3G Capital's zero-based budgeting made Kraft Heinz profitable — then hollowed it out

In 2015, 3G Capital and Berkshire Hathaway merged Kraft Foods and H.J. Heinz to create the Kraft Heinz Company, the world's fifth-largest food company. 3G applied its signature 'zero-based budgeting' approach: cut every cost that could not be justified from scratch, eliminate layers of management, and squeeze margins.

The cost-cutting worked — initially. Margins improved dramatically, and the model was celebrated as the future of consumer packaged goods. But the cuts went too deep. Marketing spend was slashed, R&D was starved, and the company stopped innovating. Revenue began declining as consumers shifted toward healthier, fresher and more niche brands that Kraft Heinz was not investing to compete with.

In February 2019, Kraft Heinz took a $15.4 billion writedown on the value of its Kraft and Oscar Mayer brands, disclosed an SEC investigation into its accounting, and cut its dividend. The stock lost roughly $100 billion in market value from its peak. Warren Buffett later admitted he had 'overpaid' for Kraft. The case became a cautionary tale about the limits of cost-cutting as a growth strategy.