Kraft Heinz Co. KHC 0.31% differs with a large part of its cheese business, a sign of the challenges facing food companies, the extent of which complicated operations such as the coronavirus pandemic drove an unprecedented demand.
CORONAVIRUS PANDEMI MAY PERMANENTLY CHANGE BUYER
Kraft Heinz said Tuesday it had entered into an agreement to sell its U.S. natural cheese business and a blend of other cheese brands in North America and internationally to France̵
The Wall Street Journal first reported that the sale was imminent earlier Tuesday. The producer of Heinz ketchup and Oscar Mayer delicacies, among many other foods, said the sale is part of the plan to simplify its business and focus on brands that have the best potential to resonate with contemporary consumers.
“We walked away from the consumer,” Kraft Heinz Chief Growth Officer Nina Barton said Tuesday at a virtual meeting with investors. “We’re rebuilding the connection.”
CENTURY 21 FILES FOR BANKRUPTCY, TO CLOSE ALL STORES
Sales of groceries, including packaged foods, have risen during the coronavirus pandemic as consumers have stockpiled their pantry and switched to eating mostly at home. However, some established companies have lost market share even though their sales have increased because they can not keep up with the unexpected demand. And the sudden need for more cleaning supplies, protective equipment and delivery carts cut into their profit margins.
Kraft Heinz had just begun a revision of its portfolio of dozens of brands when the pandemic hit. While Kraft Heinz struggled to make enough macaroni and cheese to meet demand, competitors gained ground, such as General Mills Inc. with its Progresso soup and Betty Crocker baking mixes. The pandemic reinforced a theme emerging from Kraft Heinz’s challenges since the company was set up in a merger in 2015: bigger is not always better.
WHOLE FOOD OPENS FIRST ONLINE ONLY Grocery store in BROOKLYN
Nestlé SA, Unilever PLC and other major food producers have also made significant divestitures in recent years to better focus their activities.
Kraft Heinz has struggled since the merger with consumers who have switched to foods that seem more trendy or healthier, and to cheaper store brands. The pressure to revive sales has dampened its ability to improve profitability. This is reflected in a stock that has lost more than half its value since the early days of the merger, giving it a market value today of around $ 40 billion, not much more than its debt burden of nearly $ 30 billion. Some revenue from the sale to Lactalis is earmarked for debt reduction, the company said.
Kraft Heinz said at its investor meeting that it plans to cut $ 2 billion in costs over five years and return to the strategy that inspired the company’s formation in the merger five years ago. It starts with $ 350 million to $ 400 million in gross savings this year.
Kraft Heinz’s shares rose 0.3% Tuesday to $ 31.97.
MORE THAN 20% OF DELIVERY OF FOOD CUSTOMER MEETS PROBLEMS WITH ORDERS
Lactalis, a close-knit global dairy company based in France, produces brie, ricotta and other cheeses in the United States and sells them under brands including President.
The company entered the United States about 40 years ago and has been in an expansion tournament and acquired Stonyfield organic yogurt from Danone SA in 2017 in a deal worth $ 875 million.
Adding the Kraft cheese business would further increase the company’s footprint at a time when the demand for groceries is higher than ever in the midst of the coronavirus pandemic.
Sales include Kraft shredded and blocks of cheese and the Cracker Barrel brand in the US, Breakstone’s cottage cheese and sour cream and some other assets. Kraft Heinz will store Philadelphia cream cheese, Velveeta, Cheez Whiz and Kraft Singles in the United States. It will also maintain its macaroni and cheese business worldwide.
The brands that Kraft Heinz sells had about 1.8 billion. $ In sales in the past year, which represents approximately 7% of the company’s annual revenue.
In 2018, Kraft Heinz agreed to sell its Canadian natural cheese business to Parmalat for over $ 1 billion. $.
Sales for Lactalis come as Kraft Heinz reorganizes its business under six new platforms, which they say are more focused on what consumers want, such as more convenient meals and snacks, instead of 55 different grocery categories. The new approach, executives said, will help the company be more agile and innovate more efficiently.
In the years following the merger, Kraft Heinz cut costs to generate approx. 1.7 billion Dollars in net savings. Its sales growth and market share suffered.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
It contributed to several of its biggest brands losing value. Since February 2019, Kraft Heinz has written down the value of its brands by approx. 20 billion $.
Kraft Heinz CEO Miguel Patricio said the company, which is partly owned by Brazilian investment firm 3G Capital, was too focused on cost reductions and made short-term decisions under its former management. “We are changing our thinking,” he said in an interview.
Last year, Mr. Patricio over Kraft Heinz after several years as Chief Marketing Officer at Anheuser-Busch InBev SA, another company in which 3G’s partners are invested.
Mr. Patricio said Kraft Heinz will be more strategic on how it reduces costs and will invest more of the savings in marketing its brands, rather than passing it all on to the bottom line, as the company did in the past.
Do we need to reduce margins to grow brands? The answer is no, ”he said.
RBC Capital Markets LLC was Kraft Heinz’s financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as its legal advisor. Perella Weinberg Partners was Lactalis’ financial advisor, and Dentons acted as legal advisor.
GET FOX BUSINESS ON SPEED by clicking here