3G Capital LLC

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(1) Annie Gasparro, Kraft Heinz's Promise Turns Sour. Wall Street Journal, Feb 23, 2019, at page B3.

Quote:

(a) "Kraft Heinz Co saw more than $16 billion of its market value evaporate Friday [Feb 22] after acknowledging [the day before] that its Kraft cheese and Oscar Mayer deli meat aren't worth as much as they were when the brads merged with HJ Heinz Co less than four years ago.

"The admission shook the food industry and cast doubt on the company's strategy to focus more on the profits than sales. It also raised questions ahead of Berkshire Hathaway Inc's earnings and the annual letter * * * both expected Saturday. The investment firm is a major Kraft Heinz stakeholder.

"Kraft Heinz's legacy brands -- like Velveeta cheese, Planters nuts, Maxwell House coffee and Bagel Bites frozen snacks -- have struggled to keep up with consumers' increasing interest in foods with a simpler, more-natural ingredients, and their inclination to buy from places other than traditional grocery stores, including online.

"As a result, Kraft Heinz wrote down its assets by $15.4 billion. That total includes $7.1 billion worth of goodwill. , suggesting some of the value the company thought the Heinz merger had generated effectively didn't exist.  

" Kraft also wrote down another $8.3 billion in intangible assets, lowering the values of its Kraft and Oscar Mayer brands -- an indication those brands haven't performed well enough in an ear of changing consumer tastes.  

(b) "In the years following the merger, Kraft Heinz took an aggressive approach to reducing costs, using a strategy pushed by its largest shareholder, 3G Capital LLC. That led to a better-than-expected $1.75 annual savings by the end of 2017.

"However, Kraft Heinz's outsize attention to making factories more efficient and reducing corporate headcount may have failed at keeping its brands relevant and instead resulted in a permanent loss of consumers, according to analysts. Its approach also has hurt the company's ability to compete for prime shelf space t supermarkets, they said.

(c) "Berkshire Hathaway's Class B shares fell 1.7% Friday.

"Mr [Warren] Buffett's investment firm joined with 3G Capital to buy HJ Heinz in 2013, and the two companies Berkshire Hathaway and 3G] were partners again in financing Heinz's 2015 merger with Kraft Foods Group Inc. At the end of 2017, Berkshire valued its 26/7% investment in Kraft Heinz stock at $17.6 billion, up from $15.3 billion a year earlier.

Note:
(a) The report is not online. There is no need to read the rest.
(b)  Maxwell House
https://en.wikipedia.org/wiki/Maxwell_House
was sold in 1932 to General Foods Corp (1895 (founded by Charles William Post, noted for Post cereal) - 1985 (acquired by Philip Morris); Headquarters Tarrytown, New York; not to be confused with General Mills)

In 1988 Philip Morris acquired Kraft, and merged General Foods and Kraft. After a few more acquisitions of food companies (such as Nabisco), in 2001 Philip Morris divested Kraft.
(c) Prableen Bajpai, Goodwill vs Other Intangible Assets: What's the Difference?  Investopedia, last updated on Feb 21, 2019.
https://www.investopedia.com/art ... hats-difference.asp
(" 'goodwill' denotes the value of certain non-monetary, non-physical resources of the business")
(i) nonphysical = not physical
(ii) "Goodwill is not a physical asset such as buildings or equipment": from the Web

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(2) Annie Gasparro  and Vipal Monga, 3G Capital, Once a Durupter, Is Reeling; Brazilian investors in Kraft Heinz and other food-and-drink giants relentlessly cut costs but failed to spend on new ideas. Wall Street Journal, Feb 23, 2019, at page A1.
https://www.wsj.com/articles/it- ... reeling-11550875206

Quote:

(a) "3G Capital burst onto the business scene a decade ago when it spent billions to buy America's old-school food companies, including Heinz and Burger King, and then relentlessly cut costs, including mass layoffs, to create efficient production machines.

Investors, including Berkshire Hathaway's Warren Buffett and hedge-fund owner William Ackman, expressed admiration for the Brazilian investment firm’s prowess. Headlines hailed its single-minded ability to improve profit margins. Rival companies followed suit, in some cases out of fear 3G's founders would buy them to further bolster its lineup of storied brands, which includes Kraft Macaroni & Cheese and Bud Light.

(b) "Among the problems, 3G underinvested in its brands at the expense of future growth, rivals and analysts said. Especially at Kraft Heinz, 3G failed to see the speed of the decline in consumer interest in legacy food brands—Americans now want to buy healthier items, focusing on natural and organic ingredients, and are less loyal to the brands they grew up eating.  3G's aggressive approach to savings * * * squelched the innovation that might have helped its brands like Maxwell House coffee and Lunchables adapt to industry trends.

"The firm's top executives themselves sounded the alarm on the shift last year. 'I'm a terrified dinosaur,' said 3G co-founder Jorge Paulo Lemann at the Milken Institute [based in  Santa Monica, Calif] conference in April. 'I've been living in this cozy world of old brands [and] big volumes. You could just focus on being very efficient and you’d be OK. All of a sudden we are being disrupted in all ways.'

"He added: 'We bought brands and we thought they would last forever. Now, we have to totally adjust to new demands from clients.'

"The results are exposing the limits of 3G’s hyperfocus on a financial strategy to manage its companies, while not putting enough toward marketing, research and development.

"3G became the standard-bearer for zero-base budgeting, the accounting practice invented in the 1960s that 3G perfected and popularized * * * It requires justifying every expense anew each year, no matter how small, rather than using the prior year’s budget as a starting point.

Note:
(a) This report is not locked behind paywall. There is no need to red the rest, though -- but do view the graphic about "zero-base budgeting" and headlined "Meticulous Monitor."
(b) "Bud Light."

Anheuser-Busch InBev
https://en.wikipedia.org/wiki/Anheuser-Busch_InBev
(table: Founded 2008, Headquarters  Leuven, Belgium; section 5 Ownership: "Anheuser-Busch InBev is controlled by Belgian families Vandamme, De Mévius and de Spoelbergh, who as of 2015 owned a combined 28.6% of the company, and billionaire Brazilian investors Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles, who owned 22.7% percent through their private investment firm 3G Capital")