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Kraft Heinz facing the painful downside of austerity approach

This article is more than 12 months old

NEW YORK The American food giant, known for its iconic ketchup and hotdog brands, is facing the downside of austerity as a strategy for boosting profits.

It had a disastrous fourth quarter, posting a net loss of US$12.6 billion (S$17 billion) on Thursday. Kraft Heinz, born of the US$49 billion merger of Kraft Foods and Heinz in 2015, suffered a plunge of 27 per cent in its share price on Friday.

A scathing article in the Wall Street Journal called that proof the company's "experiment in radical cost-cutting has failed".

"The company's management has few good options," it said.

Controlled by Swiss-Brazilian billionaire Jorge Paulo Lemann and American billionaire Warren Buffett, who holds 25 per cent of the company's capital, Kraft Heinz has relied on its famed zero-based budgeting approach to cost-cutting.

Basically, that system requires every expense to be justified in each period, pushing managers to drastically reduce spending.

But that philosophy can lead to the elimination of investments needed to drive profit and sales growth, and it can be undermined by a market downturn. - AFP