3 g Capital focuses on cost cuts, but its brands lose market

3 g Capital Partners LP is known to cut the costs of food and beverage companies. Have your history with regard to expand sales and the market share of these companies is less than stellar.
The private equity firm now faces his greatest challenge: to integrate the former Kraft Foods Group to business of Heiz, she bought two years ago in partnership with Berkshire Hathaway Inc., the Investor Warren Buffett. The Heinz Co., Kraft created last month, owns many of the best-known food brands in the United States — including eight brands with annual sales of more than $ 1 billion, such as Kraft, Heinz, Oscar Mayer and Velveeta. But many of the company's brands face difficulties now that consumers are preferring less processed foods.
Some analysts believe that the 3 g can go for more acquisitions. The firm Pershing Square Capital Management LP, the activist investor William Ackman, announced last week the purchase of a slice of 7.5% of the Mondelez International Inc., valued at $ 5.5 billion, betting, in part, that the company could end up being bought by Kraft Heinz.
Analysis by The Wall Street Journal of the companies in which the 3 g and its founders have already invested, which include Burger King and the Anheuser-InBev NV W. Bursch, shows impressive increases in profit margins, but different results as regards sales growth — except in cases where the advance came with more acquisitions. Since the 3 g bought Heinz, two years ago, for example, the manufacturer of ketchup lost market share in 65% of the food categories in which it operates, has kept the piece in 16% of them and raised in less than 20%, according to a February report from McKinsey & Co.
Heinz released only two relevant products in the United States since it was purchased by 3 g. In February, she released a Thai pepper flavored ketchup sriracha and, in April, a retail version of a mustard so far only sold in bulk to wholesalers and food service companies.
The 3 g doesn't "do anything revolutionary or groundbreaking that worked" with Heinz's products, says David Turner, food industry analyst market research firm Mintel.
A spokesman for 3 g Capital said the company's long-term focus, with special emphasis on maximizing the potential of their brands and businesses. He added that the company works in close partnership with the management teams of its companies.
Michael Mullen, spokesman for Heinz, Kraft says that the company's strategy "focus on growth that emphasizes less innovations, but bigger and better." He says the company increased in 30% of the ad spending in the last two years.
According to people who follow the 3 g, it's a matter of priorities. She focuses on reducing costs by cutting staff and increased efficiency, and then turns to the growth, says a consultant who has worked with the company.
The 3 g spending cuts usually go far beyond typical belt grip. The use of "zero base budget", which requires that each expense is justified every year, without taking into account the previous year, resulting in detailed measures of economy, such as spending limits with color prints and the requirement that executives share hotel rooms on business trips. The company claims that every penny saved is invested in products and marketing.
ENLARGE
In the same way that examines carefully the costs, the 3 g also evaluates which brands worth investing. At Heinz, reassigned the executives leading products, such as its famous ketchup, before funds intended for items less promising, as the meat sauce. Several products that weren't successful have been discontinued.
Although Heinz has conquered the u.s. market with the ketchup and Worcestershire Lea Perrins Worcestershire & since 2013, she lost in areas that include the frozen Bagel Bites snacks and the sauce for pasta Classico, according to research firm IRI. Its sales fell to $ 322 million in the first quarter, to $ 2.48 billion, but operating profit grew 17% to $ 508,5 million. Kraft Heinz announces today its results for the second quarter of its predecessor companies.
3 g's strategy brings potential disadvantages in the long run. The McKinsey report points out that the firm "has created tremendous operational value", but warns that his "focus on short-term profitability and cash flows represents a risk to the health of the brands, particularly with regard to future growth". McKinsey did not want to make additional comments.
The 3 g emphasizes its desire to promote the growth of businesses, but its main feature for this so far has been more acquisitions. Burger King, which she bought in 2010, acquired last year the Canadian network Tim Hortons to create the Restaurant Brands International Inc. AB InBev bought the Grupo Modelo, maker of Corona, and craft breweries like Goose Island in Chicago.
Sales in the Burger King restaurants open more than a year grew at a respectable average of 1.9% over the last three years, after an initial stumble caused by bad implementation of a review of menu. Already profits from the Restaurant Brands before interest, taxes, depreciation and amortization rose by 14.3% to $ 761 million last year, excluding Tim Hortons.
The 3 g is not owner of AB InBev, but its founding partners have significant portions of it. Operating profits of AB InBev grew at an average of 8.6% per year in five years with the 3 g, according to A.T. Kearney. But his participation in the American market of beer fell 4.1 percentage points since the company was created as a result of the merger in 2008 Belgian-Brazilian Group InBev with the American Anheuser-Busch, according to firm Beer Marketer's Insights, which tracks the industry.
The product innovations of the AB InBev had limited success. Sales of a margarita flavored beer launched in 2012 recently plummeted.
A spokesman for AB InBev said she is committed to stabilize its market share in the United States. She said that the involvement of partners from 3 g "produces a certain exchange of best practices and cultural similarities" with the private equity firm.