Kraft Heinz to undergo division following a decade of merged food operations

In a significant move, Kraft Heinz, the American food and beverage conglomerate, has announced its intention to split into two separate companies. This decision comes after a series of challenges, including a decline in sales and earnings, as well as the impact of tariffs, which were cited in April.

The first company, currently named North American Grocery Co., will encompass a range of iconic brands such as Maxwell House, Oscar Mayer, Kraft Singles, and Lunchables. Carlos Abrams-Rivera, the current CEO of Kraft Heinz, will take the helm of this company upon the separation's completion.

Concurrently, another company, named Global Taste Elevation Co., will house brands like Heinz, Philadelphia cream cheese, and Kraft Mac & Cheese. Kraft Heinz's board is currently working with an executive search firm to identify potential CEO candidates for Global Taste Elevation Co. However, Carlos Abrams-Rivera will continue as CEO of Kraft Heinz until the split is finalized.

The partnership between billionaire investor Warren Buffett and Brazilian investment firm 3G Capital led to the formation of Kraft Heinz in 2015. This merger, which created a company with an annual revenue of $28 billion, was a significant event in the food industry.

The decision to split comes amidst criticism over Kraft Heinz's cost-cutting measures, which included slashing the value of its Oscar Meyer and Kraft brands by $15.4 billion in 2019. This move, along with the company's net revenue falling every year since 2020, has raised concerns among investors.

The transaction is expected to incur a cost of $300 million and will take a year to complete. Berkshire Hathaway, led by Warren Buffett, holds a 27% stake in Kraft Heinz, making it the company's largest shareholder.

Meanwhile, the future of Kraft Heinz's 36,000 employees remains uncertain, with analysts expressing concern over the prolonged period of more than a year before the split is finalized.

In a parallel development, Kellogg Co. has provided a blueprint for splitting into two companies, with Mars buying one of the companies and Italian confectioner Ferrero announcing plans to buy WK Kellogg. This trend suggests a shift in the food industry towards more streamlined and focused operations.

The official names of the two companies will be revealed at a later date. Kraft Heinz shares fell nearly 7% on the day of the announcement, closing at $26.02 per share. Keurig Dr Pepper, another food and beverage company, had earlier announced plans to buy the owner of Peet's Coffee and then split itself in two, with one company focusing on coffee and the other on cold beverages.

This move by Kraft Heinz could signal a new direction for the company, aiming to rejuvenate its operations and regain its competitive edge in the food industry. The impact of this split on the market and consumers will be closely watched in the coming months.