The big news in the CPG and grocery retailing business this week was the announced deal by 3G Capital and Warren Buffett's Berkshire Hathaway to acquire a controlling interest in Kraft Foods Group and Heinz and merge the two food giants.
While much of the speculation has centered around whether the deal will lead to further consolidation in the CPG space (many seem to think that's likely), RetailWire has found category managers and buyers who deal with the companies on a day-in and day-out basis are generally neutral to pessimistic about what the new Kraft Heinz Company will mean for them.
To a person, category managers and buyers who agreed to speak with RetailWire on the condition that they were not identified, said it was too early to know for sure what the deal would mean for them. They did say, however, that based on previous mergers one likely outcome is that the number of direct sales and field support representatives from the two companies would be reduced as the two companies consolidate operations.
As a category manager with a top wholesaler told RetailWire, "Vendors always tell you they will maintain or improve service as they cut bodies, but you know they won't. They wind up putting people in new categories that they know nothing about and expect them to add those to the ones they've been managing for years without any drop-off. There's always a drop-off."
Grocers who spoke with RetailWire gave both companies, especially Kraft, high marks for consumer insights and account service, although almost all said it was difficult to get either company, particularly the bigger brands, to add promotions or make other adjustments if they did not fit with corporate plans. A buyer with a regional grocery chain said, "It's hard to think they'll suddenly become more responsive now that they're even bigger. I'm sure they'll still be on the case when Walmart and Kroger call, but we're not Walmart or Kroger."
One of the major selling points of the deal is its implications for international expansion.
"They (Heinz) generate 60 percent of their sales outside of North America including 25 percent in emerging and developing markets," Erin Lash, a senior equity analyst of consumer packaged goods at Morningstar, told CNBC. "So I think one of the intentions will be to utilize Heinz's global distribution platform to extend the sales and reach of Kraft's domestically based products."
As it stands now, the plan is for the two companies to be "co-headquartered" in their current locations in Northfield, IL and Pittsburgh. Some question how long this will last based, in particular, on 3G's history of cost cutting.
"Mature businesses look for cost cutting. 3G takes cost cutting to a different level," Bob Goldin, executive vice president at Technomic, told Reuters.
The other reality is that both Kraft and Heinz are major players in mature categories with low growth expectations in the U.S. While both companies have dipped their toes in the fast growing organics segment, neither is a major force at this point in that area.
- H.J. Heinz Company and Kraft Foods Group Sign Definitive Merger Agreement to Form The Kraft Heinz Company - Kraft Foods Group
- Kraft, Heinz to Merge, Forming Food Giant - The Wall Street Journal (sub. required)
- Heinz deal for Kraft expands food larder for Buffett, 3G - Reuters/Yahoo! News
- More Kraft-Heinz mega mergers on the way? - CNBC
- Heinz, Kraft merger would build food giant - Pittsburgh Post-Gazette