The History of Kraft Heinz

The story begins with the rise of Kraft. James L. Kraft founded the company in 1903, and he invented pasteurized cheese in 1915. But James L. Kraft didn’t start the Kraft we know today.

In 1930, Kraft, was bought-out by a giant, National Dairy Products, but as National Dairy expanded, Kraft became a more integral piece. By 1969, investors changed the name of the company from National Dairy Products to Kraftco Corp as most of the company's products were no longer milk related.

Fast forward to the 1980's, one of the largest companies, Philip Morris, the largest tobacco company, decided to expand its food empire. Just In 1985, it bought General Foods who made products such as Jell-O, and, in 1989, Philip Morris bought Kraft for $13.5 B.

For the next two decades, Kraft was owned by the tobacco giant. But in 2001, Philip Morris put 16% of its Kraft shares for sale through an initial public offering (IPO), and in 2007, it exited the position entirely.

Once independent, Kraft started to show revenue growth after stagnating for nearly 20 years. In 2008, It was included in the Dow Jones Industrial Average, one of the most prestigious indexes in the world, for the first time as an independent company.

However, Kraft then fought with its largest investor, Warren Buffett. After owning General Foods in the 1980’s, Buffett re-entered Kraft after the smoking giant Philip Morris exited in 2007. However, Buffett exited the position in 2012 at a small loss because of his disdain for Kraft’s 2010 purchase of Cadbury. However, he has kept his position in Kraft’s sister company Mondelez—as of August 2019.

In 2011, Irene Rosenfeld, the CEO of Kraft, decided to split the company into two pieces: Kraft and Mondelez. Mondelez is a mashup of two words, Monde meaning world, and Delez meaning delicious. The two firms starting trading separately, on October 2, 2015 and both had initial success.

The new Kraft focused on its weaknesses, low advertising expenses and research and development. In 2013, Kraft had several successful product introductions.

However, Philip Morris, in another form, re-entered the stock this time as 3G Capital run in part by Jorge Paulo Lemann and Berkshire Hathaway run by legendary investors Warren Buffett. Investors were initially excited, but the two legendary companies made some notable mistakes when they purchased Kraft Heinz:

1) It used a very levered structure
2) It made the investment as consumer tastes were changing
3) It underinvested in the business
4) It hired a CFO who had little experience

Where does Kraft Heinz go from here? Unfortunately, Kraft Heinz has very high debt, and its credit rating was downgraded in August 2019; this will make it difficult for Kraft Heinz to make the necessary interest payments and principal payments. The company is now financially distressed and could head into bankruptcy protection.

The issues were brought upon by changing trends and mistakes by these two legendary investors.

I hope you enjoyed the video, let us know in the comments what you felt was the biggest mistake.

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Disclaimer: We are not financial advisers, and nothing on this channel is meant to be financial advice. The ideas expressed on this channel are purely opinions and should not be regarded as objective information. Nothing on this channel is a recommendation to buy or sell securities. Do not assume that facts and numbers in any video are accurate. Always do your own due diligence.

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[TheMarketisOpen]

Hey guys, I hope you enjoyed the in-depth video. It's meant to be more of a documentary to be enjoyed in one more more sittings. The Kraft story is very interesting in terms of the amount of change it has from its origins until today.

*Just to note, one update to the video, the final slide shows Kraft's operating income to interest expense. In all the numbers they are adjusted to exclude one time charges such as intangible or goodwill write-offs but the final quarter the adjustment is missed. The corrected ratio would be 4.21, which is far better. Kraft has $3B of principal payments in 2020, $1 B in 2021 and $3.5 B in 2022
Please let us know, what company, you would like to see next.

[bjordan]

As a former employee of kraft Heinz, this video brought me alot of pleasure lol

[notthedaddylonglegs]

Worked for them for a few years. Little known fact, most of the work done now is by temp workers with no raises, no benefits, and long hours.

[ohwingman]

I found this story very interesting and some how satisfying. I'm a Canadian and when Buffet and Paulo bought up Heinz they immediately shut down the Heinz ketchup production in Canada and walked which had a disastrous effect on the local economy. The workers could not find new jobs and the farmers who provided the tomatoes were left in the lurch. For a while it looked pretty grim but then a white knight appeared on the horizon. Frenches, famed for their mustard product, began to take the steps necessary to open a facility to produce ketchup in Canada using Canadian tomatoes and employing Canadian workers.
There was an interesting offshoot to this story. When Canadians heard about it, they started to demand that Frenches ketchup be on the shelves of Canadian stores. A few stores scoffed at the idea and refused to put if up against the Heinz brand. The backlash from this decision was a threatened boycott of their stores. Canadians were telling them in no uncertain terms that they had better have Frenches or expect to take the loss of business. Needless to say the stores had a change of heart and Frenches is now on the shelves everywhere. Although Heinz is still the big gun in the ketchup business, many Canadians and Canadian businesses are changing their buying habits and choosing Frenches. It boils down to Frenches did good by us so now we are going to do the same for them.
As for myself, well, I don't hesitate when buying ketchup at my local store. It's Frenches or nothing for me and it goes very well with the Frenches mustard in my fridge thank

[michaelschlager]

3G ran a once profitable factory near my home town into the ground by firing most of their experienced employees for lower paid, inexperienced employees. They are now hiring back the more experienced employees as consultants to try and bring the factory back. They thought their financial savvy could make up for their lack of operational knowledge. That was maybe not the best move.

[Grovesie]

"Changing consumer taste." Na, my tastes have stayed the same. It is the product getting cheaper i.e. smaller portions, cheaper taste etc while the price just keeps going up that turn me off of Kraft, and hell pretty much everything else these days.

[matthewk]

I enjoyed the in depth history of Kraft, but was disappointed the same level of background information wasn't provided for Heinz as well.

[tony]

Find the person responsible for ruining the macaroni and cheese and fire him. Used to love it, but now it's just nasty.

[d]

Its cause we are sick of eating this crap! Most of the stuff they make isnt even food. Its food products containing mass amount of fillers such as high fructose corn syrup and synthetic lab chemicals that gives it taste and colouring. And ofcourse, tons of sodium and sugar.

[frapeyou]

really good video, such a complex company

[dineshratnasingam]

Keep up the great work. It's only a matter of time before this channel blows up.

[loungelizard]

I love the little newspaper sub-headlines! Nice touch

[mohanaubeeluck]

New ceo, new cfo, earnings call gave a good insight to what Miguel has in mind with KraftHeinz... only time will tell if this company will go back up.

[catherinebenes]

Amazing piece on the history of Kraft. I really enjoyed the educational pieces intertwined throughout the video. Well done.

[mimusic]

Glad I stumbled on to this channel. Great content! Thank you.

[mifune]

You're doing a fantastic job with these videos. Business rises and failures teach so much more than the just the successes.

[worldstar]

love this type of content, very detailed and informative

[AndroidsEatApples]

As someone that has been a Kraft Heinz employee for 3 years. At least in my area we were hemorrhaging hundreds of thousands per month as a plant since I’ve been there our plant hasn’t been profitable until these last two months. We’re now showing profits of about 800k-900k during January and February which are some of their weaker months as a company. They restructured their management and systems a lot to pinpoint our problems which cut a lot of the downtime out.

[honestmarc]

I worked for Kraft Heinz in Canada. Thank God they sold the Canadian cheese business. It was very poorly managed

[hume]

An incredibly well thought out piece of investigative journalism. The kind many of my age saw on television screens 30 years ago.