Kraft Heinz expands sustainability push after UK’s unilever offer

Bloomberg

Kraft Heinz Co., rebuffed recently in its bid to buy Unilever, is investing $200 million in an expanded corporate social responsibility program that includes a pledge to fight malnutrition and decrease its environmental footprint.
The Kraft Heinz announcement comes about a month after the company pulled a $143 billion bid to buy Unilever, saying it didn’t want to get involved in a politically charged takeover fight. A major point of concern, particularly in Europe, was whether the Anglo-Dutch consumer-products giant’s focus on “brands with purpose” would survive the relentless cost cutting that is the hallmark of 3G Capital, the private equity firm that manages Kraft Heinz.
Now, Kraft Heinz is pledging to donate 1 billion nutritious meals to people in need by 2021, improve the sustainability of its supply chain and reduce its greenhouse gas emissions by 15 percent. The cheese-and-condiment maker, created in a 2015 merger orchestrated by 3G and Warren Buffett’s Berkshire Hathaway Inc., has had a corporate-responsibility program since last year and has been working to broaden its targets over the past several months. Tuesday’s announcement wasn’t prompted by backlash to the Unilever approach, according to Chief Executive Officer Bernardo Hees. The corporate responsibility program has “been embedded into our company vision since Day One and is unrelated to any transaction,” Hees said in an email.
Kraft Heinz will spend the $200 million over the next couple of years, and doesn’t plan to change profit forecasts or raise prices on products as a result of the investment, Hees said. The company plans to release a full corporate social responsibility report that will lay out the full details of its targets later this year.
With the expanded program, the company plans to examine how it sources palm oil and is “committed to the humane treatment of animals,” among other things. Last year, Kraft Heinz announced its commitment to cage-free eggs, set sustainability goals in manufacturing and delivered nearly 68 million meals to people to needy individuals, the company said.
Earlier this year, Kraft Heinz announced it was partnering with Oprah Winfrey on a line of refrigerated meals. As part of the joint venture, the company agreed to donate 10 percent of the profits to organizations fighting hunger. That provision was necessary to secure Winfrey’s involvement, a spokesman for Kraft Heinz told Bloomberg.

3G Strategy
In making a bid for Unilever, 3G and Buffett had hoped to continue with a strategy that has shaken up the food industry, putting pressure on competitors to slash costs to improve profit margins. The investment team combined to take H.J. Heinz private in 2013, and Hees, who was CEO of ketchup maker, helped produced industry-leading margins at the company in less than two years.
After taking over Kraft, 3G’s manager once again shuttered factories and fired workers to reduce expenses. The company is ahead of schedule on its cost cuts and recently raised its target by $200 million to a goal of trimming $1.7 billion in annual expenses. Prior to the news of the Unilever bid, there was fervent speculation that Kraft Heinz was ready to made a deal and that the next blockbuster food merger was coming this year.
But once news of the Unilever offer leaked, there was pushback. Namely, critics worried about the culture clash between the two companies. And while the expanded corporate responsibility targets may soften its image a bit, Kraft Heinz will remain focused on keeping costs under control, Hees said. In fact, it’s the cost cuts that make investing in the sustainability program possible,
he said.
“We remain focused on eliminating costs that don’t benefit our consumers or our company,” Hees said. “Our focus on removing nonessential costs enables us to make significant investments in critical growth areas of our business.”