Kraft and Heinz merged a decade ago, bringing together two of the biggest food brands in the world. But now rumours of a split could mark the end of what was an incredibly ambitious combination.
The merger was backed by some of the best in the world of business, including Warren Buffet’s Berkshire Hathaway, which saw the potential to increase operational efficiency, streamline costs and deliver greater shareholder returns. And much of the deal did just that – it helped to introduce organisational discipline, slash costs, improve margins and increase profits.
Yet, less than 10 years later, the combined company has lost significant ground. A focus on short-term gains and a lack of investment in long-term growth has led to sluggish innovation, declining market share and a significant loss in global brand value.
Our own analysis estimates a $3.5tn (£2.6tn) loss in unrealised brand value globally, with $200bn (£150bn) in lost revenue among its top brands in the past year alone. Kraft Heinz embodies an all too common trend in M&A: cost-cutting and logistics overshadowing brand building.
So where did the merger go wrong? What lessons can other businesses learn from its struggles? And what comes next for these two household names?
Operational efficiency at the expense of brand building
The merger of Kraft and Heinz was built with a strong focus on operational efficiency and financial discipline. But this came at the cost of long-term growth. The two brands were both established household names that held, and still hold, a place in many people’s hearts. But the new entity rested on its laurels.
Aggressive cost management improved margins but stifled innovation. In an industry that is by its very name fast-moving, this is incredibly detrimental to the brands. By reducing its investment in product innovation, marketing and branding, the combined business left its brands vulnerable to disruption from more agile competitors. The lack of investment also damaged the brand equity of the two household names that had gained decades of consumer trust – the impact of which is still playing out today.
Mergers are not just financial transactions; they are cultural integrations. When cultures clash, employee engagement suffers, as does innovation. The lack of cultural alignment hindered the company’s ability to capitalise on its rich brand heritage and maintain relevance through anticipating consumer needs.
What’s next for Kraft and Heinz?
It looks likely that the split will go ahead. For shareholders and stakeholders, this is a precarious time. But there’s a unique opportunity here for both brands. They can redefine their strategies independently, re-build their own brands and regain relevance in their competitive marketplace.
For Kraft, modernisation should be a priority. Its legacy brands, such as Kraft Mac & Cheese and Kraft Singles, are beloved by some generations, but as consumers become increasingly health conscious – particularly younger consumers – Kraft will need to evolve. In some ways, it’ll need to be less risk-averse, experimenting with new product lines to appeal to new dietary trends. And its marketing will need to highlight how Kraft aligns with these new priorities.
Heinz retains strong global recognition, particularly in condiments, where its brand epitomises a whole category – if someone asks for ketchup, the mind instantly pictures Heinz’s glass bottle and unique label. However, it should continue to move beyond its core categories and use its brand equity. It has already begun down this road with its new range of pasta sauces and tinned tomatoes. Pursuing innovations in flavours, health foods and new products can make Heinz a leader in pre-empting consumer preferences.
Both companies must go beyond adapting to consumer behaviours. They must actively set new expectations and standards to get back to their peak relevance and brand value.
Lessons from a pairing that just didn’t quite work
The anticipated Kraft Heinz split is a cautionary tale for businesses in the process of, or contemplating, a merger or acquisition. Operational discipline is vital; it’s understandably a core part of any M&A process, but it’s not be the be-all and end-all. Long-term brand building, cultural integration and investment in innovation are essential.
These two food giants have the chance to correct course and lead the sector by shaping new directions. For everyone else, it’s a reminder that good M&A are not inevitable nor easily achieved. Two businesses, separately, may by incredibly powerful, with famous brands and loyal customers. But merging them with only cost-cutting in mind will not help the brands stand the test of time.
Gonzalo Brujo is global CEO at Interbrand, a branding agency
Kraft and Heinz merged a decade ago, bringing together two of the biggest food brands in the world. But now rumours of a split could mark the end of what was an incredibly ambitious combination.
The merger was backed by some of the best in the world of business, including Warren Buffet’s Berkshire Hathaway, which saw the potential to increase operational efficiency, streamline costs and deliver greater shareholder returns. And much of the deal did just that – it helped to introduce organisational discipline, slash costs, improve margins and increase profits.
Yet, less than 10 years later, the combined company has lost significant ground. A focus on short-term gains and a lack of investment in long-term growth has led to sluggish innovation, declining market share and a significant loss in global brand value.
