Kraft Foods Group Inc. will merge with H.J. Heinz Co. in a deal with global investment firms 3G Capital and Warren Buffett’s Berkshire Hathaway Inc. The new company Kraft Heinz will be the third largest food and beverage company in North America.
It is the latest in the trend of mergers and acquisitions across the food industry as it was announced that the Federal Trade Commission sued to block a deal between the two largest food distributors in America. Continued economic pressure has forced struggling firms to seek options and in most cases, large firms partner for mutual salvation or to secure a larger market share together.
Kraft has struggled over the last few years as Americans have increasingly sought alternatives to processed foods. It is one of the many signs of shifts away from processed food and GMO ingredients. Bloomberg summarized the effect of the brand’s split from international brand Mondelez in 2012.
When the current Kraft was spun off in 2012, Mondelez inherited the overseas snack businesses, giving it bigger growth opportunities internationally. Though Kraft kept the name of the original business, it was smaller and relegated to the U.S. market. While Kraft has plenty of iconic brands, including Velveeta and Philadelphia Cream Cheese, the company hasn’t been able to energize sales in a mature industry.
Younger consumers in the U.S. have shown a preference for natural and organic ingredients — something Northfield, Illinois-based Kraft has had to adjust to. In addition, rising commodity prices have squeezed the company, according to Yarbrough.
The company also had an embarrassing product recall this month after customers found metal pieces in its hallmark Macaroni and Cheese. Kraft recalled 6.5 million boxes of the product.
3G Capital also recently acquired stakes in Burger King in 2013 and Tim Horton’s in 2014. Bloomberg Surveillance asked whether the deal could turn Kraft around, WTF News responded and they passed the message along.
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