Nestle chairman: Heinz owners have 'pulverized' the food industry

Apr 17, 2015, 12:10pm EDT

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H.J. Heinz Co. ketchup products sit on display at a supermarket in Princeton, Illinois, U.S., on Wednesday, Aug. 22, 2012. Daniel Acker/Bloomberg

Justine Coyne

Reporter-Pittsburgh Business Times

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Nestle S.A. Chairman Peter Brabeck-Letmathe has made it known he isn't a fan of H.J. Heinz Co.'s proposed merger with Kraft Foods Group Inc.

Speaking at Nestle's annual general meeting, held Thursday in Lausanne, Switzerland, Brabeck-Letmathe said Heinz owners 3G Capital and Berkshire Hathaway have "pulverized the food industry market, particularly in America" as a result of the firm's aggressive pattern of acquisitions and cost-cutting.

"3G's partners are known in our industry for ruthless cost-cutting and have already proven numerous times that they are capable of reducing operating costs in particular by between 500 and 800 basis points, which has a revolutionary impact on all other members of the industry," he said.

He pointed to the spate of American acquisitions carried out by 3G in the past decade, first in the beverages sector with the creation of the world's largest brewery, Anheuser-Busch/InBev, then in the foodstuffs sector with the purchase ofBurger King, Tim Hortons and Heinz.

The merger of Kraft (NYSE: KFG) and Heinz is just the latest example of the major upheaval in the food industry that could threaten the competitiveness of companies like Nestle, according to Brabeck-Letmathe. When the deal closes, the Kraft Heinz Co. will become the third-largest food company in the U.S. in terms of sales, closing in on Nestle, which holds the number-two position behind PepsiCo.

And while Nestle will have a bigger bully of the block so to speak when the Kraft-Heinz deal comes to a close, there's no arguing that the Swiss company is a food and beverage behemoth in its own right. While it's faced challenges in recent years, the company reported total global sales of $96.15 billion in 2014. Beyond food, Nestle has a presence in health and beauty, bottled water and pharmaceuticals.

3G has been able to increase profits at Heinz while others have struggled, however Brabeck-Letmathe said this isn't a result of higher sales.

"Although profitability for a company like Heinz is indeed greatly improved today, the same is not true for sales growth, which declined by 4.6 percent in 2014," he said.

Heinz declined to comment for this story.

"Both Kraft and Heinz posted subdued growth with products that were extremely attractive in the past but are not sufficiently adapted for the future," he said.