Kraft Heinz Co. said Tuesday it plans to split into two separate companies, undoing a mega-deal ushered in a decade ago that turned the maker of Kraft Mac & Cheese into one of the largest packaged food sellers in the world.
Following the breakup, one company will sell Heinz ketchup, other iconic condiments, and boxed meals that comprise its fastest-growing global brands with $15.4 billion in annual sales. The other firm will include slower-growing grocery products, such as Oscar Mayer hot dogs and Lunchables, which currently generate revenue of $10.4 billion.
Shares of Kraft Heinz fell as much as 5.5%, their biggest drop since Feb. 12. The stock has dropped about 14% this year, trailing a 9% gain in the S&P 500.
The goal of the split is to siphon off lagging grocery staples into a new entity expected to generate reliable cash flow, while giving the company’s top-performing sauces and spreads more room to run. Executives said they expect each business will benefit from more focused attention after the split, which will occur through a tax-free spinoff. The two companies’ names will be determined later.
Kraft's Revenues and Where the Bulk of Them May Go
Source: Bloomberg, Kraft Heinz filings
Note: Kraft plans to split company into two entities: Global Taste Elevation and North American Grocery; possible homes based on its descriptions
“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, Kraft Heinz’s chairman. “By separating into two companies, we can allocate the right level of attention and resources to unlock the potential of each brand.”
Analysts said the long-term performance of both is uncertain, given that consumers are shifting away from processed food.
“Questions remain around the true growth and margin potential for both new companies,” Scott Marks, an analyst at Jefferies, wrote in a note Tuesday that cited “long-term weaker consumption trends.”
The Kraft Heinz split follows similar breakups by other food and drink companies, including Kellogg, which broke into two firms in 2023, and Keurig Dr Pepper, which recently said it would undo a 2018 deal that brought together its coffee and beverage businesses.
The latest announcement unwinds a $46 billion merger that united two iconic brands a decade ago. Centerview Partners, the exclusive financial adviser to Kraft Foods Group Inc. during the 2015 merger, has nabbed the key advisory role for the current breakup.
The original deal, orchestrated by 3G Capital and Warren Buffett’s Berkshire Hathaway Inc., forged an industry behemoth shortly before new forces began to reshape Americans’ shopping, including greater demand for healthier, less-processed foods, new weight-loss drugs, and rising inflation that’s caused consumers to cut back.
Buffett, who conceded the merger wasn’t a brilliant idea, said he’s nonetheless disappointed about the planned split.
“Scale by itself is not enough,” Chief Executive Officer Carlos Abrams-Rivera said on a call with analysts Tuesday. The separation “allows us to make sure that we have that level of focus now as we go forward, and at the same time maintaining a level of scale that I think is important to compete in this marketplace.”
Abrams-Rivera, who noted he previously worked in the Oscar Mayer deli meat brand, will become CEO of the grocery company following the spinoff. Patricio said the board picked Abrams-Rivera for the role because of his prior experience.
At a time when many consumers are moving away from highly processed foods, Abrams-Rivera said in an interview Tuesday that the grocery company will continue to highlight its efforts to reduce sugar and sodium and emphasize the high protein levels of products such as Oscar Mayer deli meats.
“It will only give us the opportunity to do further investments in capability, in resources to continue for us to evolve our portfolio into more wellness options for families,” he said.
The grocery entity will also house Kraft Singles cheese, Capri-Sun drinks, and Maxwell House coffee, while the condiments company will include Philadelphia cream cheese. Kraft Heinz said the full divvying up of brands would be announced later.
Kraft Heinz said it didn’t plan to change the location of its headquarters in Pittsburgh and Chicago.
In May, Abrams-Rivera said Kraft Heinz was considering “potential strategic transactions,” without providing further details. He did make clear the company was prioritizing its best-performing brands, including Heinz ketchup and Kraft Mac & Cheese, with the aim of becoming a “sauces and meals powerhouse.”
Kraft Heinz is working with a recruiting firm to find a CEO for the second company, currently dubbed the “global taste elevation company.”
The company said it expects the transaction to close by the second half of 2026, with the separation overseen by John Cahill, the board’s vice chair and previous chief executive of Kraft Foods Group, Inc.
Kraft Heinz said both companies should maintain investment-grade ratings, and that the company’s existing debt will largely be an obligation of the condiments company or refinanced.
The company said it expects to be able to mitigate “a substantial portion” of the roughly $300 million of “dis-synergies” the split will create. Abrams-Rivera said he didn’t expect job cuts.
“This is not an exercise for us to do any kind of layoff,” he said in the interview.
Abrams-Rivera said the board didn’t discuss or contemplate the possibility of either new company being acquired by a private entity. However, the company said in its prepared remarks that each of the new entities could pursue future merger and acquisition activities.
Kraft’s move extends the refashioning of the US food industry at a time it’s under scrutiny from consumers and government regulators.
In 2023, the Kellogg Company spun off its cereal business as WK Kellogg Co. and its snacking brands, including Pringles and Cheez-It, into Kellanova. Both are now on track to be acquired by closely held companies, leading analysts to predict a similar fate for Kraft Heinz’s new units.
Mars Inc. announced it would buy Kellanova for nearly $36 billion in August 2024, and in July, Italian candymaker Ferrero International SA agreed to purchase WK Kellogg for an enterprise value of $3.1 billion.
Food companies are also in the crosshairs of Health and Human Services Secretary Robert F. Kennedy Jr., who has urged Americans to consume less ultra-processed food and has pressed producers to stop using artificial dyes.
The pumpkin spice latte is back at Starbucks, and it’s already contributing to an uptick in sales.
The popular drink is a part of the coffee chain’s fall menu, which also includes a pecan oat milk cortado and pumpkin cream cold brew. The new seasonal menu launched last week and delivered “a record-breaking sales week” across U.S. company-operated stores, CEO Brian Niccol told employees in an internal note reviewed by Bloomberg.
It’s a welcome boost after Starbucks has seen same-store sales decline for more than a year as competition stiffens and customers tighten their wallets in an uncertain economy. In July, the company released mixed earnings for its fiscal third quarter. Its revenue beat expectations, but global sales fell.
In March, McDonald’s dethroned Starbucks as the most valuable restaurant brand for the first time in a decade, according to a report from consulting firm Brand Finance.
Last fall, Niccol announced “back to Starbucks,” a corporate initiative to make its coffee shops “welcoming” environments and reestablish it as “the community coffeehouse.” He announced a pared-down menu and promised that baristas will serve fresh brewed coffee in under four minutes, among other changes — including some that haven’t been well received by the public.
The turnaround is a multi-year effort, chief financial officer Cathy Smith told analysts and investors on a recent earnings call.
“A lot is happening today behind the scenes, and these efforts will come together more visibly by the end of next year, and when they do, I am highly confident that our financial performance will follow,” Smith said.
McDonald’s is cutting prices on some combo meals to woo back customers who’ve been turned off by the rising costs of grabbing a fast food meal.
The price drop may induce its rivals, who have run into some of the same pricing issues, to follow.
Starting Sept. 8, McDonald’s will offer Extra Value Meals, which combine select entrées like a Big Mac, an Egg McMuffin or a McCrispy sandwich with medium fries or hash browns and a drink. Prices will vary by location, but McDonald’s said Extra Value Meals will cost 15% less than ordering each of those items separately.
To kick off the promotion, McDonald’s will offer an $8 Big Mac meal or a $5 Sausage McMuffin meal for a limited time in most of the country. Customers in California, Alaska, Hawaii, and Guam will have to pay $1 more for those meals.
McDonald’s for years has seen a steady decline in visits from customers in the U.S. who have household incomes of less than $45,000 per year. CEO Chris Kempczinski said those consumers, and others, no longer see McDonald’s as a good value.
At a McDonald’s near the company’s Chicago headquarters, for example, a 10-piece Chicken McNugget meal costs $10.39.
Higher prices have been a drag on sales. McDonald’s same-store sales – or sales at stores open at least a year – grew 2.5% in the April-June period, but that was mostly because of higher prices. Fast food visits by lower-income consumers dropped by double-digit percentages industrywide in the second quarter, McDonald’s said.
“Today, too often, if you’re that consumer, you’re driving up to the restaurant and you’re seeing combo meals priced over $10,” Kempczinski said during a conference call with investors in August. “That absolutely is negatively shaping value perceptions. So we’ve got to get that fixed.”
McDonald’s job has been made harder by prices that can vary widely around the country. In May 2024, after a post on X about a Big Mac meal in Connecticut that cost $18 went viral, McDonald’s called it an “exception” and noted that franchisees set prices for nearly all U.S. restaurants.
The company also blames higher costs. The average price of its menu items rose 40% between 2019 and 2024, McDonald’s said, to account for a 40% increase in the cost of labor, packaging, and food.
But within a month, McDonald’s introduced a $5 Meal Deal, which combined a McDouble burger or a McChicken sandwich with small fries and a small drink. That deal proved so popular that it was extended through this summer.
In January, McDonald’s added another promotion, letting customers buy a limited number of items for $1 if they bought one full-priced item. Those deals will remain alongside the Extra Value Menu for now, McDonald’s said.
Other chains are also seeking to grab the attention of potential customers. In late August, Domino’s launched its Best Deal Ever promotion, offering any pizza with any toppings for $9.99.
Overall, U.S. fast food customer traffic fell nearly 1% in the second quarter, according to Revenue Management Solutions, a consulting company. The company said price increases were sharply lower than in previous quarters, suggesting that chains are already offering more deals.
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