- Kraft Heinz is approaching its one-year anniversary as a combined company, but costs and synergies from the merger are still being ironed out.
- To date, the company has realized only about one-third of the merger's costs (just over $1 billion of $3 billion in total), as streamlining and restructuring are ongoing. Costs stem in part from implementation of zero-based budgeting and the identification of overlaps and inefficiencies between the two companies and their production, which are common since they both operate in the same market.
- By 2017, when management anticipates completion of post-merger restructuring, the company's goal for yearly cost savings is $1.5 billion.
The Kraft Heinz merger stands out in the record-breaking flurry of the past year's mergers not just because of its sheer size but also the extent of its overlap, which has raised questions about potential brand divestments. The size of its overlap may produce challenges for certain brands, but it also provides significant opportunities.
Kraft Heinz will achieve synergies in part by gaining shelf space through increased scale, but it is doing so by appealing to different target markets within the same product category. For example, last week Kraft Heinz launched a marketing campaign to support the launch of five new Heinz barbecue sauces, though Kraft already sells eight barbecue sauce varieties. Kraft Heinz executives don't believe Heinz's line will take sales away from Kraft because Heinz is using regional flavors to compete with premium regional brands rather than Kraft's value-added market.
Kraft Heinz also intends to expand sales of Kraft products overseas. Prior to the merger, Kraft was primarily a domestic manufacturer while Heinz sold about 60% of its products internationally. By leveraging the separate platforms of both companies, Kraft Heinz can establish a larger footprint for all brands in the U.S. and abroad to increase sales while simultaneously cutting costs. This growth strategy is critical for the combined company's future as several legacy brands from these companies have lost market share to startups and other competitors.
Kraft and Heinz brands also use many similar ingredients, which offers more synergies along the supply chain. By utilizing each other's suppliers and distribution channels, Kraft Heinz finds the best prices to boost margins and improve efficiencies. 3G proved its ability to increase margins with Heinz on its own. Now with the opportunities offered by Kraft and its supply chain, 3G can take its cost-cutting strategies a step further by identifying optimum synergies between two companies it now owns.