Pressures on CPG brands that live in the “center store” of supermarket retailing have never been greater. That’s the single biggest reason why a new entity, Kraft Heinz Foods, began trading today as a single stock and a merged company that is going to try to cut costs into a new business model that will survive the huge shakeout in their industry.
Brands ranging from Kraft Singles processed-cheese slices to Heinz ketchup (see more below) are now controlled by a company created by the joint acquisition two years ago of Heinz by Brazil’s 3G Capital and its billionaire co-founder, Jorge Paulo Lemann, and by iconic American investor Warren Buffett through his Berkshire Hathaway company.
Buffett has said the key to success for Kraft Heinz will be in how effectively it can reduce headcount and other operating expenses to create economies of scale for how the merged company, with its dozens of familiar dry-goods brands, will service the center store. Most of the profits and much of the action in US supermarkets and mass-discounter grocers such as Walmart lies on the periphery these days, in the produce and dairy departments especially. But Kraft Heinz will keep trying to rework and market its traditional processed-food brands and products to battle unfriendly trends in the food business.
Meanwhile, Berkshire’s stake in Kraft Heinz was valued at about $24 billion at the start of trading today, or about twice Buffett’s initial investment in Heinz with 3G Capital. Berkshire’s other major investments include American indulgent-food brands ranging from Burger King to See’s Candies to Dairy Queen to Coca-Cola to Wrigley gum.
And while he’s worth an estimated $72 billion, Buffett has moved to give away massive portions of his wealth through philanthropies including the Bill and Melinda Gates Foundation, controlled by his friend, the co-founder of Microsoft.