By now you should know that X hates three things: The CRA, Aaron Park (and his idiot brother I’m calling Igor from now on), and Warren Buffett; it’s time to Buffet Buffett again. I’m going to tell the story of Buffett and his Brazilian friends at 3G Capital and how they are destroying American family jobs and lifestyles. Warren Buffett is lauded as the most successful investor ever and 3G Capital is a group famous for cutting expenses to the bone and deleting unnecessary expenses—think zero based budgeting.
(Editors note: this is not the zero based budgeting often proposed in bygone years as a solution to federal spending but taking budget line items to zero for short-term gain of shareholders.)
This particular example of Buffett malfeasance started in February 2013 when Buffett and 3G Capital announced they were buying iconic American ketchup maker Heinz for the price of 23 billion. Like most companies who take over or buy a competitor, there are “synergies” or opportunities to cut jobs etc. to save the acquirer money. These “synergies” started immediately with the laying off of 350 workers in the Pittsburgh headquarters. X doesn’t like layoffs but most of these were likely duplicate jobs or as X likes to call them “so we got rid of the assistant secretary’s secretary?” These jobs were white collar, but X figured innovation or something would save the day. Nope. The maker of ketchup, ORE-IDA, and several other brands did nothing other than “reformulate their mustard.”
Several manufacturing plants were closed, hundreds of workers laid off. But Buffett/3G continued cost cutting with such innovations as:
• No more mini fridges in your office or at your desk.
• No more free products.
• Coupons would be phased out as well as deep discounting of products.
• Copies must be in black ink only, and must print on both sides of each page.
Remember this is good ole, all-American, folksy Warren Buffett folks. Yeah, the guy that causes Democrats to wet themselves with pride and envy every time they hear his proclamations.
This process of downsizing went on for about two and a half years. Through those years, efficiency increased, but layoffs increased as well. There were cuts every year, as well as plant closings. That raise you thought you were getting? Yeah, no.
3G’s President Bernardo Hees—who by the way has no experience in consumer packaged goods—became president and CEO of Heinz. Hees has experience in…..you guessed it railroading. Hees has been quoted numerous times stating employees should have no life outside of work, and need to always work faster and harder. So I guess you can say he no longer railroads with trains, he railroads humans now. Buffett—for what it’s worth—basically insulates himself saying he provided the financing not the daily operations, 3G does.
Herein lies the problem when you cut, cut, cut. Year-over-year revenue at Heinz has declined every year since they were acquired by Buffett and 3G. The reasons? Well there are several:
• Employee morale being bankrupt doesn’t help.
• Consumer tastes changing plays a part.
• No more couponing or discounting.
• Lack of any meaningful innovation.
If the best you can do in 3 years is re-doing your mustard recipe, then maybe you used to run a railroad.
Given the train wreck they made out of Heinz, guess what Buffett and 3G did in 2015? Buy Kraft Foods. Buffett/3G returns Heinz to public stock market and Kraft-Heinz was born. Make no mistake; Buffett got his $$$ back. His vehicle of investment—Berkshire Hathaway—and 3G Capital own 51% of the shares outstanding so what they say and want goes. In addition Buffett financed the deal and is paying himself back with a 10% interest earning note. Again this sounds like a wonderful gig, where do I sign up?
Kraft is a maker of all kinds of iconic brands, and is in nearly every single North American household, so Buffett and 3G were smart and wouldn’t let the same mistakes foil them again right? Nope. First they decided to move Kraft headquarters to Chicago from Northbrook, and downsize 30% of employees. Again the zero based budgeting started and the old company perks were gone.
Free Jello? Gone
Mini fridge? Gone.
Then came massive layoffs and the shutdown of 5 plants. This process was repeated in 2016, and again in 2017. These guys are so ruthless they moved Oscar Mayer out of Madison, Wisconsin and into Chicago. Apparently they think Oscar Mayer is a variation of the Chicago Dog (or soon plan to market Soylent Green). However, innovation has also been slim to none and this company has north of 100 brands. Once again, to this date layoffs at the company have reached nearly 5,000 since, nice guy, folksy Buffett took over.
Not trying to defend Buffett here but the consumer packaged goods scene is not very good right now. American tastes have evolved and they are closely reading label ingredient lists. Also why by a Heinz picnic pack for $7.99 when you know in a week or so they will be on sale 2 for $5. One other factor, Millennials are helping drive changes in tastes. Kraft-Heinz has ignored them, at least until now. Recently Kraft executives have been working to revive and revitalize many of its old products, including; Oscar Mayer, Miracle Whip, mac n’ cheese, Kool-Aid (a favorite drink of the CRA I may add), Jell-O, Lunchables, Kraft Singles, Velveeta, Maxwell House Coffee, and Capri Sun. Despite their efforts, sales still have not improved; actually they have dropped company wide. As I address these issues one at a time, remember Kraft-Heinz owns many iconic brands.
The biggest issue at Kraft-Heinz is perception. Most Millennials and Generation X see their products as terrible for your health; those stereotypes are hard to break. As more baby-boomers die off, it will be harder and harder to replace lost sales and revenue. The all-important demographic females 18 to 34 are moving away from Kraft and Heinz brands.
Here’s some examples of their corporate tone-deafness:
• Oscar Mayer is built on heavily processed mystery meat sold in all sorts of containers, so you removed the preservatives? I think I will still pass.
• Miracle Whip is heavily processed egg based products similar to mayonnaise, once again, strong pass here.
• Kraft Mac N Cheese has the same issue; younger generations remembers it as dust mixed with water to create a gooey cheese sauce for the mac, never trying that again.
• Kool-Aid? Last time I drank that was at a CRA meeting, no seriously it’s a powder that is chocked full of preservatives and other things I cannot pronounce, pass.
• Jell-O, nothing says hospital healthy more than a processed cup of….well maybe we don’t want to know, never buying that stuff.
• Lunchables are another thing of the past for X; in addition to meat that was… well, boiled or something, and the cheese that could be rolled up and bounced like a basketball… yeah not giving this to my grandchildren.
• Kraft Singles, aren’t bad on a burger that’s been grilled, but I’m not putting that processed cheese oil product on anything resembling real food.
• Velveeta is a block of cheese product you can melt down and cook in a skillet to make cheese product. In related news, shares of Tide are down due to a reduction in children having accidents related to the consumption of Velveeta cheese.
• Maxwell House and Capri Sun have the same issues, it’s an old tired product that’s very bland and many better offerings are available at the same price point.
My main goal is not to attack Buffett, but to expose him for who he really is. Buffett says that he wants the masses to pay more taxes—especially the rich; however, he structures his compensation to be mostly dividends and returns of capital which are taxed at far lower rates than regular income taxes. These tax dodges are not available to any but the super wealthy robber barons.
Buffett also calls himself a champion for the middle class, ha! What says middleclass more than 2 iconic American companies he is slashing and burning with thousands of middleclass folks laid off and plant closures in the name of short-term shareholder return? Buffett profits every step of the way and benefits more as each piece of the carcass is liquidated.
Ever been laid off in a job like these factory workers before? Livelihoods are lost, families can be broken apart. It isn’t easy to pack your family up and move from Council Bluffs, Iowa, to Springdale, Arkansas. The ones that can move to find jobs often end-up with the same fate a year or two down the line. The ones who cannot? Usually they find themselves taking a pretty hefty haircut in salary & benefits and find themselves working longer hours for less. Just remember that in every step of these “synergies” people lose benefits, livelihoods and careers, but Buffett and his ilk profit at every single step.
After reading my series on Buffett, hopefully this sheds some life on the so called “oracle of Omaha.”
I’m not through with you yet Buffett, but til next time,