The Kraft Heinz mega merger is over. Here’s what went wrong

A 14-ounce bottle of Heinz tomato ketchup costs $2.98 at Walmart. The store brand equivalent is 98 cents.

Therein lies part of the problem for Kraft Heinz, the struggling conglomerate that is splitting into two separate businesses after years of sliding sales. The move undoes one of the biggest food mergers in history just a decade after it was created, and marks the latest retreat by a company hit by inflation and changing consumer tastes.

One of the new firms will focus on fast-growing businesses like condiments and cupboard meals, including Heinz, Philadelphia and Kraft Mac & Cheese. The other will include grocery items that are not growing as fast, including brands like Oscar Mayer hot dogs and Lunchables.

“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, Kraft Heinz’s 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.”

Simplifying the business is arguably beside the point. Fast-rising food prices have made people less willing to spend on brand names. AJ Bell analyst Russ Mould said that in times of inflation, “hard-pressed consumers may be tempted to spend more carefully, either by cutting consumption or trading down through brands.” Meanwhile, a growing cohort of health-conscious buyers no longer want things like Velveeta and Kool-Aid. Even Lunchables were dropped from school menus in 2024 due to waning demand. 

Kraft Heinz has tried to adapt with products like lower-sugar Capri Sun and nitrate‑free hot dogs, but it has not stopped seven consecutive quarters of declining sales. Warren Buffett, who helped orchestrate the merger, admitted in 2019 that he had been “wrong in a couple of ways” over the deal and that he had “overpaid for Kraft”.

The merger itself – a $46 billion deal backed by Buffett and Brazilian private equity firm 3G Capital – started with some success. It was pitched as a cost saving exercise and thousands of job cuts followed, but shares rose sharply. However, longer term, the strategy does not appear to have pushed bosses to innovate or keep up with market trends. The company’s net revenue has fallen every year since 2020, while shares have dropped about 70% since the tie-up.

Tellingly, Kraft Heinz is not alone in breaking itself up. Kellogg did the same in 2023, creating snack company Kellanova and cereal maker WK Kellogg. Shares in both companies rose by more than a third before they were snapped up in takeover deals. In a July note, Bank of America analyst Peter Galbo cautioned that Kraft Heinz's fundamentals remain “soft,” adding that any upside would depend on whether Kraft Heinz can do the same as Kellogg.

Will it work? Buffett himself said on Tuesday that he was “disappointed” by the decision, per CNBC. “It certainly didn’t turn out to be a brilliant idea to put them together, but I don’t think breaking them apart will fix it,” he told the news outlet. He is also frustrated that Berkshire Hathaway, Kraft Heinz’s biggest shareholder with 27.5% of stock, doesn’t get a say in the matter.

However, the biggest challenge will be whether the new companies can revive sales. Heinz ketchup is still a household name, but the price gap with Walmart’s own-label bottle highlights the challenge for the wider stable of brands. The corporate split may simplify operations – but winning customers over is most important.