Kraft Heinz is splitting into two companies

By Kate Trafecante, Nathaniel Meyersohn, CNN

(CNN) — Kraft Heinz, the gigantic packaged foods business, is splitting into two separate publicly traded businesses, the company announced Tuesday, the latest mega food business to unwind its strategy to offer everything for everyone.

The new companies haven’t yet been named. One will focus on faster-growing businesses, such as sauces, spreads and shelf-stable meals. Those brands include Heinz, Philadelphia and Kraft Mac & Cheese. The other company will focus on the struggling grocery items and food away from home businesses, including the Oscar Mayer, Kraft Singles and Lunchables brands.

“Kraft Heinz’s brands are iconic and beloved, but the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas,” said Miguel Patricio, the Kraft Heinz executive chair, in a statement. “By separating into two companies, we can allocate the right level of attention and resources to unlock the potential of each brand to drive better performance and the creation of long-term shareholder value.”

Kraft Heinz expects the new companies will start operating separately in the second half of 2026.

The split will reverse a massive but largely unsuccessful 2015 merger arranged by Warren Buffett’s Berkshire Hathaway and the investment firm 3G Capital, Heinz and Kraft’s owners at the time. The merger brought dozens of iconic packaged food brands under one umbrella, creating the third-largest food company in North America.

The combined company quickly went to work reducing expenses to boost profits. But after a few years, the company started to lose value fast. Kraft Heinz’s sales dropped 1.9% in the most recent quarter, the seventh-straight quarter of decline. Shares of (KHC) have plunged more than 68% since the merger was completed in 2015.

Kraft-Heinz, like all big food companies, is grappling with inflation-weary buyers cutting back spending or switching to generic labels and the rise of GLP-1 drugs hurting demand for snack food.

There is also pressure from US Department of Health and Human Services Secretary Robert F. Kennedy Jr. to remove artificial flavors and other additives. Kraft Heinz said in June it would remove all artificial colors from its brands.

Although the entire packaged food industry’s sales have sharply declined since the pandemic, “what’s been notable about Kraft in particular has been that it’s suffered in just about all of its categories,” said Bank of America analyst Peter Galbo.

That’s because Kraft Heinz failed to keep up with consumer tastes. Many of its brands, such as Kraft Mac & Cheese, Lunchables and Velveeta, have fallen out of favor with customers seeking healthier or organic options as opposed to processed cheese and lunch meat.

“The legacy of Kraft Heinz when 3G and Berkshire Hathaway put the company together was this synergy story, that they were going to rip out a bunch of costs,” Galbo told CNN. “(But) the bigger question for Kraft over time has always been, did they really invest enough money in the business?”

Warren Buffett acknowledged in 2019 that Berkshire-Hathaway had “overpaid for Kraft” after the company took a $15 billion write-down in the value of both its Kraft and Oscar Meyer brands. By the end of 2023, 3G had quietly sold its entire stake in the company.

In May, Kraft Heinz said it was evaluating strategic changes and potential transactions after two directors representing Berkshire Hathaway stepped down from its board, meaning the company would no longer hold any seats. Kraft Heinz has also sold off Planters and its US natural cheese business in recent years to simplify its business.

Kraft Heinz CEO Carlos Abrams-Rivera said during its most recent earnings call that the company was starting to see improvements in North America due to “the fact that we have now invested…back in our products,” including better marketing and promotions.

Now, with the breakup, analysts say Kraft Heinz may be trying to replicate the success of another packaged food giant – Kellogg.

In 2023, Kellogg split off its more popular brands like Pringles and Cheez-It into a new company, Kellanova, while its cereal business remained under WK Kellogg Co.

Nutella maker Ferrero Group bought cereal giant WK Kellogg Co, the owner of Froot Loops and Frosted Flakes, earlier this month in a $3.1 billion deal. Mars announced a nearly $30 billion deal for Kellanova last year.

This story has been updated with additional developments and context.

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