Kraft Heinz said Thursday it plans to buy paleo condiment and dressing company Primal Kitchen for about $200 million, as the ketchup maker looks for a platform to help compete against upstart brands
CNBC reported earlier Thursday that the companies were nearing a deal.
The acquisition marks a change of course for the company whose backers, 3G Capital, made a name in large-scale acquisitions and an aggressive approach to cost-cutting. It gives Kraft Heinz, which also owns Miracle Whip and its branded dressings, a foothold with which it will look to fend off competition from upstart brands like Sir Kensington's and Annie's Homegrown.
Primal Kitchen is expected to generate about $50 million in revenue this year, Kraft Heinz said. The deal is expected to be completed in early 2019.
Primal Kitchen was founded by food blogger Mark Sisson, who started "Mark's Daily Apple" in 2006 and has written a number of diet and exercise books. The company makes paleo-friendly products including mayo, avocado oil and dressings. It says its products are without processed or artificial ingredients, added sugars, soybean or canola oils.
Paleo diets focus on foods that were available in the Paleolithic era, like nuts, seeds, lean meats and vegetables. The idea, which has gained a strong following in recent years, is that the human body is best suited to eat the foods that early humans ate rather than the modern diet, which includes processed foods.
Kraft Heinz has put a renewed emphasis on growth over the past year. It's been three years since Kraft Heinz merged and nearly two years since Unilever rebuffed its acquisition approach. Investors who previously lauded 3G for rewriting the book on cost-cutting are now focused on Kraft Heinz's growth prospects. Its shares are down 34 percent since January, and were up less than 1 percent following the news.
Last quarter, Kraft Heinz delivered sales that topped expectations with growth of 1.6 percent, but fell short on earnings, amid steep commodity costs. The results sent shares down 9 percent.
Kraft Heinz has begun to follow the playbook written by many of its peers seeking growth as eating habits change. For most Big Food companies, it is hard to duplicate the innovation and culture necessary to create the same success seen by younger brands like Kind Bar.
As such, Kraft Heinz joined other Big Food brands this year in launching a venture arm, Springboard, to partner with food start-ups.
Using Primal Kitchen as a platform would also echo a strategy that others have employed, to varying degrees of success. Kellogg has said it wants to use its $600 million acquisition of RXBar as a platform and Hershey is looking at its acquisition of Amplify Brands as a platform for its growing suite of snack brands.
In addition to buying brands, Kraft Heinz has also been focused on selling businesses. It earlier this year announced the sale of its Canadian dairy business and Indian food business, Complan.
