Kraft Heinz has cut costs to the bone. Insiders say the strategy has hurt innovation, created employee turnover, and more.

Kraft Heinz owns some of the best-known brands in food, including Jell-O and Oscar Mayer hot dogs.

But people familiar with the company's strategy say it's mismanaged them by focusing too much on maximizing profits instead of building up the business.

Insiders also say Kraft Heinz and its private-equity owner, 3G Capital, have failed to invest enough in new products that would grow sales over the long haul.

And while demand for more food Americans can eat at home has lifted Kraft Heinz's sales during the coronavirus pandemic, employees still left en masse this year, anticipating more problems after things return to normal.

The danger for Kraft Heinz now is that while it has massive scale advantages over upstart brands like Beyond Meat, Hu chocolate, and Flow water, selling products under decades-old brands may become more complicated. Many consumers are looking for new and healthier options. If the company focuses too much on efficiencies, Kraft Heinz risks missing out on the next big food trend, according to food-industry analysts.

Below is Insider's coverage of the fallout at Kraft Heinz resulting from the company's cost-cutting strategy:

Kraft Heinz budget cuts created a dysfunctional company

Since its 2015 inception, following the $50 billion merger of Kraft Foods and H.J. Heinz, Kraft Heinz has cut costs under a model that 3G Capital used to make operations leaner at Burger King and Tim Horton's.

Kraft executives have told investors they would run the company more efficiently while finding new ways to grow sales. Attempts at the latter included selling blended versions of the company's condiments, which led to the release of a mix of its ketchup and ranch known as "Kranch."

At the company's corporate offices, employees are feeling the squeeze of that strategy. Budgets for everything from travel to promoting new products were cut year after year. The company also went through annual reorganizations and rounds of layoffs, with those left behind forced to do more with less.

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• Read more: 3G's merger of Kraft and Heinz is killing morale, causing burnout, and choking innovation, some employees say. Now, the company could get left behind as the economy reopens.
• Read more: Why the private-equity playbook failed Kraft Heinz
• Read more: Kraft Heinz just agreed to sell Planters for $3.4 billion. Here's how the deal fits into its broader culling of food brands.
• Read more: Kraft Heinz just unveiled a 'platform'-based strategy for managing its food brands. Here's how the top US executive hopes to finally get sales growing again.

Kraft Heinz; Samantha Lee/Insider

Kraft Heinz's investments in e-commerce may not be enough in the long run

Kraft Heinz has championed some high-growth areas of its business. The best example is its e-commerce division, which manages relationships with online retailers like Amazon. Kraft Heinz even tapped a 15-year veteran of Amazon as its most recent e-commerce chief.

But even that part of the business has been beset by problems. Employees say recruits from the tech world have clashed with old-school food-industry employees, leading to turnover. In September, a leaked email revealed the company's e-commerce lead was headed out the door.

Industry analysts also say investing in areas like e-commerce, even if done right, may not be enough to prop up the company.

• Read more: Kraft Heinz tried to supercharge its e-commerce strategy by looking to Amazon. Instead, it created 'a clash of cultures' between the old-school food industry and tech types.
• Read more: Leaked email reveals Kraft Heinz is losing its e-commerce chief, an Amazon hire who created 'a clash of cultures' between the old-school food industry and tech types
• Read more: Experts say Kraft Heinz faces a real nightmare scenario

Kraft Heinz is an extreme example, but other big food companies also face challenges as they try to stay relevant

Big food companies have scale, but they aren't always nimble enough to respond to consumer demands. Kraft Heinz and its peers, including Kellogg, General Mills, Unilever, and Nestlé, have set up initiatives to work with small brands to stay on top of trends.

Like Kraft Heinz, many have also benefited from an eating-at-home craze during the pandemic. As vaccines become more widespread and daily life moves toward normal, those companies are trying to keep as many of those pandemic-era customers buying as possible.

• Read more: CPG giants like Procter & Gamble and Mars are on the hunt for the next DTC breakout company. Here's what 4 execs say they're looking for.
• Read more: Shoppers flocked to packaged foods during the pandemic. Now, Kraft Heinz, General Mills, and Kellogg are supercharging marketing spend to keep them buying.
• Read more: Here's how to impress a VC with your food startup, according to the head of Kraft Heinz's $100 million venture fund