By Evie Liu

Packaged-food giants are standing at a crossroad. Increasing consumer frugality, health-conscious preferences, rising input costs, as well as competition from private labels and insurgent brands are hurting top lines and squeezing profit margins.

The industry behemoths are scrambling to adapt -- through mergers, acquisitions, spinoffs, and asset sales. But it remains to be seen whether any of those efforts could rekindle growth and boost efficiency.

Discretionary consumption is slowing across the board. That means even powerhouse brands are seeing demand erode. Constellation Brands -- maker of Mexican beers Corona and Modelo -- suffered a steep stock slide on Tuesday after it sharply reduced fiscal--2026 guidance. Shares were down 6.9% on Tuesday, and are off almost 32% this year.

Organic net sales are now expected to fall 4% to 6% versus a prior forecast of down 2% to up 1%. CEO Bill Newlands blamed broader macroeconomic softness and notably weaker spending among Hispanic consumers -- a core demographic for its premium beers.

As weakness continues, changes are needed.

Kraft Heinz said on Tuesday that it will unwind the 2015 merger that once promised synergies. The company will split into two again -- one overseeing Oscar Mayer, Kraft Singles, Lunchables, while the other owns Heinz ketchup, Philadelphia cream cheese, and Kraft Mac & Cheese.

The separation is expected to drive greater focus into each area of the business, ultimately unlocking shareholder value, wrote CFRA Research analyst Arun Sundaram, who noted the firm's highly complex portfolio could lead to lower growth than the more focused peers.

"The core belief guiding today's decision is that increased focus will translate into better performance for Kraft Heinz," he wrote.

There is a lot of doubt on Wall Street, however. Investors aren't impressed either. The stock is down 7.3% on Tuesday, and has declined 15.7% so far this year.

"While we can see merits to the advantages that increased focus will bring to each entity, we remain skeptical that this separation alone will help the individual companies wade through what remains a very challenging industry environment," wrote BNP Paribas analyst Max Gumport.

Much of the challenges underpinning Kraft Heinz' poor performance over the last several years are related to the company's brand equity, execution, and category exposure, he wrote, which could take many years of investment and improvement to overcome.

The split came 10 years after the formation of the firm through a merger between Kraft Foods Group and H.J. Heinz Company. This move echoes a growing realization that being "all things to all consumers" is no longer a winning formula as consumer demand increasingly fragments.

It also reminds many of Kellogg's breakup in 2023, when the firm, likewise, recognized that its large portfolio was weighing down performance. The company split into Kellanova, which focuses on international snacks and cereals, and WK Kellogg dedicated to North American cereal.

Now, both companies are about to be absorbed again.

Last year, candy giant Mars announced plans to acquire Kellanova for $36 billion -- one of the largest deals in the packaged-food industry in recent years. The deal was paused as the European Commission has launched an in-depth antitrust investigation over concerns about the potential impact on competition, retailer leverage, and consumer prices. Kellanova shares are down 2.6% this year.

In July, Italian confectionery powerhouse Ferrero agreed to acquire WK Kellogg for $3.1 billion, at a 40% premium over its trading price. But the deal was later reduced by $75 million as Ferrero confronted financial and reputational risks tied to increasing regulatory scrutiny in the U.S. over highly-processed food like cereals. WK Kellogg shares are up 28.8% so far this year.

Where management couldn't turn things around, activist investors are hovering. As PepsiCo continues to post comparable sales declines in North America, Elliott Investment Management has reportedly taken a $4 billion stake in the snack and beverage giant, pressing for radical shifts such as refranchising bottlers, shedding laggard brands, and sharpening strategic clarity. Pepsi stock is up 0.8% year to date.

Adding to the sector's woes, Nestlé CEO Laurent Freixe was abruptly dismissed this week after it emerged he had an undisclosed romantic relationship with a subordinate -- a breach of the group's code of conduct. The leadership shake-up underscores that packaged-food firms must manage not only consumer demand trends but also internal governance risks.

Still, investors are more focused on the company's strategic moves than who is at top. Nestlé's shares were only modestly lower on Tuesday, as the new CEO, Philipp Navratil, is expected to continue the company's plan of selling underperforming businesses in its vitamins, minerals and supplements unit as it seeks to steer toward higher-end products. The stock is up 0.3% this year.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 02, 2025 15:50 ET (19:50 GMT)

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