Kraft Heinz is considering a major shakeup in the frozen foods category in efforts to improve their financial outlook. After an absolutely disastrous 4th quarter earnings report that included a $15.4 billion dollar asset write-down, a dividend cut and the disclosure of an SEC investigation, the company has made leadership changes at the highest level and put some of its major brands on the chopping block.
Last week, the company announced they hired Evercore Partners to prepare for a potential sale of the Ore-Ida brand, which could fetch a valuation between $1.5 and $2 billion.
Kraft Heinz struggles reflect problems that have been plaguing the once-safe food staples sector as a whole: consumers are turning away from frozen foods in favor of fresher, healthier alternatives. Kraft Heinz has been more-or-less in cost-cutting mode since the $49 billion merger between the megabrands in 2015.
The latest changes reach all the way to the top, with the company announcing CEO Bernardo Hees will be stepping down on June 30th. Kraft Heinz has tapped former Anheuser-Busch InBev CMO, Miguel Patricio, to step in as the new CEO.
With roughly $3 billion in debt looming in 2020, Kraft Heinz is looking to divest from brands it believes to be vulnerable to private label goods. This may ultimately include other Kraft Heinz frozen brands like Devour and Smart Ones before all is said and done.
“I think the obsession for efficiency has to be much bigger than the obsession for cutting costs,” incoming CEO Miguel Patricio said in an interview with Reuters last week. “Cutting costs should be a priority for any company, however you cannot cut costs every year.”
Even still, Kraft Heinz may have products in several other categories on the chopping block soon and have already tapped some investment banks to begin exploring their options. Per CNBC, Kraft Heinz is also evaluating a potential sale of the Maxwell House Coffee brand, which could fetch a price of $3 billion or more. Breakstone sour cream and cottage cheese products are also up for consideration, and the Breakstone brand is expected to be valued at $400 million.
Some analysts speculate these cuts, along with the massive $15 billion write-down, could be paving the way for Kraft Heinz to go private. Regardless, shedding the fat of off-trend foods gives the company some financial flexibility to get out of debt and rework a portfolio that simply doesn’t align with current consumer preferences.
What do you think about Kraft Heinz pulling the plug on the frozen foods category? Is this a good long-term move or a short-sighted mistake? We’d love to know what you think. Sound off on social media now and join the conversation.