Kraft Heinz is bidding adieu to Mr. Peanut.
The food giant said Thursday that it plans to sell its Planters nut business for $3.4 billion to Spam maker Hormel. The announcement confirms a report last week in The Wall Street Journal, which said that the two companies were discussing a potential deal and that it could be finalized this week.
CEO Miguel Patricio called the deal "another momentous step" in an ongoing rejiggering of Kraft Heinz's business in a press release.
"It will enable us to sharpen our focus on areas with greater growth prospects and competitive advantage for our powerhouse brands," he said, adding that the company's snacking business would now focus more on brands like Lunchables and P3, its packs of nuts, cheese, and other high-protein options.
The deal is the second major sale for Kraft Heinz in the last six months. Last fall, it agreed to its natural cheese business to French firm Lactalis for $3.2 billion.
It's also the latest step that Kraft Heinz has taken to right-size its business in recent months. Though it received a boost in sales during the pandemic, the food company has halted production of some products and reshuffled its investment priorities for new products going into 2021.
US Zone President Carlos Abrams-Rivera told analysts on its Q3 earnings call in October that Kraft Heinz planned to cut about 20% of its products by 2021. While the company halted production on a larger variety of products when COVID-19 began spreading earlier this year, it has since analyzed its portfolio to determine which items it would resume production of and which it would not, CEO Miguel Patricio said during its third-quarter earnings call.
In an interview with Insider, Abrams-Rivera declined to name the products that Kraft Heinz was cutting but said most were items sold in the US and came from a variety of the company's brands.
"It really is across the portfolio," he said.
The company is also reducing the number of innovation projects, which include new products that it will develop for 2021 by one-third over 2020.
"In the past, we have launched a number of innovations that were overly complex in our factories and didn't have the consumer takeaway we were hoping for," he said.
Instead, the company is focusing its manufacturing power on products that are more in-demand at grocery stores and prepackaged items that it believes will appeal to customers eating more food at home. Abrams-Rivera pointed to products like Just Crack an Egg, a breakfast bowl that customers can add a fresh egg to and microwave, and Fruitlove, a smoothie that can be eaten with a spoon, as examples of products that are doing well during the pandemic.
Kraft Heinz's focus on top-selling products and elimination of those that are not doing as well allow it to build back its share of the market in products like cream cheese and stovetop dinners. Before the pandemic, many products in the food giant's portfolio of shelf-stable brands were losing ground to private-label competitors as well as upstart health-focused brands.
"As the company catches up on capacity in relation to consumption growth, we are seeing its market shares improve markedly across the business, especially in the US," Christopher Growe, a Stifel analyst, wrote after the most recent earnings report.
Demand for some products, such as pasta sauce, remains so high at grocers that Kraft Heinz has brought on third-party manufacturers, known in the industry as copackers, and rearranged priorities at plants it owns, Abrams-Rivera said.
Streamlining portfolios has become commonplace at many food companies during the pandemic as many struggle to keep up with demand at retailers and look to cut costs. Coca-Cola said earlier this month that it would eliminate roughly half of the brands in its portfolio, including Tab diet soda and Zico coconut water, and the snack maker Mondelez indicated this summer that it planned to cut the number of items it makes by 25%.
Nestle, General Mills, and Danone are also looking at canned-food and beverage brands.
