Kraft Heinz to Split into Two Companies, Aiming for Growth in 2026 Restructuring

Kraft Heinz, a major player in the packaged foods industry, announced its decision to split into two separate publicly traded companies. This strategic move comes as a significant shift from the company's previous endeavor to cater to a diverse range of consumer needs under one umbrella. The division aims to enhance capital allocation and focus resources on distinct market segments, ultimately driving better performance and long-term shareholder value, according to Kraft Heinz executive chair Miguel Patricio.

The proposed split will see one company focusing on faster-growing segments such as sauces, spreads, and shelf-stable meals, featuring brands like Heinz, Philadelphia, and Kraft Mac & Cheese. The other entity will concentrate on the struggling grocery items and food service businesses, which include Oscar Mayer, Kraft Singles, and Lunchables. This restructuring is slated to take effect in the second half of 2026.

This decision reverses the colossal merger in 2015, orchestrated by Warren Buffett's Berkshire Hathaway and 3G Capital, combining the Kraft and Heinz brands. The merger positioned Kraft Heinz as the third-largest food company in North America, consolidating various iconic brands under one roof. Although initially aimed at increasing profits through cost reductions, the combined entity faced challenges, notably a continuous decline in sales and the loss of market value, with shares plummeting over 68% since the merger became official.

Like many in the food industry, Kraft Heinz has been navigating through shifting consumer behaviors brought upon by inflationary pressures and the popularity of generic labels over branded products. Additionally, there has been growing advocacy for healthier products, with pressure from US Department of Health and Human Services to eliminate artificial flavors and additives. In response, Kraft Heinz pledged to remove artificial colors from its brands.

The broader packaged food industry has seen a downturn in sales post-pandemic, but Kraft Heinz has been notably affected across its product categories. Analysts highlight the failure to adapt to evolving consumer preferences, which now favor healthier or organic options over traditional choices like processed cheese and lunch meat. This necessitates significant reinvestment in product development and innovation to revitalize brand appeal.

A notable aspect of the merger circumstances includes a $15 billion write-down by Kraft Heinz in 2019, a reflection of eroding brand value amidst operational inefficiencies and supply chain hurdles, admitting the merger's shortcomings. As part of simplifying its structure, Kraft Heinz divested its Planters and US natural cheese businesses, while further restructuring is anticipated following the resignation of directors representing Berkshire Hathaway from its board.

Carlos Abrams-Rivera, Kraft Heinz CEO, indicated during a recent earnings call that the company is witnessing signs of recovery in North America, attributing this to increased investments in product marketing and promotions. Analysts observe parallels with Kellogg's 2023 restructuring strategy, where their popular brands, including Pringles and Cheez-It, were spun off into a separate entity. While Kraft Heinz's strategy seeks to replicate similar success, it remains a tentative endeavor amidst challenges in reviving legacy brands.

As the split approaches, Kraft Heinz stands its ground in its headquarters in Chicago and Pittsburgh. Analysts predict that these strategic efforts could potentially unlock greater value from its historic brand portfolio, contingent on effective execution of resource redistribution and a keen focus on evolving consumer demands. The market awaits to see how this corporate reshaping will influence Kraft Heinz's position within the packaged food sector.