Why You Shouldn’t Cut Funds for Ketchup and Mac and Cheese
In 2015 Kraft and Heinz merged and created one of the largest food companies in the world. It had $28 billion in combined annual revenues and controlled dozens of food and beverage brands that for generations were staples of American households, including Heinz ketchup, Kraft cheese, Oscar Mayer meats and Planters nuts.
Recently Kraft Heinz as been in shambles, it wrote-down assets by $15.4 billion in February, cut its dividend by a third, and last month reduced the value of its assets by another $1.22 billion.
Last year, the Securities and Exchange Commission issued a subpoena regarding the company’s accounting practices, which resulted in the company restating its 2016 and 2017 financials. As a result, the company’s stock is down 51% on the year.
3G Capital, a Brazilian based investment firm and majority shareholder has been the culpable party as their aggressive cost cutting strategies have negatively affected sales and market share as research and development spending has been cut by 38% since the merging of the two companies. This lack of funding has led to an increase in start up companies taking shelf space from the food giant, as their products are typically newer and cheaper. Witnessing the results of its poor judgement, 3G sold more than 25 million of its Kraft Heinz shares, which brought its stake in the company down by over 10%.
Kraft Heinz has a full plate of issues at the moment, and it is going to take some serious interventions from stakeholders to determine what the best path is moving forward for the food giant.