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March 11, 2019

The struggles of Kraft Heinz provoke mixed feelings.

When I heard about the struggles of Kraft Heinz – a huge write-down, notice of a federal investigation, a plunge in the stock price – I had mixed feelings.

I’ve written about both Kraft and Heinz for years and have had (mostly) positive interactions with many of their people. And it’s always a shame when an iconic business stumbles so badly.

On the other hand, I couldn’t help feeling a twinge of schadenfreude at seeing 3G Capital, the Brazilian investment firm that took over and merged both companies in 2015, get some comeuppance.

3G is a prominent practitioner of management by machete. It closed factories and cut thousands of jobs at Kraft Heinz, and instituted zero-based budgeting – making managers justify every purchase anew every year, literally down to the paper clips.

Like many machete wielders, 3G reaped initial rewards. Kraft Heinz’s earnings went up more than 20% in the first two quarters of its existence, and its stock price rose 32% at its peak.

But cutting your way to prosperity has its limits. As this Wall Street Journal article details, Kraft Heinz neglected new product development – poison to a company loaded with center-store legacy brands. The stock price is now down more than 50% from the merger.

• Read about the huge hit to Kraft Heinz’s stock

“We bought brands and we thought they would last forever,” 3G’s founder told a Milken Institute conference, as quoted in the WSJ. “Now, we have to totally adjust to new demands from clients.”

I can’t help wondering if any of the people 3G so eagerly let go might have helped that adjustment.

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