Kraft Heinz to sell natural cheese business to Groupe Lactalis in $3.2bn deal

The Kraft Heinz Company has agreed to sell its natural, grated, cultured and specialty cheese businesses to a US affiliate of Groupe Lactalis for $3.2 billion.

The consumer goods giant says that the cheese businesses being sold contributed approximately $1.8 billion to its net sales for the 12 months ended 27 June 2020. These include Kraft Heinz’s natural, grated, cultured and specialty cheese businesses in the US, its grated cheese business in Canada, and the entire international cheese business outside these two countries.

Kraft Heinz’s Breakstone’s, Knudsen, Polly-O, Athenos and Hoffman’s brands are all included in the transaction, as well as Cheez Whiz (outside the US and Canada only) and Cracker Barrel (only in the US).

Kraft Heinz will retain the Philadelphia Cream Cheese, Kraft Singles, Velveeta Processed Cheese and Cheez Whiz brands in the US and Canada, as well as the Kraft, Velveeta and Cracker Barrel Mac & Cheese businesses worldwide.

In addition, Kraft Heinz will partner with Groupe Lactalis on a perpetual license for Kraft in natural, grated and international cheeses and Velveeta in shredded and international cheeses.

The proposed transaction is expected to close in the first half of 2021, subject to regulatory review and approval, and Kraft Heinz plans to use post-tax proceeds primarily to pay down debt.

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

At its virtual investor day yesterday, Kraft Heinz unveiled details of a new operating model which includes transitioning from managing its portfolio as more than 55 individual categories to six consumer-driven platforms.

Patricio continued: “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.”

Following the changes announced yesterday, brands will be distributed among six platforms built around the occasions people consume Kraft products and the foods they are paired with.

According to Reuters, ‘taste elevation’ – encompassing brands such as Heinz Ketchup, Master and ABC – will be the company’s biggest platform. Other platforms include ‘easy meals made better’, ‘real food snacking’, ‘fast fresh meals’, ‘flavorful hydration’ and ‘easy indulgent desserts’.

Kraft Heinz also announced plans to increase spending on marketing by 30% to just over $1.4 billion and overhaul its supply chain with the aim of saving $2 billion by 2024.