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July 14, 2025
Can Big Food Learn From Kraft Heinz’s $57 Billion Strategic Lesson?
The Situation
A recent Wall Street Journal exclusive revealed that Kraft Heinz is preparing to separate its grocery business (including Kraft mac and cheese, Oscar Mayer meats, and Maxwell House coffee) into a new $20 billion entity, while retaining faster-growing condiments and sauces like Heinz ketchup and Grey Poupon mustard.
Since the Warren Buffett and 3G Capital-orchestrated merger in 2015, Kraft Heinz stock has fallen over 60%, erasing $57 billion in market value. The company’s zero-based budgeting approach—3G’s signature cost-cutting strategy, which had worked brilliantly at AB InBev and Burger King—failed spectacularly in the packaged foods category.
The timing couldn’t be more relevant for retailers and consumer brands. As inflation-weary consumers increasingly seek deals and switch to store brands, big food companies face a perfect storm: heightened government scrutiny of processed foods, the rise of weight-loss drugs that reduce consumption, and accelerating consumer preferences for fresher, healthier fare.
The Strategic Insight
The deeper lesson isn’t about operational excellence versus innovation—it’s about strategic sequencing. The same 3G playbook that worked at AB InBev failed at Kraft Heinz, not because of fundamental category differences, but because of timing.
At AB InBev, 3G established operational excellence before the beer industry’s major innovation wave hit. Since 2015, beer has seen massive innovation: AI-driven brewing, 26% annual growth in non-alcoholic beer, and format experimentation. But this innovation pressure emerged after 3G had already achieved cost efficiencies, allowing savings to fund new capabilities.
Kraft Heinz faced the opposite scenario: They tried to implement efficiency measures while already facing decade-old innovation pressure from the clean label movement, health consciousness, and fresh food trends that began in the early 2000s.
The Retail Connection
For retailers, the Kraft Heinz story raises critical questions about the value of brand partnerships. Should retailers double down on struggling national brands offering deeper trade investments, or accelerate private label development in categories where brands are cutting innovation investment?
The planned separation also creates opportunities. A focused condiments company might invest more heavily in premium innovation, while a value-oriented grocery entity could become a more predictable partner for price-sensitive categories.
Discussion Questions
Does the Kraft Heinz breakup signal that consolidation is no longer a value-creating strategy for Big Food, or does this represent a unique execution failure that doesn’t invalidate the strategic benefits of scale and portfolio diversification?
Should consumer brands prioritize operational excellence or innovation investment when facing margin pressure? How do you sequence these competing demands?
Kraft Heinz is essentially admitting that different product categories require fundamentally different strategies. When does portfolio simplification create more value than integration synergies?
With store brands gaining ground during inflation, how should national brands balance cost reduction with the innovation needed to maintain differentiation?
The case highlights how quickly consumer preferences can shift. How should retailers and brands build “consumer sensing” capabilities to identify preference changes before they become existential threats?
As national brands struggle with this innovation-efficiency tension, what role should retailers play in supporting brand partners versus accelerating the shift to private label?
Poll
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Peter Charness
Retail Strategy - UST Global
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Neil Saunders
Managing Director, GlobalData
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The grocery landscape has been tough for a while, with volume growth in decline. This means the big food firms are looking for ways to maximize the value of their businesses. In the case of Kraft Heniz, this means creating two businesses – one with faster growing products like sauces and the other with the slower growing processed foods. The thinking is that the valuation of the two separate entities would be more than the current combined valuation of Kraft Heinz.
The company is not alone. Sluggish growth in CPG is now stimulating more corporate activity (mergers, acquisitions and demergers) to optimize growth and returns for investors. Mars/Hershey, Ferrero/Kellogg, and so on, are all variations on the theme. Of course, one could say this is the equivalent of shuffling deckchairs on, if not the Titanic, a slow seafaring vessel!
Your point about optimizing returns is spot-on, and this particular move suggests big food is finally learning that category strategy beats financial engineering. The breakup creates two distinct value propositions, acknowledging that ketchup and mac & cheese require fundamentally different strategic approaches.
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What lesson should be learned? That consolidations are often frauds, perpetuated by giant egos and vested interests – banks and consultants – that push them because they make money to do so. Well we already know that, don’t we? The question isn’t really can it learn, it’s will it? I doubt it.
That is why the deal was done in the first place, and those interests will win again in the break-up.
I get why GE separates Health Care, and Aerospace into separate companies, but frankly separating different same branded food products escapes me. I think it’s a hopeful theory that multiple parts will create a higher valuation. It also creates multiple legal, finance, IT, and logistics costs, which are not unsubstantial items either.
Peter, yes, you create redundancies, but you also unleash category-specific innovation capabilities that were being starved under the efficiency-first model. The condiments business can now pursue premium positioning while the grocery entity optimizes for value—two strategies that were pulling the company in opposite directions.
The crucial question for retailers: Do you double down on these newly focused entities, or accelerate private label development while they’re distracted by the separation?
This will be fascinating to watch. Large CPGs have gone through multiple consolidations and deconsolidations over the years with multiple new brand houses appearing in the past 10 years – Mondelez, Haleon, Kenvue, Kellanova….
Much of this has come from the need to focus on specific markets or approaches because they need to be handled differently. The latest example is Unilever spinning off its ice cream division – ice cream having unique and very different operational and distribution challenges to the rest of Unilever’s portfolio.
I recall when P&G merged with Gillette, commentators suggested this was to provide additional negotiation power with the likes of Walmart. If this was true, perhaps things have changed and ‘category killer’ brands are essential for retailers to stock command even more power now.
The “see-sawing” of business strategies continues…
Driven not by marketing strategies or even corporate strategy, but by the opportunities for the financial community to make a buck.
Yesterday, when I read that this would be a RetailWire topic, I tried to find what I wrote when the merger was announced. I couldn’t find it, but I am sure it was something like this: it’s all about the money to be made on the financial side of the deal, and the marketing strategy hype is just an excuse. It wasn’t a brilliant comment. Eighty percent of M&A deals fail to meet the expectations of stakeholders and are beneficial for those involved in financing.
The idea that there is some corporate strategy that can market both Gillette and Pampers is ludicrous, or to put it another way, I believe that hot dogs and ketchup are a lot more similar than razors and diapers. That is why we have brand managers. If a company can’t focus on its fastest-growing brands and mature brands separately, it is just poor management.
As Neil noted, the value of the two companies will be greater than the value of this combined company. That is what history tells us.
Regarding the question: “As national brands struggle with this innovation-efficiency tension, what role should retailers play in supporting brand partners versus accelerating the shift to private label?” Why would any retailer support struggling brands? The retailers’ job is to support their customers and understand what the customers’ needs are.
It is odd that Heinz is behind the curve on the “pure foods” movement as that’s what made them such a powerhouse and trusted brand name at the beginning of the 20th century – removing preservatives, massive R&D into cooking, bottling, and sanitation, even the clear bottle and the unique cap for ketchup.
I don’t view innovation and operational efficiency as necessarily at odds with one another. It’s not necessarily one priortized over the other. CPG products can have a really long life…really long…so the impetus to change and evolve isn’t on the same level as apparel, for instance. So I’ll use apparel to expand on that. The apparel business has the full range of life cycles and shelf lives, from Basics with 12 month shelf life and possibly years in total, to fashion with weeks or months of shelf life, never to be repeated. Brands can get reeeaaallly efficient at producing Basics, even when it means fabrics and fit change over time. But at the fashion level, it’s not about efficiency at the production level. Producing short runs in tight calendar windows is never going to be efficient like production in Basics can be efficient. Efficient in fashion is having the wisdom to understand the importance of 5R content. RIGHT product at the RIGHT price at the RIGHT place at the RIGHT time and in the RIGHT quantities. The efficiency is not at the production level, but in NOT overbuying, in NOT putting the wrong product in the wrong place. In the bigger picture, it will be more financially efficient to pay high production costs for shorter runs on a tighter calendar. AND be more data driven in the process. The right metric for measuring the right efficiency has to be identified. Pure operational efficiency doesn’t necessarily deliver 5R content. Innovation has to be an integral ingrediant, and innovation isn’t always efficient.
Agility is a CPG key success factor. Shifting regulations, substitutes and consumer values (like health and affordability) have disrupted center store categories. Retailers that monitor what’s actually selling and pounce on these trends with private label innovations will gain an advantage.