Dive Brief:

  • Kraft Heinz is selling its natural cheese business to Lactalis for $3.2 billion, Chief Financial Officer Paulo Basilio announced at the company’s virtual investor day. The brands included in this sale, according to a company news release, include Breakstone’s, Knudsen, Polly-O, Athenos, Hoffman’s and Cracker Barrel in the U.S. only. It also includes the Cheez Whiz brand outside the U.S. and Canada. The agreement includes a perpetual license for the Kraft brand in natural, grated and international cheeses, and the Velveeta brand in shredded and international cheeses.
  • The brands being sold contributed $1.8 billion in net sales for Kraft Heinz in the 12 months that ended on June 27. The transaction is expected to close in the first half of 2021, Basilio said. Proceeds will be used to pay down debt.
  • Kraft Heinz used its investor day to lay out a new business strategy to help the mega-company grow market share, increase efficiency and build its business. Basilio said the sale furthers Kraft Heinz’s new strategy as it increases the percentage of the company’s portfolio made up of brands primed for growth. Additionally, he said, 90% of their current sales are in developed markets.

Dive Insight:

Although this announcement was dropped at the end of Kraft Heinz’s investor day, this is a deal that has been talked about for more than a year.

After Kraft Heinz shocked the markets in February 2019 by announcing a $12.6 billion net loss, the company has been looking for ways to get back on its feet. A potential divestment of Breakstone’s was first reported on by CNBC a few weeks later, and Kraft Heinz had even reportedly hired Royal Bank of Canada to review options for the brand. Other reports indicated that the company was also looking at options for Maxwell House, Plasmon baby food and Ore-Ida frozen potatoes.

A few months later, then-new CEO Miguel Patricio ordered a hold on all divestments. He said at the time he wanted to review the business as a whole and explore all of the options available to bring the company back to the leading position it once held. Patricio said on his first earnings call last August that he needed to know where all of Kraft Heinz’s iconic brands sat in terms of its larger business model, and didn’t want to be in a rush to give away the company’s most valuable assets.

On that same earnings call in 2019, Patricio — known as a turnaround expert — promised to lay out a comprehensive strategy for the company to find growth in the future. And that long-awaited plan was unspooled during nearly four hours of presentations from Kraft Heinz’s top executives on Tuesday morning. The company is placing new emphasis on growing its brands by shifting them from categories to larger platforms, and opening its growth thinking beyond the uses for one product alone — like ketchup solely for a hamburger topping — to all of the ways that the company’s products can enhance that hamburger.

Answering a question about the sale on Tuesday, Patricio said that the decision to divest the natural cheeses is an example of agile portfolio management for Kraft Heinz. Even in areas that could be seen as growth opportunities, he said, there may be places that the company cannot improve. 

“We will continue with Philadelphia Cream Cheese, which is an amazing brand with amazing potential for growth,” Patricio said. “We keep Kraft Singles American Cheese because we feel the same way. The natural cheese was an area that we thought could add more value to the company that is actually buying the product than for us. So we feel that this will help us tremendously on our growth ambitions.”

As far as buyers for the cheese business go, it’s not surprising that Lactalis is the winning bidder. The French dairy company has been on a mission to grow its U.S. business. Lactalis North America CEO Thierry Clement told Food Dive earlier this year that the company was concentrating on growth opportunities on this side of the Atlantic Ocean — with its eyes and ears looking for M&A opportunities that fit its business model. 

Lactalis, which owns U.S. yogurt brands Stonyfield, Siggi’s and Green Mountain Creamery, has no U.S.-based cheese brands of its own. It currently owns European cheese powerhouses, including France’s President and Lactel, and Italy’s Galbani.

Clement said in a release that Lactalis was ready to carry the torch of the iconic Kraft Heinz cheese brands.

“This combination of complementary offerings is a clear strategic and cultural fit that will create important new opportunities for domestic and international expansion, product innovation, and positive community and employee impact,” he said. 

These cheese brands add to Lactalis’ footprint in the space both in the U.S. and abroad. The deal includes factories in Tulare, California; Walton, New York; and Wausau, Wisconsin, as well as a distribution center in Weyauwega, Wisconsin. There are approximately 750 employees at these facilities, which will continue to operate, the press release from Kraft Heinz said.

While Patricio and other members of the Kraft Heinz executive team laid out extensive plans and strategies for the company to get back to a leading position in the food space on Tuesday, this divestiture might not be the only one announced soon. Images of many of Kraft Heinz’s brands were featured on slides and videos during the virtual investor day. However, another one seemed to be conspicuously missing: Maxwell House.