March 26, 2015
In a huge announcement yesterday, investors and the world learned that Heinz and Kraft had agreed to merge. This merger, if it makes it past potential antitrust concerns that may put the brakes on the deal, would mean the combined company would have $28 Billion in sales revenue and this would make it the 5th largest food company in the world.
In addition to ketchup and macaroni and cheese (which just last week Kraft voluntarily recalled 6 million boxes due to concerns that some boxes may contain metal), these companies also own other iconic brands such as Oscar Mayer, Ore-Ida, Velveeta, Jell-O, Kool-Aid, and Lunchables. In statements released from the companies yesterday, there is the hope that combined the companies can streamline their supply chains and reduce expenses by more than a billion dollars by 2017.
However, is this enough to save these brands? In the US at least, sales of manufactured foods is down or, at best, the brands are managing to stay flat. Kellogg’s reported a 136% profit decline in 4Q 2014 with a loss of $293 Million as an example. Kraft reported a flat year in 2014 and overall manufacturers of packaged food find themselves struggling against rising costs and a younger generation of consumers who are more interested in artisan and natural products.
Do what does this merger mean for small food brands? In the US, probably not much. While this may enable these brands to lower their prices, should they choose, to consumers, the truth is that that won’t sway those consumers who have already stepped away from mass manufactured products. In the US, the force of this merger may come from the combined brands’ ability to purchase other high-performing natural brands that have proven themselves in the marketplace (similar to how Annie’s Homegrown was purchased by General Mills in September of last year). Analysts are predicting that the real force of this merger is the emerging middle class abroad and the Heinz-Kraft ability to try to capture marketshare there.
Regardless, mergers like this are notable, especially when you see companies like Berkshire Hathaway (Warren Buffet’s firm) behind the deal and shows that food, now perhaps more than ever, is in both consumers’ and investors’ minds these days.