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The food giant Kraft Heinz is going through a meltdown. Its shares plunged nearly 30 percent today to record lows. That's because Kraft Heinz reported a big loss, slashed its dividend and said the Securities and Exchange Commission is investigating its accounting practices. But NPR's Alina Selyukh reports the biggest surprise was that Kraft Heinz was writing down the value of two marquee brands.
ALINA SELYUKH, BYLINE: Those brands are Oscar Mayer and Kraft. Kraft Heinz is writing down their value by $15 billion. Here's CFO David Knopf on yesterday's earnings call listing the biggest areas where his company is revising expectations.
DAVID KNOPF: First the Kraft natural cheese business, second the Oscar Mayer cold cuts business and then, third, our Canada retail business.
SELYUKH: With that, Kraft Heinz slashed its dividend and reported a massive loss that Wall Street did not see coming. The company had spent years cutting costs and is now citing many culprits for its poor results, including the cost of supplies and transportation. But to JP Morgan analyst Ken Goldman, there was a much bigger concern.
KEN GOLDMAN: Well, you took a $15 billion write-down on two of your biggest brands, Kraft and Oscar Mayer. To me, that literally means the brand equity there aren't what they used to be.
SELYUKH: Simply put, are Kraft Heinz and all of its brands, like Jell-O and Kool-Aid and Philadelphia Cream Cheese - are these classic brands losing their appeal? Kraft Heinz has been trying to re-envision many of its brands by updating their packaging and recipes. Three years ago, it even quietly changed the recipe of its classic mac and cheese to switch to only natural ingredients. Even that prompted late night jokes about Kraft's reputation for the unnatural. Here's Stephen Colbert.
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STEPHEN COLBERT: When I pick up a package of enriched macaroni product and dried milk fat powder, I expect a certain amount of fake ingredients.
SELYUKH: The existential question about mainstream brands is actually looming over many conglomerates like Campbell's and Kellogg's. These brands used to gain loyalty by dominating TV airwaves, but the Internet has changed everything. Now when people shop, they often turn to private or store brands to save money. And if they're spending extra, it better be something special.
KIRA MALONEY: If I buy mac and cheese, I'll get, like, Annie's, which is definitely not the cheapest.
SELYUKH: Twenty-three-year-old Kira Maloney says she typically shops cheaper generic brands. She says she does buy processed food, but when she does, she wants options that seem higher quality. And Maloney says to her, Kraft Heinz does not always signal that. Alina Selyukh, NPR News. Transcript provided by NPR, Copyright NPR.
