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Each month I write a feature for Media Post:CPG, an integrated publishing and content company whose mission is to provide a complete array of resources for media, marketing and advertising professionals. This article first appeared on Media Post: CPG in April 2015.

Article Link (http://www.mediapost.com/publications/article/247317/3gs-creative-destruction-of-kraftheinz.html)

We’ve all read plenty about the whopper of a merger between Kraft and Heinz, creating the third-largest food and beverage company in North America and fifth-largest in the world. The question I’d like to explore is, “Is it a good thing or a bad thing?”

On the “good” side:

  • Undoubtedly good for Kraft shareholders who, since the news, have already seen a nice jump in the value of their shares
  • Good for 3G and Warren Buffet who, after reducing costs at Heinz faster than sales have fallen, are proving their model for extracting value out of underperforming assets, works (at least in the short run) and moving it onto more assets
  • Good if you’ve got brand management responsibilities for some of these iconic American brands in international markets
  • A good demo of survival-of-the-fittest capitalism at its best — when the beast gets a little old and slow, it rightfully becomes fuel for the strong

On the “bad” side;

  • Bad if you’re a senior executive at either of these firms who has spent the better part of a career trying to grow the firm’s brands. This merger is about cost cutting, not investing in attempts to grow mature brands, at least not in the United States. Did that single spot for Heinz ketchup in the Super Bowl convince anyone of 3G’s commitment to invest in marketing?
  • Bad if you’re a worker at any of the many factories processing Kraft’s foods who will undoubtedly lose their jobs due to cost-cutting closures
  • Bad, if as part of the growing middle class in many international markets, you start adopting a highly processed, American diet (see Colin Campbell’s The China Study).

There’s plenty to like, and hate, about these deals. People get hurt. People get rich. So it kind of comes down to the side of the political spectrum on which you tend to sit. If you’re a hard-boiled capitalist, you see this kind of “creative destruction” as an example of laissez-faire capitalism working its magic — breaking up under-performing assets and reallocating them to some more efficient and more profitable investment. If you’re more of a “safety net” believer, you hate the way people get ground up and spit out in this kind of merger, and want to see some softer landing for folks.

In a dog-eat-dog world, the model wielded by 3G and backed by Buffet is ruthlessly efficient. It strips a slow-growth enterprise of its excess baggage and makes a lot of money doing it. We don’t know yet what the end game is. Do they ultimately sell off the remaining assets and move onto another bloated organization, or do they eventually change the model and start focusing on growth? The purchase of Kraft suggests that they are not about to change the model, but rather port it over to other assets. It’s the model they know how to wield better than anyone else right now. The chum is in the water. Expect more mega food and beverage mergers now that 3G has set a new benchmark and shown a way for generating higher value from Big Food brands. It’s free market capitalism at its efficient best — as long as you’re not caught in the middle of it.

Michael Bollinger
Michael Bollinger
President

With over 25 years in the advertising agency business, Michael is focused on building the consumer package goods agency of the future - today. One centered on the breakthrough brand storytelling skills of Smith Brothers' creative heritage, but delivered with the speed, efficiency and real-time optimization demanded by today's digital environment.

Michael joined Smith Brothers in 2005 as Director of Client Services, after spending the previous 20 years with DDB Worldwide where he was Senior Vice President, Group Account Director of the global agency's flagship, Chicago office.

Excited by Smith Brothers' creative firepower and entrepreneurial spirit, Michael joined the Smith Brothers’ team with a vision for delivering big agency resources on a dramatically more nimble and effective platform.

Under Michael's leadership the agency acquired digital agency, Hot Hand Interactive, in 2007. It added its Social Media practice in 2008. Developed an Analytics practice in 2009 and a Shopper Marketing practice in 2010.

Layered onto its existing strategic planning, creative and media capabilities, Smith Brothers is now a force in the CPG marketing world – working with brands like Nestle, Del Monte, Heinz, Ghirardelli, Red Bull, and more.

Michael holds a B.A. in English from Union College.