{"id":34216,"date":"2025-07-14T05:57:23","date_gmt":"2025-07-14T05:57:23","guid":{"rendered":"https:\/\/financialrush.com\/?p=34216"},"modified":"2025-07-14T05:57:23","modified_gmt":"2025-07-14T05:57:23","slug":"lessons-from-the-kraft-heinz-cul-de-sac","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=34216","title":{"rendered":"Lessons from the Kraft-Heinz cul-de-sac"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=727cc4a8-cbb5-470e-83ed-e005289d1f13\"><\/iframe><\/div>\n<div id=\"article-body\">\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<div class=\"n-content-layout__slot\">\n<p>This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=584573e552860d000491cdb8\" data-trackable=\"link\">here<\/a> to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium <a href=\"https:\/\/www.ft.com\/manage\/subscription\/change\/713f1e28-0bc5-8261-f1e6-eebab6f7600e?segmentId=5d1c2689-3304-f81f-a9e5-b3e96e93c176\" data-trackable=\"link\">here<\/a>, or <a href=\"https:\/\/www.ft.com\/newsletters\" data-trackable=\"link\">explore<\/a> all FT newsletters<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p>Good morning. Will Trump follow through on the new tariffs he <a href=\"https:\/\/www.ft.com\/content\/a4078c2b-3f59-4711-95b6-f20bfd69bc91\" data-trackable=\"link\">threatened<\/a> last week? We don\u2019t know, but our guess is that, unless trade partners offer some flashy concessions, he will. The markets are all but laughing at Trump\u2019s threats now, and this seems likely to stiffen his resolve. The real test comes later. If there is a sustained negative market response to the tariffs, how long will Trump hold the line? Our prediction remains: not long. Send us your thoughts: <a href=\"https:\/\/www.ft.com\/content\/mailto:unhedged@ft.com\" data-trackable=\"link\">unhedged@ft.com<\/a>.\u00a0<\/p>\n<h2 id=\"kraft-heinz\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">Kraft-Heinz<\/h2>\n<p>What begins with financial engineering ends with it, too. Kraft-Heinz, the packaged food conglomerate put together by 3G Capital and Berkshire Hathaway, is considering a break up. From <a href=\"https:\/\/www.ft.com\/content\/4092d893-4bf9-4d5b-b246-7e10c3f5c771\" data-trackable=\"link\">the FT<\/a>:\u00a0<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>The decision comes after the company\u2009.\u2009.\u2009.\u2009in May said it was considering several options to reverse its persistent underperformance\u2026<\/p>\n<p>One of the plans being considered includes spinning off much of its traditional grocery portfolio\u2009.\u2009.\u2009.\u2009The remaining part of the business, which would include Heinz condiments, Grey Poupon mustard and a broader slate of sauces<\/p>\n<\/blockquote>\n<p>Maybe I\u2019m missing some subtleties, but this looks like breaking up the two companies on exactly their original lines. What are the lessons from this twelve-year round trip?<\/p>\n<p>When Berkshire and 3G bought Heinz in 2013, I <a href=\"https:\/\/www.ft.com\/content\/4571d28c-76d0-11e2-b925-00144feabdc0\" data-trackable=\"link\">wrote<\/a> the following in the Lex column:<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>Let us all give Warren Buffett a stern lecture about overpaying. The Sage of Omaha needs a good talking-to after Berkshire Hathaway and 3G Capital agreed to pay $72.50 a share, or $28bn including debt, for Heinz. That is almost a 20 per cent premium to the all-time high the packaged food company\u2019s stock recently hit and amounts to 21 times this year\u2019s earnings\u2009.\u2009.\u2009.\u2009\u00a0<\/p>\n<\/blockquote>\n<p>Heinz is an excellent, high returning, cash generating, if slow growing company, I argued. But that was reflected in the price before the 20 per cent premium was tacked on. And the room for restructuring and reinvention at a packaged food company is limited. \u201cThat is not a ketchup stain on your reputation, Mr Buffett,\u201d my note concluded. \u201cIt looks more like blood.\u201d<\/p>\n<p>Boy oh boy did I get some salty emails about that one. No one likes it when you criticise the patron saint of American capitalism. And for a while, it looked like Buffett was once again right while I was spectacularly wrong. Just after the all-stock Heinz-Kraft <a href=\"https:\/\/www.ft.com\/content\/611797ba-d303-11e4-b7a8-00144feab7de\" data-trackable=\"link\">merger<\/a> in 2015 (Kraft shareholders got a 30 per cent premium in that one) Lex had <a href=\"https:\/\/www.ft.com\/content\/c657d7ba-d3d6-11e4-99bd-00144feab7de\" data-trackable=\"link\">this<\/a> to say:\u00a0<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>It was easy to be sceptical: Warren Buffett and 3G paid a super-premium price to buy Heinz two years ago. It was hardly growing, and how much scope for change is there at a well run packaged foods company?\u00a0<\/p>\n<p>Well, the sceptics can open their family-sized can of Heinz humble pie and dig in. Kraft\u2019s shares traded for $83 on Thursday, implying that the Buffett\/3G stake in Heinz-Kraft is worth $41bn. They invested $8bn in Heinz originally, and then contributed a further $10bn to the Kraft deal.\u00a0<\/p>\n<\/blockquote>\n<p>The key trick was sacking a fifth of Heinz staff. Profits rose by a third. That plus a lot of financial leverage worked well, and the share price of the combined company suggested the same trick would work again with Kraft. It did not.<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A06821a08-3fc4-40eb-a1f7-45446540e58f?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A06821a08-3fc4-40eb-a1f7-45446540e58f?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A06821a08-3fc4-40eb-a1f7-45446540e58f?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A06821a08-3fc4-40eb-a1f7-45446540e58f?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A06821a08-3fc4-40eb-a1f7-45446540e58f?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A1d54c5a7-bdaa-4458-babf-2e4bcaabc518?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A1d54c5a7-bdaa-4458-babf-2e4bcaabc518?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A1d54c5a7-bdaa-4458-babf-2e4bcaabc518?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=3 3x\" width=\"1500\" height=\"2000\"\/><\/picture><\/figure>\n<p>That $83 price turned out to be a high point, and the shares trade at a third of that now. Berkshire took a $3bn impairment charge on their investment in 2019 and Buffett admitted <a href=\"https:\/\/www.ft.com\/content\/c6d7dd12-38f8-11e9-b72b-2c7f526ca5d0\" data-trackable=\"link\">overpaying<\/a> for Kraft; 3G sold the last of their stake in 2023.\u00a0\u00a0<\/p>\n<p>What went wrong? Part of the story is that consumers moved away from many Kraft-Heinz products (ketchup giving way to salsa, and so on) and away from big established food brands to niche brands. Another part is big retailers wrestling pricing power away from food brands (it is worth noting that sales growth was stalling at both companies <a href=\"https:\/\/www.ft.com\/content\/a3843212-3fa9-11e5-b98b-87c7270955cf\" data-trackable=\"link\">even before<\/a> the deal was closed). But the performance of other big packaged food groups has not been as poor as Kraft-Heinz\u2019s. <\/p>\n<p>When Kraft was riding high, the consensus was that the Kraft-Heinz tie up was a mere proof of concept (or rather further proof of concept, after 3G\u2019s success rolling up beer companies). The expectation that more brands would be absorbed and improved was built into the price. A <a href=\"https:\/\/www.ft.com\/content\/d846766e-f81b-11e6-bd4e-68d53499ed71\" data-trackable=\"link\">failed<\/a> 2017 bid for the much larger Unilever let much of the air out of that idea; a 2019 writedown and SEC <a href=\"https:\/\/www.ft.com\/content\/ed8720fe-268f-4622-a4cb-7a23092bf42d\" data-trackable=\"link\">investigation<\/a> into cost accounting let out the rest.<\/p>\n<p>Less clear is the degree to which 3G\u2019s relentless focus on costs killed revenue growth. Nominal sales have been flat since 2016 \u2014 a remarkable feat given sharp post-pandemic inflation in food prices. And the wild expansion in margins that caused such excitement in 2017 has faded considerably:<\/p>\n<div class=\"n-content-layout\" data-component=\"flourish\" data-component-id=\"24219790\" data-component-type=\"flourish-in-article\">\n<figure class=\"n-content-picture n-content-layout__container\"><a href=\"#24219790\"><picture data-asset-type=\"flourish\" data-flourish-id=\"24219790\" data-flourish-type=\"visualisation\">\n<div id=\"24219790\" class=\"cp-message o-message o-message--inform o-message--notice\" data-o-component=\"o-message\">\n<div class=\"o-message__container\">\n<div class=\"o-message__content\">\n<p class=\"o-message__content-main\">Some content could not load. Check your internet connection or browser settings.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fpublic.flourish.studio%2Fvisualisation%2F24219790%2Fthumbnail%3FcacheBuster%3D973595?source=cp-content-pipeline&amp;fit=scale-down&amp;quality=highest&amp;width=2626&amp;dpr=1\" alt=\"\"\/><\/picture><\/a><\/figure>\n<\/div>\n<p>I don\u2019t know to what extent cost cutting hurt growth while creating a margin boost that was unsustainable, and to what extent the trouble was caused by other factors internal or external to Kraft-Heinz. Perhaps readers who know the food industry better than I do will have thoughts. But I am confident that mergers, break-ups, and cost-cutting campaigns are secondary sources of shareholder value at best. They can, of course, cause share prices to burst upward in the short term. Over the long-term, though, they can only serve as complements to primary sources of value, such as innovation and high barriers to entry. In the absence of the sales growth that those things create, restructuring and cost control are largely inert.\u00a0<\/p>\n<p>Of course, dealmaking in particular has great appeal to the people in charge of it. This includes not just the investment bankers who, as with Kraft-Heinz, charge fees for both the putting together and the taking apart. CEOs and private equity managers, too, can get rich by timing their entries and exits. Bosses and financial engineers have almost always come and gone before the lifecycle of a product or strategy has played out (Buffett is an honourable exception here).\u00a0<\/p>\n<p>The lesson from Kraft-Heinz is that, when it comes to the purely financial management of a company, long-term investors should not hope for too much.\u00a0<\/p>\n<h2 id=\"one-good-read\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">One good read\u00a0<\/h2>\n<p>Does the US have <a href=\"https:\/\/www.ft.com\/content\/95a77bb1-10c5-4dbc-ad8c-213c17131332\" data-trackable=\"link\">Dutch disease<\/a>?<\/p>\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<h3 id=\"ft-unhedged-podcast\" class=\"n-content-heading-3 o3-editorial-typography-subheading\">FT Unhedged podcast<\/h3>\n<div class=\"n-content-layout__slot\">\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fdfee3b6d-9e31-411d-9bdf-ba4b484346d9.jpg?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1\" alt=\"\" data-image-type=\"image\" loading=\"lazy\"\/><\/picture><\/figure>\n<\/div>\n<div class=\"n-content-layout__slot\">\n<p>Can\u2019t get enough of Unhedged? Listen to <a href=\"http:\/\/unhedged.ft.com\/\" data-trackable=\"link\">our new podcast<\/a>, for a\u00a015-minute dive into the latest markets\u00a0news and financial\u00a0headlines, twice a week.\u00a0Catch up on past editions of the newsletter\u00a0<a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=584573e552860d000491cdb8\" data-trackable=\"link\">here<\/a>.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<h3 id=\"recommended-newsletters-for-you\" class=\"n-content-heading-3 o3-editorial-typography-subheading\">Recommended newsletters for you<\/h3>\n<div class=\"n-content-layout__slot\">\n<p><strong>Due Diligence<\/strong> \u2014 Top stories from the world of corporate finance. 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Sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=56657d10e4b04e04251004fd\" data-trackable=\"link\">here<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/727cc4a8-cbb5-470e-83ed-e005289d1f13\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this&hellip;\n","protected":false},"author":5,"featured_media":34217,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-34216","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=34216"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34216\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/34217"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=34216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=34216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=34216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}