Chapter 1: Why was Kraft Mac and Cheese a staple in American households?
Jesse, did you grow up eating mac and cheese? I did grow up eating mac and cheese. I loved mac and cheese, Kraft mac and cheese specifically as a kid. The thing I remember most is that I may or may not have at different points eaten entire boxes of it myself.
Our colleague Jesse Newman covers the food industry. Kraft mac and cheese was mac and cheese. There was no other. And that's the way it was for decades. Kraft mac and cheese dominated the pantry aisle at the supermarket, literally.
You know, you walk down that aisle and there is the Kraft mac and cheese section. There is that section that has the blue and orange boxes that is just, you know, the core of the grocery store. It's like the nonpolitical big blue wall.
Yes, correct.
But these days, oodles of new competitors are eating into Kraft's market share. And that blue wall is looking more like a rainbow.
There are a lot more brands than there used to be. And now you've got Annie's mac and cheese. That's sort of a lavender color. You've got a new rival, Goodall's. They've got all kinds of different colors. They've got a teal. They've got a red. So it's a much more diverse grocery aisle. So Kraft was just king of mac and cheese for decades. And recently, they have lost their grip on mac and cheese.
And now, Kraft's big cheese status is under threat. This year, the company said it plans to spend more than $60 million to boost Kraft mac and cheese.
This story is really sort of the rise and fall of one of the world's biggest food companies and how a company lost its way, tending to some of America's most iconic pantry staples like Kraft mac and cheese.
Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, February 2nd. Coming up on the show, how Kraft lost its lock on mac and cheese. Take us back to the beginning. What is the origin story of Kraft Mac and Cheese?
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Chapter 2: What led to the decline of Kraft's dominance in the mac and cheese market?
This was true of many of their brands. Think Jell-O, Kool-Aid. We loved them as kids, but a lot of parents were already reaching for healthier options.
In the face of these bigger shifts in the food industry, Kraft made a drastic move. In 2015, the company merged with another huge name in packaged food, Heinz.
And I really can't overstate how big a deal this is in the food industry. This is supposed to be sort of a new chapter for many of these brands. Executives at the time said that the merger was going to make the brands more relevant. It was really going to rescue what, you know, already at this time, in some cases, were ailing brands.
One of the architects of the merger was a private equity firm called 3G, which was known for its strategy of aggressive cost cutting.
They pretty quickly start to eliminate a lot of jobs. They close plants. And it's a big change at the start of Kraft Heinz Life. And did that strategy improve the business? So, it did improve profits. Okay. Kraft Heinz starts to, you know, boast the highest operating profit margin among food companies. However, 3G has a lot of critics.
And among them, Wall Street analysts, former employees, you know, watchers of the industry, who all say that, okay, you cut costs too. But you lose all kinds of institutional knowledge. You lose, you know, marketing capabilities. You lose expertise in research and sales.
And, you know, a lot of people view it as they just really gut the organization and that they cut costs at the expense of future growth.
Though profits were up, over time, sales declined. In 2019, Kraft Heinz was forced to write down the value of its assets by $17 billion, in part because of some accounting errors. At the time, Kraft Heinz executives said that the changes to the food industry had a stronger impact on the company's brands than they anticipated. The pandemic brought some relief.
Consumers turned back to home cooking and nostalgic comfort food, including those beloved blue boxes. In 2020, the president of U.S. business at Kraft Heinz told investors that the company had online sales that totaled to nearly 90 million pounds of mac and cheese. He said that was equivalent to 41 statues of liberty.
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