie Hadid, Morgan Stanley’s head of consumer investment banking in the Americas.
As growth in the packaged goods industry stalls, its stocks have lagged. While the broad S&P 500 index has gained 40 percent over the last two years, an index of food and beverage stocks has flatlined.
To jump-start growth and satisfy investors, companies are starting to re-engineer some of the big deals of the past, banking on a smaller-is-better, or narrower-is-better, strategy.
This month, the Italian candy company Ferrero announced that it would acquire the cereal giant WK Kellogg in a $3.1 billion deal. Kraft Heinz, a $26-billion-a-year hodgepodge of condiments, luncheon meats and frozen potato brands, is weighing its own breakup, two people familiar with the situation said.
“It’s an admission that things have to change in one way or another, whatever that change may be,” Peter Galbo, an analyst at Bank of America, said. “Because the fundamental story has not improved at the rate they thought it would.”
Consumer behavior is shifting at a tough time for the food and beverage industry. Ingredient and labor costs remain high. The on-again-off-again tariff situation in the Trump administration is disrupting supply chains and could send costs higher. Likewise, new pushes by the administration — such as dumping artificial colors for natural ones in foods and beverages — are creating uncertainties and potentially greater expenses.
And the food giants are watching small, nimble companies that make healthier food and beverages gain consumers’ attention through social media and other direct marketing campaigns.
“The big brands are going to have to really fight hard to figure out how to stay relevant,” said Kelly Haws, a professor of marketing at Vanderbilt University. “The value of some of these brands has decreased dramatically, and they may have to reinvent themselves.”
Some of the big food companies are trying to evolve, at least on the margins. Some are acquiring the fast-growing, healthier brands. Many have pledged in recent weeks to dump artificial colors. In mid-July, executives at PepsiCo told Wall Street analysts and investors that it would add protein and fiber to some of its snacks and beverages.
Price increases by the food giants over the last couple of years kept revenues growing. But PepsiCo, which announced plans this year to acquire Poppi, a prebiotic soda brand, for $1.95 billion, has reported flat or falling demand for its snacks, bars and beverages in North America since 2022. General Mills, home to brands like Cheerios and Betty Crocker, recorded four straight years of declines in volume.
The consumer packaged foods industry was sputtering even before the pandemic, with revenue growing about 2 percent annually from 2012 to 2019, according to McKinsey. During that time, mergers and acquisitions in the sector picked up as companies tried to cut costs and gain leverage with retailers.
Kraft spun out its faster-growing snack business in 2012 and renamed it Mondelez. Then, in 2015, Kraft merged with Heinz to create the third-largest food company in the country.
A decade later, its stock has lost more than 60 percent of its value, a far worse performance than rivals like Campbell’s and General Mills. For the last three years, revenue at Kraft Heinz has stumbled as a result of falling volume for its foods, beverages and desserts.
The deal was cobbled together by 3G Capital, a Brazilian private equity firm that brought rigor from its experience in railroads to cull a bloated food and beverage industry. But after a failed attempt to acquire Unilever in 2017, Kraft Heinz was unable to land another megadeal that could help fuel its cost-cutting strategy.
Warren E. Buffett’s Berkshire Hathaway was 3G’s partner in the Kraft Heinz deal and in Burger King’s acquisition of Tim Hortons. Mr. Buffett later conceded in 2019 that he had “overpaid” for Kraft and underestimated the power of grocers like Walmart. Analysts who once lauded 3G’s aggressive approach to cost-cutting began to question whether it also had the ability to nurture and expand brands — questions amplified when the company wrote down the value of once-prominent brands like Kraft and Oscar Mayer by more than $15 billion in 2019.
“It was a disastrous 10-year period for the company,” said Emilie Feldman, a professor of management at the Wharton School at the University of Pennsylvania. “You can’t innovate and cost-cut at the same time.”
By the end of 2023, 3G had thrown in the towel. It sold its remaining stake in the company and no longer held a seat on the boards. Early last year, Kraft Heinz put in place its third chief executive in the past decade, Carlos Abrams-Rivera, a longtime food executive.
A spokeswoman for Kraft Heinz said the company had shifted its focus to creating new products to meet changing consumer preferences. It is rolling out new flavors of its popular Kraft Mac & Cheese, including jalapeño and ranch; mixed its Crystal Light drink with vodka for a canned, ready-to-drink cocktail; and is offering its Capri Sun pouches in larger bottles.
But Kraft Heinz is also weighing a deal that, in some ways, would undo the 2015 merger.
One possibility might be to spin out its slower-growth grocery business — staples like Kraft Mac & Cheese, Oscar Mayer and Velveeta — leaving it with a stronger portfolio that includes condiments and sauces, like Heinz ketchup and Grey Poupon mustard.
The two people familiar with the situation, who requested anonymity because the deliberations are confidential, stressed that no decision had been made.
“As announced in May, Kraft Heinz has been evaluating potential strategic transactions to unlock shareholder value,” a company spokeswoman said in a statement. “Beyond that, we do not comment on rumors or speculation.”
A split that separated growing brands from laggards proved to be successful for Kellogg. In the fall of 2023, it spun out its increasingly popular snacks like Pringles and Cheez-It crackers into a new company, Kellanova, while breakfast cereals like Froot Loops and Rice Krispies were tucked into WK Kellogg.
Last August, the candy giant Mars agreed to buy Kellanova in a deal valued at nearly $36 billion, a 44 percent premium over where Kellanova had been trading. And Ferrero’s $3.1 billion agreement to buy WK Kellogg is about 40 percent above where shares had been trading.
“I think for Kraft Heinz, if it splits, it’s more about unlocking a higher multiple than what it has now,” said Erin Lash, an analyst at Morningstar.
“When Kellogg’s broke up, it said the different parts would benefit from focusing on the core businesses,” Ms. Lash said. Instead, she noted, both entities wound up being acquired by privately held companies at significant premiums, ultimately a win for investors.
Julie Creswell is a business reporter covering the food industry for The Times, writing about all aspects of food, including farming, food inflation, supply-chain disruptions and climate change.
Lauren Hirsch is a Times reporter who covers deals and dealmakers in Wall Street and Washington.
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