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Why Did Kraft and Heinz Merger Fail?

Why Did Kraft and Heinz Merger Fail?

Investing

The Kraft Heinz merger that was finalized in July 2015, was initially thought of as a strategic move that would capitalize on the synergies between the two major food companies.

However this merger became doomed to fail due to the practices employed by 3G capital in terms of its cost cutting in attempts at maximizing profits.

At the time the Kraft Heinz merger was believed to have the potential for massive growth into new industries and would allow for many products to grow using supply chains that the other company possessed. 

Moreover, a positive outlook characterized by the hope for Kraft products to move to international markets!

While also hoping for the ability to cut costs with the induction of new factories. Following the finalization of the deal, Kraft Heinz attempted to cut costs in order to turn a profit, intending to save over $1 billion dollars. In an attempt to save money, Kraft Heinz slashed costs across the 

board and ultimately hurt the company and resulted in a drastic decline in employee’s moral, a decrease in innovation, and a $15.4 billion dollar write-down in the company’s valuation. The profit’s that Kraft Heinz was supposed to be making as a result of the cost-cutting, was said to be used to increase the brand of Kraft Heinz as well as to increase innovations within the company. Ultimately the cost cutting resulted in a high employee turnover and a decrease in innovation.

Many of the employees of Kraft Heinz felt dissatisfied with the managing styles and felt as if they were being personally affected by the cost cutting. 

Furthermore, the company’s failure to invest in marketing and brand-building efforts following the merger hurt its ability to promote new products and maintain consumer loyalty. Despite introducing many “frankenstein” inventions, such as Kranch, a blend of ketchup and ranch, as well as Mayochup, a mix of mayonnaise and ketchup. Kraft Heinz struggled in marketing these new products, limiting their potential growth and success. 

Additionally, it is also believed that they were doomed to fail as they were not adapting and evolving due to current market trends and the push towards newer and healthier food products, ultimately allowing them to fall behind. The focus on processed foods clashed with this new ‘health craze’, leading to competitors seizing a larger share in this growing market. In this ‘health craze’, there has been an increasing number of people that are buying organic products, leading to large supermarkets and stores replacing many canned and processed foods from their shelves. Furthermore, many private retailers such as Walmart and Kroger have their own private-label brands that they are able to display in more prominent locations within their stores. 

The Kraft Heinz merger ultimately was a failure despite the high expectations due to its aggressive cost cutting and its ignorance of current market trends that ended up hurting these processed food empires.

Why Did Kraft and Heinz Merger Fail? Written by Quentin Bader

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