When Kraft and Heinz merged, the aims were sky-high, but six years down the line the ambitious ‘buy and build’ strategy appears to have failed. With the sale of its nut division, the group is now retreating even further. It is a tale with quite a few Icarus moments.
Dandy peanuts
Almost to this day, six years after Kraft Heinz was founded by investment guru Warren Buffett and Brazilian investment fund 3G in 2015, the news has arrived of the food giant selling its nut division – best known for Planters dandy peanut. They are selling it to industry peer Hormel Foods.
The latter is putting a rather generous sum of 3.35 billion dollars (2.76 billion euros) on the table. For Hormel, already active in the nut business with its peanut butter brand Skippy, the takeover is obviously strengthening the existing activities.
And that is precisely the weak spot of the house that Buffett and 3G have built with Kraft Heinz in recent years: of course, it is primarily based on the two brands under the same name, but the aggressive takeover strategy that the company conducted led to too many smaller compartments, which did not reinforce each other sufficiently and which resulted in a lack of focus.
Failed bid for Unilever
It should not come as a surprise that Kraft Heinz acted in this way. The Brazilians of 3G had previously seen the same formula – to increase scale through bold acquisitions and then squeeze out profits by ruthlessly chasing cost savings and synergies – at AB InBev, which grew at lightning speed from the modest multinational InBev to the world’s largest brewer today.
In 2017, this translated into a very bold attempt to take over the much larger Unilever. Unilever was a lot bigger than Kraft Heinz, yet the latter put about 120 billion euros on the table. However, this proposal got rejected by Unilever’s board of directors. When then British Prime Minister Theresa May also began to meddle in the matter, Kraft Heinz had to back off. Afterwards, rumours of Kraft Heinz setting its sights on Danone circulated, but this never materialised into an official bid.
Long decline
It was the beginning of a long decline. Around the time of the bid on Unilever, Kraft Heinz shares peaked at just under 97 dollars. Today you would pay around 35 dollars a share. In the years that followed, Kraft Heinz plodded on – although plodding might be a too derogatory term for a food giant of that size. But in the boardroom, it became clear that something had to be done.
In 2019, steps were taken. CEO Bernardo Hees had to pack his bags, and the former marketing director of (yes, indeed) AB InBev got the job. The man, Miguel Patricio, quickly made a clean sweep. After accounting shuffles, no less than 15 billion dollars were written off on some brands that did not function as desired.
From now on, Patricio will concentrate on the core business: flavourings, ready meals and snacks. In September last year, the cheese division was therefore sold to Lactalis for the equivalent of 2.6 billion euros. And now it is the Planters nuts’ turn.
Food is not beer
It would be too harsh to say that the owners of Kraft Heinz have blundered. But, copying an acquisition strategy from a company strictly dedicated to one specific product – AB InBev Chief Executive Carlos Brito always made it clear he had no appetite for adventures beyond beer – to a company trying to position itself in a broader food segment is a different matter.
Buffett and 3G seem to have underestimated the complexity of embarking on the Kraft Heinz adventure in 2015. Perhaps, as the FT also pointed out, they are better at negotiating a good price on a sale than they are at acquiring new business.
