Introduction to Kraft Heinz Breakup

We break down complex business news to help you understand how money moves in Chicago and how it affects you.

Background of the Breakup

Kraft Heinz is splitting into two companies a decade after joining in a massive merger that created one of the biggest food companies on the planet. One of the companies, currently called Global Taste Elevation Co., will include shelf-stable meals and include brands such as Heinz, Philadelphia cream cheese and Kraft Mac & Cheese, Kraft Heinz said Tuesday. The other, currently called North American Grocery Co., will include brands such as Oscar Mayer, Kraft Singles and Lunchables. The names of the two companies will be released later.

Reasons for the Split

Kraft Heinz said in May it was conducting a strategic review of the company, signaling a potential split. The company in 2015 wanted to capitalize on its massive scale. But shifting tastes complicated those plans, with people gravitating to introduce healthier food options. Kraft Heinz and other food producers have shifted offerings to follow that trend. “Kraft Heinz’s brands are iconic and beloved, but the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas,” Miguel Patricio, executive chair of the company, said in a written statement.

History of the Merger

The path to the merger of Kraft and Heinz began in 2013, when billionaire investor Warren Buffett teamed with Brazilian investment firm 3G Capital to buy H.J. Heinz Co. The $23 billion deal was the most expensive ever in the food industry. 3G was also behind the formation of Restaurant Brands International — a merger of Burger King, Tim Hortons and Popeyes — and Anheuser-Busch InBev. It’s known for strict cost controls and zero-based budgeting, which requires all expenses to be justified each quarter.

Challenges Faced by the Company

The deal was intended to help Heinz, which was founded in 1869 in Pittsburgh, expand sales of its condiments and sauces. Heinz’s new owners also set about cutting costs, laying off hundreds of workers within months. At the same time Kraft, based in Chicago, sought for a partner after a 2011 split from its snack division, which became Mondelez International. In 2015, Buffett and 3G decided to merge Heinz with Kraft. The merger created the fifth-largest food and beverage company in the world, with annual revenue of $28 billion. Buffett and 3G each contributed $5 billion for a special dividend for Kraft shareholders.

Impact of the Breakup

But the combined company struggled, despite layoffs of thousands of employees and other cost-cutting measures. Even at the time of the merger, many consumers were shifting away from the kinds of highly processed packaged foods that Kraft sells, like Velveeta cheese and Kool-Aid. Kraft Heinz also had trouble distinguishing its products from cheaper store brands. At Walmart, a 14-ounce bottle of Heinz ketchup costs $2.98. The same size bottle of Walmart’s Great Value brand is 98 cents.

Future Plans

In 2019, Kraft Heinz slashed the value of its Oscar Meyer and Kraft brands by $15.4 billion, citing operational costs and supply chain problems. But many investors blamed the company’s leadership, saying its zeal for cost-cutting was hurting brand innovation. In 2021, Kraft Heinz sold its Planters nut business and its natural cheese business, vowing to reinvest the money into higher-growth brands like P3 protein snacks and Lunchables. But the company’s net revenue has fallen every year since 2020, when it saw a pandemic-related bump in sales. In April, Kraft Heinz lowered its full-year sales and earnings guidance, citing weaker customer spending in the United States and the impact of President Donald Trump’s tariffs.

Leadership and Headquarters

Carlos Abrams-Rivera will continue to serve as chief executive officer of Kraft Heinz and will become CEO of North American Grocery Co. once the separation is complete. Kraft Heinz said its board is working with an executive search firm to identify potential CEO candidates for Global Taste Elevation Co. Kraft Heinz has no plans to change its current headquarter locations in Chicago and Pittsburgh.

Conclusion

The breakup of Kraft Heinz into two separate companies marks a significant shift in the company’s strategy. By splitting into two companies, Kraft Heinz aims to simplify its structure and allocate capital more effectively. The move is expected to close in the second half of 2026. Shares of the company rose slightly before the market open.

FAQs

• Q: Why is Kraft Heinz breaking up into two companies?
  A: Kraft Heinz is breaking up into two companies to simplify its structure and allocate capital more effectively.
• Q: What are the names of the two companies?
  A: The two companies are currently called Global Taste Elevation Co. and North American Grocery Co., but the names will be released later.
• Q: What brands will each company include?
  A: Global Taste Elevation Co. will include shelf-stable meals and brands such as Heinz, Philadelphia cream cheese, and Kraft Mac & Cheese. North American Grocery Co. will include brands such as Oscar Mayer, Kraft Singles, and Lunchables.
• Q: When is the breakup expected to close?
  A: The breakup is expected to close in the second half of 2026.
• Q: Will the company change its headquarters locations?
  A: No, Kraft Heinz has no plans to change its current headquarter locations in Chicago and Pittsburgh.