New York— Kraft Heinz’s announcement this month that it would split was a belated acknowledgment that the Velveeta cheese and Heinz ketchup maker had missed consumers’ years-long shift away from processed foods, a trend that is now accelerating under a new push from the federal government and states including California.
But, its plan to carve itself into two companies — one focused on faster-growing sauces and condiments and one on groceries — may not be enough to revive its brands, according to former employees, consultants and Wall Street analysts.
The rise of the “Make America Healthy Again” (MAHA) movement led by US health secretary Robert F Kennedy Jr, who blames artificial ingredients for chronic childhood diseases such as diabetes and obesity, poses a new threat for the company that makes products including Oscar Mayer hot dogs, Kraft Singles and Jell-O desserts.
Former employees said Kraft Heinz executives missed opportunities to appeal to the new demand for fewer preservatives and artificial ingredients, such as ketchup without high-fructose maize syrup and they were also unconvinced the costly and possibly risky effort to change an iconic brand would boost sales.
Kraft Heinz is focused on providing nutritious and affordable food, and has reduced its use of sugar, overhauled more than 1,000 recipes and committed to removing synthetic dyes from its US brands, a spokesperson said.
California bill
The MAHA commission, a panel convened by President Donald Trump, released a report on Tuesday that called for the government to review chemical additives in packaged products and define ultra-processed foods. Adding to the pressure, legislators in California, the largest US state by population, are voting on a bill that would regulate ultra-processed foods as soon as this month.
Nicholas Fereday, an independent food industry analyst, said the prospects for Kraft Heinz after a split are still bleak.
“The very fact they’re splitting up doesn’t change any of it and explain how they’re going to inject energy, excitement and clarity” into the company, he said.
But its rising competition including sauce and pasta brand Rao’s Homemade is adapting more quickly to consumer tastes, food industry experts said, snapping up market share from its top products such as Kraft mac & cheese, known for its blue box featuring orange-hued macaroni.
US food companies have struggled to increase sales in recent years as consumers switch to products touting natural ingredients, balk at higher prices and buy less due to new appetite-suppressant GLP-1 drugs. But, Kraft Heinz has been among the worst performers, analysts have said.
Its shares are down nearly 14% year to date, while the Dow Jones US food product makers index, covering its competitors, has fallen about 6.5% in the same time period. Its organic net sales have declined for the past seven quarters, according to financial statements and investor press releases.
Customer preference
Two former Kraft Heinz employees, who requested anonymity because they were not authorised to speak to the press on behalf of the company, said it knew for years it was facing a seismic shift in customer preference, as offerings at natural food grocery stores such as Amazon.com’s Whole Foods and Sprouts rose in popularity.
But one of the employees, a marketing executive who left the company more than a year ago, said “management wanted us to prove we would grow sales by changing ingredients” and was reactive to trends rather than proactive. Kraft Heinz looked at replacing high-fructose maize syrup in Heinz ketchup with cane sugar, but “it was killed due to cost”, the former executive said.
Kraft did not comment when asked about replacing the syrup in ketchup.
Heinz ketchup’s market share has slipped over the past four years, though it still holds more than two-thirds of the category in the US, according to market research firm Euromonitor.
The company offers a Simply Heinz ketchup without high-fructose maize syrup for a cost of nearly 50% more than the original, and in 2019 acquired condiment maker Primal Kitchen, which also pledges to avoid artificial ingredients. The company spokesperson said that in the last quarter, its Simply Heinz brand grew 17% and Primal Kitchen grew 24%.
Sugar intake
High-fructose maize syrup has become more controversial, though medical experts say people should reduce sugar intake overall, and that there is no significant health difference between the additive and cane sugar. A May report from the MAHA commission said significant consumption of high-fructose maize syrup may contribute to chronic diseases like obesity, citing a 2021 study by researchers from Shanghai University of Traditional Chinese Medicine linking it to nonalcoholic fatty liver disease.
In response to California’s bill on ultra-processed food, a spokesperson for the US department of health and human services said Kennedy encourages states to promote healthy practices and enhance consumer transparency in food labelling.
Other US states including Missouri, North Carolina and Pennsylvania have considered passing similar laws, further adding to scrutiny of Kraft Heinz’s products.
The former employees said that Kraft Heinz’s moves to remove artificial ingredients from its products did little to change consumers’ perception of them as unhealthy and processed.
Taking the dyes out of Kraft macaroni and cheese in 2016, for example, only stemmed some sales declines, a former brand manager said, and it is still seeing its market share fall, according to market research firm Numerator. Bill Johnson, CEO of HJ Heinz until 2013, when it was taken private by Warren Buffett’s Berkshire Hathaway and Brazil-based 3G Capital, said companies such as Kraft Heinz have not given consumers a reason to believe their products are better than they were.
“What the big companies (such as Kraft Heinz) haven’t done is innovate,” he said.
Reuters
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