A decade after merging and creating a global food giant, Kraft Heinz said early Tuesday that it planned to split into two separate companies.
It plans to spin off its slower-growing grocery business, which includes well-known brands like Oscar Mayer, Kraft Singles and Lunchables, into a new entity. The remaining company would house sauces, condiments and products with faster-growing sales, like Heinz ketchup, Philadelphia cream cheese and Kraft Mac & Cheese.
Most large food companies are struggling as consumers purchase less of what they sell. In some cases, the slowdown in spending is from consumers who, after two years of food inflation, are making tougher choices about where they spend their dollars in the grocery store. But many consumers also are veering away from so-called highly processed foods.
Executives at Kraft Heinz are betting that the company will be worth more to investors split into two separate entities.
That’s a reversal of the argument made a decade ago, when Kraft and Heinz combined in a merger that created one of the largest food companies in the world, with more than $28 billion in annual revenues and a plethora of household staples, from Kool-Aid to Velveeta.
That 2015 deal, which was put together by the Brazilian investment firm 3G Capital and Warren E. Buffett’s Berkshire Hathaway, was, in many ways, a gamble. The idea was that its Brazilian backers could run the brands more efficiently than traditional food industry executives. But aggressive cost-cutting contributed to the fading of many of the company’s offerings, at the same time as grocery stores were expanding their own brands.
In the past several years, Kraft Heinz has sought to remake its food empire and shift its focus to stronger performing products like Heinz ketchup and Grey Poupon. That effort has involved the sale of a number of its businesses, including part of its cheese business for $3.3 billion in 2020 and its nuts business to Hormel for $3.4 billion a year later.
But the company, like many of its peers, continues to face pressure as consumers veer away from packaged foods in favor of fresher options. Inflation has added to the pressure on shoppers, who have turned to cheaper, private label foods.
Kraft Heinz said in May it was looking at deals that might increase its performance.
The food giant reported in late July that global net sales fell nearly 2 percent in the second quarter of the year from the levels a year earlier. As the company bumped pricing up in several categories, particularly coffee, consumer demand for cold cuts, coffee, frozen snacks and powdered beverages fell, the company said.
The move would be the latest shuffle in the food industry as giants look for ways to bolster their underlying businesses and keep investors happy. The Kellogg Company spun out its cereal brands, including Frosted Flakes, Froot Loops and Rice Krispies in 2023, while holding on to its faster growing snacks business, renaming the company Kellanova.
Mars, the company behind M&M’s and Snickers, agreed last year to acquire Kellanova, in a deal valued at $35.9 billion.
Earlier this month, Ferrero, the Italian candy maker that sells Nutella and Tic Tacs, announced plans to buy the cereal business WK Kellogg as part of its efforts to grow its U.S. presence.
Lauren Hirsch is a Times reporter who covers deals and dealmakers in Wall Street and Washington.
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.
The post Kraft Heinz to Break Up Its Food Businesses appeared first on New York Times.
