Kraft brands seeking global growth with new Heinz merger
Kraft brands such as Kraft Macaroni & Cheese, Jell-O and Kool-Aid may be household names across the Atlantic, but so far no attempts have been made to push the brands across the globe. However, that could be about to change after yesterday’s merger deal between Kraft Foods Group and H.J. Heinz to form The Kraft Heinz company, now the fifth largest food and beverage firm in the world.
The newly formed company, financed by American business mogul Warren Buffett’s Berkshire Hathaway company and private equity firm 3G Capital, both of which bought Heinz in 2013, will have a revenue of roughly $28bn according to the two parties.
The deal makes the company the fifth largest food and beverage firm in the world and the third largest in North America, with eight brands worth over $1bn and five over $500m.
The companies have estimated that the merger will generate $1.5bn in cost savings to be implemented by the end of 2017 through sharing and synergising on best practices.
However, the key part of the deal could be its effect on the companies’ portfolio brands around the world.
While Heinz’ products, which include ketchup, sauces and frozen foods, largely have global awareness, Kraft’s brands have mainly been pushed in North America. The new company could provide a platform for Kraft’s brands to expand globally as it plans to increase investments in marketing and innovation.
In a statement from the two companies, Alex Behring, chairman of Heinz and managing partner at 3G Capital, said: “By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth.”
Heinz CEO Bernardo Hees, who will become CEO of the Kraft Heinz Company, added: “We are thrilled about the unique opportunities this merger will create for our consumers worldwide, as well as our employees and business partners. Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers love.”
Meanwhile, analysts have suggested this may be the first of many mergers to come in the near future throughout the food industry.
Harry Balzer, chief food industry analyst at market research firm NPD, told The Guardian: “This is a very difficult time to be in the food business as consumers change the way they eat. It seems we will see a number of these mergers as a way to create efficiencies.”
It remains to be seen how the deal could affect Mondelez, Kraft’s global snacks business, which makes brands including Oreo, Cadbury and Milka.
It will be interesting to see the impact of this acquisition and how the merged business operates in the future. It is to be hoped that the management team understands the opportunities that exist for the brands involved and that it focuses on building a better business rather than focusing only on the financials and cutting costs. The best private equity initiatives require rigorous and pragmatic business plans that will generate return on investment for the brands. These plans need to be flexible, agile and capable of responding to the rapidly changing world around us.
David Edwards, Big River Solutions