What We Can Learn From the Kraft Heinz Debacle

I hope that you have enjoyed this weekend thus far and that you are gearing up for a day filled with joy. And for those of you excited for the Oscars tonight, I hope you enjoy the festivities. My favorite movie in 2018 was Black Panther, and if you’ve forgotten my views on this one, I shared the linkages to the movie and pursuing wealth. Also, I know several Charisse Says members are in the creative field, and eventually want to win an Oscar someday. To you I say – stay focused and get your prize.

At the end of last week, one story dominated financial headlines. I’m talking about Kraft Heinz’s abysmal earnings report. If you (or know anyone who) eat(s) Jell-O snacks or Lunchables, or drinks Maxwell House coffee, amongst many of the more widely recognized brands, then you know Kraft Heinz.  Well, in their earnings release last week, they missed their profit estimates, took a $15.4 billion write down on assets, and disclosed an SEC subpoena. Whoa and yikes – talk about a bad day! The stock plummeted 27 percent to a record low on Friday, wiping out more than $16 billion in market value on one day.

Why should you care, now?

Well, we’ve just witnessed one of the U.S.’s major companies whose products and brands dominate our daily lives have a BIG problem. We must pay attention as consumers and investors; it’s important to recognize how change is affecting this institution as there are lessons in here for us. Remember, we are embracing change this year, and Kraft Heinz’s changing business has implications for us all.

Check these out:

·         You might hold the stock in your 401k, traditional IRA, or brokerage account. Yes, check out your holdings to see if you are exposed to the stock. Now, one of the biggest advantages of having a mutual fund, which are generally used in 401ks and traditional IRAs, is that you are shielded from big price moves in any one stock. This logic gets upended when one stock has such an outsized impact on your portfolio. If you own the stock outright in a brokerage account, I’m sure you have an opinion right now. Don’t panic! Ask yourself - Are you thinking about buying more of the stock, selling it, or simply holding tight? Share your thoughts or questions in the comments section below.  


·         3G Advisors, the company that runs Kraft Heinz, made some serious missteps. In the WSJ’s insightful article, It Shook the Food Business by Snagging Burger King, Kraft and Heinz. Now 3G is Reeling, the major “ah ha moment” for me is that 3G’s aggressive cost cutting approach to improve margins has some serious flaws. Specifically, 3G has conceded that while aggressive efficiency efforts work to boost margins, a company can’t survive if it doesn’t simultaneously spend the money to develop and market new, on-trend products.


Here’s the lesson for you – as you look to embrace change this year and make decisions that will impact your financial well-being, be sure that you take a balanced approach to cutting costs AND investing in opportunity. I know, on surface it appears that these two do not go hand-in-hand. But, if you stay with me for a few more lines, let me explain. If you make a decision to cut your travel expenses this year to save a little money, for example, I think you should take a portion of that savings and invest it into a matching 401k plan. If you don’t have a matching 401k plan, find another investment opportunity that can generate a positive return. I’m telling you from personal experience, this balanced approach works.


·         Warren Buffett is paying attention too. Whenever Warren pays attention, we should too. Warren’s Berkshire Hathaway Inc. said Saturday it swung to a $25.4 billion loss in the fourth quarter due to an unexpected write-down at Kraft Heinz Co. and unrealized investment losses. Berkshire held a significant position in Kraft Heinz, and you can read the full details in his annual letter to shareholders. But I can sum up his views on Kraft in three words – it ain’t pretty! I encourage you to pay attention to Berkshire’s commentary and actions in the coming months and years as it learns from its own investment mistakes. We all make investment mistakes and learning from our mistakes will be just as important as getting things right.


Do you have a friend, family member, or network that can benefit from what you’ve just read? Share this blog post via email or social media. Enjoy the rest of the day, and have a great week.