September 24, 2020

By Lynda Kiernan, Global AgInvesting Media

A U.S. affiliate of Groupe Lactalis has entered into an agreement to acquire the U.S. Natural, Grated, Cultured, and Specialty cheese business from Kraft Heinz for $3.2 billion. 

Under the agreed-upon terms, the brands involved in the deal include Breakstone’s, Knudsen, Polly-O, Athenos, Hoffman’s, and Cracker Barrel in the U.S., and the Cheez Whiz brand outside the U.S. and Canada. Collectively, these brands being sold contributed $1.8 billion to Kraft Heinz’ net sales for the 12 months ending June 27.

As part of the deal Heinz has also agreed to partner with Groupe Lactalis on a perpetual license for the Kraft brand in natural, grated, and international cheeses, and the Velveeta brand in shredded and international cheeses.

Heinz will retain Kraft Singles, Philadelphia Cream Cheese, Velveeta Processed Cheese, and Cheez Whiz Processed Cheese business in the U.S. and Canada, and the global Kraft Velveeta and Cracker Barrel Mac & Cheese businesses, and the global Kraft Sauces business.

Kraft Heinz CEO Miguel Patricio said in a company statement that the cheese businesses being sold will benefit being in control of a global dairy company, saying, “We believe these cheese and dairy businesses will thrive in the hands of a global dairy company like Groupe Lactalis.” 

“At the same time, the transaction will enable us to build sustainable competitive advantage in businesses where we have stronger brand equity, greater growth prospects, and can use our manufacturing scale and consumer-based platforms approach. This is a great example of agile portfolio management at work.”

This move by Kraft Heinz has been more than a year in the making, after the global company wrote down its Oscar Mayer and Kraft brand values by $15.4 billion, and posted a net loss of $12.6 billion in early 2019. At the same time the beleaguered company also revealed that it was being investigated by the SEC over its accounting. 

These disastrous results have been attributed to the fact that Kraft Heinz was too slow to adapt to changing consumer tastes leaning toward organic and more health-aware choices – something that rivals General Mills, ConAgra, and Hershey have been more successful in accomplishing. And its strategy of severely cutting R&D spending, marketing budgets, and employee numbers. 

In response, Patricio, who replaced Bernardo Heez in April 2019, announced the undertaking of a thorough review of the company and its brands. 

A New Direction

On the same day that the deal with Lactalis was announced, Patricio and members of the Kraft Heinz senior leadership team announced a new strategy, operating model, and key initiatives that would drive a fundamental shift in the company’s approach to the growth of its brands and global business. 

“I am extremely confident that unlocking the power of scale with agility, combined with our new operating model, will return Kraft Heinz to consistent and sustainable growth,” said Patricio. 

“We are placing the consumer at the center of everything we do, leveraging our greatest assets, strengthening our partnerships, generating fuel that funds growth investments like our 30 percent increase in marketing spend, and creating a clear path to rebuilding Kraft Heinz into the industry leader we have the potential to become.”

For Lactalis, once the deal closes as expected in H1 2021, it will gain production facilities located in Tulare, California: Walton, New York; Wausau, Wisconsin; and a distribution center in Wayauwega, Wisconsin. Along with these assets, approximately 750 Kraft Heinz employees will join Lactalis, which expects to add additional U.S. jobs to support the business.

Having had a prominent presence in the U.S. market for 40 years, the newly acquired brands and assets will join Lactalis’ existing portfolio that includes  Président®, Galbani®, Parmalat®, Stonyfield Organic®, siggi’s®, Karoun®, rondele®, and Black Diamond®, and will add to its existing eight U.S. plants in New York, Vermont, New Hampshire, Wisconsin, Idaho, Arizona, and California.

“The people of Kraft Heinz have built an extraordinary portfolio of high-quality cheese products and brands that consumers love and trust – and we are honored to have been chosen by Kraft Heinz to help carry this legacy forward,” said Thierry Clément, CEO, Lactalis North America. 

“This combination of complementary offerings is a clear strategic and cultural fit that will create important new opportunities for domestic and international expansion, product innovation, and positive community and employee impact. We look forward to working with and learning from our new colleagues, building on our proud histories together and continuing our collaborative strategy for expansion: to invest, to include, to support, and to grow.”

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.