- Kraft Heinz has cut costs deeply since the merger, overseen by 3G Capital, that created it in 2015.
- The cuts have left employees paying for travel expenses and bringing their own Keurig pods to work.
- The cuts have also left the company unable to compete with rival food-makers.
- See more stories on Insider’s business page.
Under the private-equity firm 3G Capital and Berkshire Hathaway, Kraft Heinz was supposed to be a powerhouse in the food world.
But current and former employees said 3G-approved executives and a maniacal focus on cutting costs have hobbled the two historic brands. Many are leaving and fear for the company’s future, especially as a sales boost from eating at home fades post-pandemic.
While other food companies, such as General Mills and Kellogg, risk a similar slowdown as society opens up, Kraft Heinz is in a more direr place, analysts said.
The company known for decades-old products such as Kraft macaroni and cheese, Heinz ketchup, and Oscar Mayer hot dogs has had few innovative products over the years to sustain growth.
Insider spoke with nine current and former employees. The former employees all left the company in the past six months.
Insiders said that 3G’s cost-cutting has left the company unable to introduce new products, such as plant-based meat. They also said the deep cuts have caused morale to plummet and turnover to soar.
Six employees said they quit this spring, after the company paid bonuses, out of fear that years of 3G-supervised cost-cutting will come to a head as the pandemic ends.
One who left earlier this year said Kraft Heinz has the “worst turnover” they’ve seen at a company, with some employees jumping ship after a couple of weeks after seeing the long hours and limited resources.
“People get burned out really fast,” the former employee said.
A Kraft Heinz spokesperson pointed to numerous turnaround efforts the company is undertaking, which were outlined in its Strategic Transformation Plan.
“We are investing aggressively to support our turnaround strategy, including in our people,” Spokesperson Stephanie Peterson said. She noted that in 2020, the company was listed as one of Forbes “World’s Best Employers.”
“This drastic cost-cutting approach and culture you’ve described is contradictory to the values-based culture we continue to build,” Spokesperson Stephanie Peterson said. She added that most of what the employees described “is completely irrelevant in our current work environment” since most salaried employees have been working remotely since last March.
Kraft Heinz told Insider that the examples of cost-cutting employees cited were “incredibly outdated (at least 2 years old) and not reflective of the company Kraft Heinz is today.”
The current and former employees Insider spoke to worked in Kraft Heinz offices in Chicago and regional offices prior to the pandemic and remotely during the pandemic. The company plans to open offices in a limited capacity starting September 7. The company said it planned to offer a flexible, hybrid approach to its return to office.
3G Capital did not respond to Insider’s request for comment.
Efforts to keep costs low are everywhere at Kraft Heinz.
One reason: Kraft Heinz uses a tactic called zero-based budgeting. The approach asks managers to explain why positions, travel, and other costs are necessary each year instead of using the previous year’s budget as a baseline. 3G applied the method at brewer AB InBev and Burger King owner Restaurant Brands International, both of which were also created by big mergers. 3G started ZBB soon after it oversaw the merger of Kraft and Heinz in 2015.
One employee who recently left the company said that when she was in the office she was limited to spending $5 a year on pens, notepads, and other office supplies. Employees were also limited to printing 90 pages per year, the employee added.
Within a month of the merger closing in 2015, Kraft Heinz also removed fridges that held snacks for company employees. Pots of fresh coffee also became rarer at one of the world’s largest food companies, the former employee said.
“You had to make the coffee yourself, and you had to bring in your own Keurig pods from home,” the employee said. This move was particularly surprising coming from the company that makes Maxwell House.
The ultraconservative approach to budgeting has also made it harder to carry out basic job tasks, employees said. One former employee said their boss refused to sign off on travel expenses such as hotels and food, even though the employee’s job involved frequent long drives. Of course, due to the pandemic, business travel over the past year has been limited.
“I’m in the car 12, 14, 16 hours a day because he wouldn’t approve any budget for me,” the employee said. “It was to a point where I spent thousands of dollars of my own money on food and hotels.”
Many new employees had little experience, particularly in the food or consumer goods space. Kraft Heinz recruiters courted recent business-school graduates, multiple former employees said.
One former employee recalled a director who didn’t “know the difference between pork and beef.”
The combined company was far different from the two that had created it, the employee added. At Kraft, employee churn was lower, and management was more interested in nurturing and retaining young employees. When summer interns arrived in Chicago, for example, Kraft covered their rent by paying for fancy apartments in Evanston, the former employee said.
“There was so much opportunity to grow and advance then,” the employee added.
The 3G playbook
In February 2019, Kraft Heinz wrote down the value of brands such as Kraft and Oscar Mayer by $15.4 billion. The same year, it faced an investigation into its accounting practices by the Securities and Exchange Commission. Ultimately, Kraft Heinz restated results going back three years.
Those stumbles, plus declining sales, have pushed Kraft Heinz’s stock price down 46% in the six years since its creation, S&P Capital IQ said. Even Warren Buffett said after the write-downs in 2019 that Berkshire Hathaway “overpaid for Kraft.”
One brief moment of hope for employees came in July 2019, when CEO Miguel Patricio took the company’s helm. One former employee initially felt optimistic that Patricio would bring a fresh perspective to the job.
“He gave six different principles that he lived by from Amazon,” one former employee said. “We were just very excited for any sort of change.”
But employees said Patricio has since followed the same 3G playbook. Last September, for instance, he and other executives gave a presentation that they said would outline a new direction for the company. In reality, the centerpiece of the plan was $2 billion in additional cost-cutting over the following five years.
Cutting expenses so deeply leaves Kraft Heinz virtually no money to reinvest in its business and new products, said Lora Cecere, the founder and CEO of Supply Chain Insights, which advises companies on their supply chains.
“The 3G approach has always been a very finance-driven approach,” Cecere said. “It’s a myopic financial view versus a market-driven view.”
There’s little in the budget to invest in new products, said one employee who recently left the company. Most of Kraft Heinz’s debuts since the merger have been new varieties of existing products, such as bottles of Heinz ketchup that were rebranded “edchup” for a promotion with Ed Sheeran. Another “new” product line mixes condiments to create products such as Mayochup (mayonnaise and ketchup) and Kranch (ketchup and ranch).
“It makes your job as a salesperson much harder if you have to advocate for suboptimal products,” the former employee said.
Kraft Heinz paid out its best bonuses in years thanks to the higher consumption of hot dogs, soup, and other packaged foods during the pandemic. But employees and analysts said demand will largely fade as society moves toward a pre-pandemic normal.
“I wouldn’t expect it to last,” said one employee who left for a new job this spring.
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