Heinz Kraft merger

Heinz Kraft merger: expect cost cutting soon

By Michael Stones contact

- Last updated on GMT

Heinz plus Kraft equals mega merger
Heinz plus Kraft equals mega merger
The Heinz Kraft £100bn mega merger is likely to lead to cost cutting on a big scale, according to analysts.

Euromonitor packaged foods research analyst Raphael Moreau predicted making cost savings rather than exploiting synergies would be topping the new senior management team’s to-do list.

“The priority for the group is not synergies but, instead, to cut costs,”​ said Moreau in the podcast at the bottom of this article.

“The involvement of 3G ​[the Brazilian private equity firm, which together with legendary investor Warren Buffett is behind the proposed deal] in that area is quite clear because 3G has been very active ... aggressively with Heinz cutting jobs. And we expect more of that in the new structure.”

Co-branding opportunities

While synergies between the two businesses were not obvious because they operated in different categories, Moreau said there may be co-branding opportunities in ready meals and the sauces brands.

Unite the union has sought assurances from Heinz that UK jobs will be unaffected by the merger, which is said to create the globe’s fifth largest food and drink company and the third largest in North America.

Heinz employs 2,500 people in the UK and the Republic of Ireland but nearly 50,000 worldwide.

Euromonitor said Heinz was much more of an international company, generating only 25% of its packaged food sales in north America, with its most important region being western Europe.

But Heinz had strong growth potential in Latin America and Asia Pacific.

‘The jobs at risk’

Euromonitor verdict:

“The priority for the group is not synergies but, instead, to cut costs.”

Consultancy group Food Strategy said the UK press focus on jobs was misplaced. “The jobs at risk are all in USA for now where there is both an opportunity for Kraft to normalise its SG&A costs​ [selling, general and administrative expenses] (as Heinz has done),”​ said Robert Lawson.

“And, it’s a significant synergy opportunity. $1.5bn is probably under-calling the savings by 50%.”

Earlier this week Heinz axed more than 70 jobs​ at its baked beans plant at its Kitt Green factory, near Wigan, Lancashire.

Analyst Frost & Sullivan predicted the food and beverage industry would experience more such mergers as firms responded to increasing competition and changing consumer patterns in a bid to boost revenue and or market share.

Its senior industry analyst Tosin Jack said: “It does not mean competition within the whole industry has been reduced but it means two companies can now experience growth despite industry challenges.”

Improved efficiency across brands and rising sales were likely to result from the merger, she said. Such mergers were said to help business cope with changing consumer patterns and demand for safer products.

Read more about the super deal here here​.

Meanwhile, click on the grey box below to listen to the Euromonitor​ podcast.

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1 comment

Costs

Posted by Chris,

Judging by the product quality of both brands - it's fairly clear that the recipes have been cost reduced alot already.

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