September 10, 2025

Since news of the KraftHeinz split has been dominating headlines this past week, I figured I would write about it.  I’ve been following 3G for quite some time, and am a great admirer of elements of their model.  Understanding KraftHeinz is just as much about understanding 3G as it is the merger they executed.

There’s a plethora of articles about the details of the detail online, but I I thought it’d be interesting to look at it from 3G’s perspective.  Even though they exited the investment completely last year, and didn’t have anything to do with the split directly, they did architect the original deal.

Let’s dive in.

The Swingers From Rio

For those of you don’t know, 3G is run by a small group of eclectic billionaires originally from Brazil (Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira).

After selling their Brazilian investment bank to Credit Suisse in the mid ’90s, they focused solely on their private equity investments.  You may have heard of some of the household names they own – Budweiser, Burger King, Tim Horton’s, Popeye’s, Firehouse Subs, and Sketchers are just a few.

The Investment Model

Although most would look at them as a private equity firm, their investment model differs from in several ways:

• Skin the Game – Even if they are bringing additional select investors, they tend to be the largest investors in their deals.  They like to have significant skin in the game.
• Concentrated Bets – Each vehicle they raise money for is deployed entirely in one situation.  Translates to small numbers of highly concentrated bets once every few years.  This is markedly different from your typical generalist PE Fund.
• Long Term Focus– They buy control of companies, and get involved in daily operations with the intention of holding them for a very long period of time.  Budweiser? 35 Years.  Burger King? 15 Years.  No intention of selling either anytime soon.
• Maniacal Focus–  Capital return and capital preservation is the name of the game.  This core tenet drives everything else they do: business selection, business quality, capital structure, and operations.  They don’t do venture capital.  They don’t invest in tech.

Now we understand how they invest, let’s talk about what they invest in and why. Helps explain why they set their sights on KH.

The Operating Playbook

• Target Fast-Moving-Consumer-Goods (FMCG) Companies – AB InBev and Restaurant Brands International are great examples.  FMCG businesses sell lower cost products at very high volumes, generally with more predictable demand.   This allows them to focus on ferreting out operational efficiencies in the business (logistics, distribution, purchasing, etc).  KraftHeinz falls squarely into this category.
• Purchase Big Names with Big Brand Equity – Brand equity is the competitive moat they count on.  KraftHeinz both are staples of American households, meaning they can withstand the cost cutting efforts that 3G puts them through.
• Bring in Internal Talent – Once a company is acquired, they bring in their people.  These are operators from their other portfolio companies (or from the 3G office directly) who have been groomed in the company culture.  They hire young ambitious folks, give them a large ambitious goal to hit, and tie their wallets to those goals with hefty bonuses. At KraftHeinz, this happened right from the start.  The two CEOs that ran the behemoth under their watch (Bernardo Hees & Miguel Patricio) both spent a number of years in senior management at ABInBev and Burger King before being brought over to KH.
• Get out the Razor – With a name brand in hand, and their people squarely inside the business, it’s time to start cutting the fat. Aggressively.  Known for their use of zero-based-budgeting, they require all departments to justify every expense for the coming year (most aren’t approved).  And when they’re done?  Do it all over again. As with KraftHeinz, the cuts can go deep enough before realizing you’re cutting into muscle.  This is what many accused 3G of when KH took a $15 Billion write down of their asses in 2019.
• Find the Next Target – While the senior management is busy paring expenses, the 3G team starts the hunt for the next big fish to swallow. Back in 2017 the next big fish was supposed to be Unilever.  Unfortunately, the 3G team misread the room and botched the opportunity.  This, in my opinion, started exposing the cracks in the KH investment.

What Went Wrong

• They paid too much– Funny enough, the investment started out well.  According to one of 3G’s partners (Alexandre Behring), their initial investment of Heinz at $28 billion in 2013 returned several times their investment.  They raised a separate vehicle for the Kraft investment (~$45 Billion) and merged the two entities, but ended up overpaying for the latter.  While they were able to recoup their initial investment (more or less) on the Kraft deal, it wasn’t a resounding success.  By 2017, their cost cutting playbook had been run on the combined entity, and wasn’t going to yield the returns they wanted (hence the bid for Unilever).  The key point? You can’t M&A your way out of most problems, particularly at that scale.  When there aren’t any targets left to acquire, the only thing left is true innovation.
• Changing consumer tastes – Speaking of innovation, there was a large shifting in consumer sentiment and tastes.  Customers wanted more transparent supply chains, less processed foods, and a renewed focus on health.  KH and the 3G team were caught flat-footed.  Jorge Lemann even acknowledged it in 2018.  “I’ve been living in this cozy world of old brands and big volumes,” said Lemann. “We bought brands that we thought could last forever. You could just focus on being very efficient… All of a sudden we are being disrupted.”
• Competition– Not only are consumers trusting the big brands less, but the explosion of private-label (both in volumes and quality) was the other competitive factor they didn’t plan on.  House brands like Kirkland Signature and Amazon Basics are changing customers’ perceptions on what private-label brands are all about.  Increased inflationary and tariff pressures have also forced consumers to be more value focused, particularly as once-niche categories quickly become more commoditized (keto, plant-based, etc).  KH’s sprawling portfolio of legacy brands has lost some of its luster with younger generations, and the split is simply an affirmation that investors want two smaller companies that are more focused and disciplined on their core markets/verticals.

The real question now is KraftHeinz the canary in the coal mine?  Given the wave of changing consumer tastes and current disruption, are we going to see other Consumer Packaged Goods companies sell off non-core brands (or split up)?  We already saw it with Kellogg’s.  Given the amount of brands owned by giants like Unilever, Procter & Gamble, Coca-Cola, I think this will pick up speed in the coming years.

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Rockledge Trading is a specialty distributor & consultant specifically within food and beverage.  We work globally and help manage sourcing, logistics, and inventory for distributors, food manufacturers, government agencies, and non-profits.  If you’re looking for help in any of these areas, send me a note or reach out at RockledgeTrading.com