Green Giant

The Kraft-Heinz merger has created a giant and shaken the foundations of the global packaged food and drinks industry. 

This landmark transaction is likely to be a catalyst for much-needed consolidation to address bloated cost bases in this low-growth packaged food environment. 

Warren Buffett and 3G are well known for their ability to streamline a business and maximise its value, as illustrated by their track record at Heinz, Burger King and AB InBev. At Heinz, 3G has delivered an eight-point EBITDA margin improvement in just 18 months. With a track record this strong, it is no surprise Buffett and 3G still believe they can achieve a good return even at bullish deal prices of over 17 times EBITDA. 

However, a major part of the stated strategy will be SKU rationalisation and possibly disposal of the non-core and underperforming parts of the business. There has been speculation about the future of both Heinz’s frozen brands and Kraft’s meals and desserts products. 

Such disposals would provide a welcome flow of quality assets to the consumer packaged goods industry, where acquisitions and mergers are seen as a fast route to create efficiencies. Potential suitors could include frozen food specialist Pinnacle Foods, and diverse packaged good specialists B&G Foods and ConAgra.

“The Kraft-Heinz merger is likely to be a catalyst 
for consolidation”

For Buffett and 3G, the deal is not just about improving margins. The board will be on the hunt for strategic acquisitions that complement its brand portfolio. Centre-store brands with scale in the soft cheese, spreads and canned market are an obvious starting point. Unilever spreads, Dairy Crest brands, General Mills, Del Monte consumer products and Kerry’s consumer brands are possible targets, as is, of course, Mondelez, which would reunite Philadelphia in Europe.

But while this deal will cut the fat at Kraft, is it not the cut in product calories and salt that consumers desire? Competitors Campbell’s, General Mills, Coca-Cola and Nestlé have all recently invested in more natural, wholesome products perhaps more in keeping with changing tastes. General Mills has been much discussed as an attractive potential merger partner for many in the industry; for Buffett and 3G it would help align some of the product portfolio to the healthier eating trend, although they are unlikely to get it all their own way if the opportunity arose. 

Looking closer to home, the UK market is also poised for further consolidation as similar low sales growth and cost volatility focus attention on step-change efficiencies through M&A. Some of the categories where I expect consolidation activity include snacking, bakery, chilled produce, meat and dairy. 

What is certain, however, is the Kraft-Heinz peer group will be under some pressure to follow suit as firms race to simplify their operations. While 3G and Heinz may have been quick out of the blocks, the finishing line is some way off for an industry in search of improved margins and growth, which makes further consolidation inevitable in this global race to simplification. 


Chris Stott is a transaction services partner at KPMG