CPGs may have some commitment issues, because it’s suddenly splitsville for a number of food and bev giants.
Last week, Kraft Heinz said its 10-year relationship is dunzo, splitting up barbecue sweethearts Heinz ketchup and Oscar Mayer, among others, into two separate companies.
The conscious uncoupling is the latest in a string of recently announced spinoffs across major CPGs that includes Keurig Dr Pepper and Unilever, and follows the Kellogg Company’s separation in 2023. The spinoff strategy isn’t necessarily new—if you look through Kraft Heinz’s family tree, you’ll see it was created through a previous spinoff that ultimately created Mondelez—but it’s one that’s recently been picking up steam.
The volume of spin-offs might be making your head spin, so we’re breaking down the breakups—what’s going on, why they’re happening, and if we can expect even more CPGs to part ways next.
What’s happening? Over the past few years, many CPGs have broken up on largely similar grounds (no, not irreconcilable differences).
Earlier this month, Kraft Heinz said it’s splitting into one company focusing on sauces, spread, seasonings, and shelf-stable meals like Heinz ketchup and Kraft Mac & Cheese, and another on grocery staples like Kraft Singles and Oscar Mayer. The move, the company said, will help “more effectively deploy resources” between the more high-growth sauces and slower-growth grocery categories.
The recently announced split comes a decade after Kraft Heinz was created through a merger between H.J. Heinz Company and Kraft Foods Group (the latter of which was formed after Kraft Foods spun off its snack unit in 2011 to become Mondelez when its growth was being hampered by its grocery biz). The 2015 merger’s goals were essentially the exact opposite of its recent breakup—promoting “synergies” and “increased scale” by combining, the company said in a statement at the time—but that move “didn’t turn out to be a brilliant idea,” investor Warren Buffett recently admitted to CNBC.
The Kraft Heinz split is the latest in a series of CPG divorces. Last month, beverage giant Keurig Dr Pepper (KDP) shared its plans to buy Maxwell House owner JDE Peet’s for ~$18 billion and subsequently split itself in two, with one centered around North American beverages and one on global coffee. Similar to Kraft Heinz, KDP said the move will help its portfolio brands “win in their respective markets by leveraging operating models optimized to unique category dynamics” and is also set to untangle a recently formed tie-up, as Dr Pepper Snapple and Keurig Green Mountain merged to create KDP in 2018.
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And last year, Unilever said it’ll spin off its ice cream business to become The Magnum Ice Cream Company, stating that the category has a “a very different operating model” than others in its portfolio, like Hellmann’s to Dove. (Unilever-owned Ben and Jerry’s, meanwhile, has been seeking a separation of its own.)
Then, of course, there’s Kellogg Company. In 2023, it broke into Kellanova, encompassing snacking, international cereal, and frozen foods (bought by Mars last year), and WK Kellogg Co, a cereal company that Ferrero said this summer it plans to acquire. CEO Steve Cahillane said at the time the split was intended to keep categories like its “high-growth” snack biz from competing for resources with its cereal biz, much like KDP and Kraft Heinz.
Why now? According to Stephen Zagor, a Columbia University business school professor with a focus on food businesses and restaurants, the spinoff strategy is “accelerating” as CPGs face a flurry of headwinds. Consumers are becoming more judicious. As inflation soars, the grocery store is a “battleground of pricing,” he said. At the same time, younger shoppers are turning away from processed foods offered by many big CPGs, opting for healthier options and interesting flavors.
All these shifts have required CPGs to do something a bit more “drastic” than divesting a brand here or adding a new product there, Zagor said. Now, a “new strategy of appearing small but being big” has emerged, he added, as major CPGs are stepping back to take a look at their portfolios and realizing the potential of breaking down into smaller parts (smaller, in this context, still means multi-billions in net sales, of course).
“It’s hard when you’ve got 200 products to treat each product like a total entrepreneurial business and have all of the resources, the financial and all the things required to make it work well together under a large culture,” Zagor said. Now, they can separate the trendy or profitable segments from ones that might be harder to grow, and even open themselves up to more noteworthy acquisitions.
What’s next? “I definitely think every major CPG company is looking at Kraft Heinz,” Zagor said. “If they haven’t already thought about breaking or divesting or we’re getting rid of, I’m sure they are [now].”
As PepsiCo is in the turnaround hot seat this month…perhaps it’ll be next?