How Kraft Lost Its Mac and Cheese Crown

0:05Jessie, did you grow up eating mac and cheese? I did grow up eating mac and cheese. I loved mac and cheese, Kraft mac and cheese specifically as a kid. The thing I remember most is that I may or may not have, at different points, eaten entire boxes of it myself. Our colleague Jesse Newman covers the food industry. Kraft mac and cheese was mac and cheese. There was no other. And that's the way it was for decades. Kraft mac and cheese dominated the pantry aisle at the supermarket. it, literally. You know, you walk down that aisle and there is the Kraft mac and cheese section. There is that section that has the blue and orange boxes that is just, you know, the core of the grocery store.

0:48It's like the non-political big blue wall. Yes, correct. But these days, oodles of new competitors are eating into Kraft's market share. And that blue wall is looking more like a rainbow. There are a lot more brands than there used to be. And now you've got Annie's mac and cheese, that sort of a lavender color. You've got a new rival, Goudles. They've got all kinds of different colors. They've got a teal, they've got a red. So it's a much more diverse grocery aisle. So Kraft was just king of mac and cheese for decades. And recently, they have lost their grip on mac and cheese. And now, Kraft's big cheese status is under threat.

1:41This year, the company said it plans to spend more than$60 million to boost Kraft mac and cheese. This story is really sort of the rise and fall of one of the world's biggest food companies and how a company lost its way tending to some of America's most iconic pantry staples like Kraft mac and cheese. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, February 2nd.

2:22Coming up on the show, How Kraft Lost Its Lock on Mac and Cheese.

2:41Take us back to the beginning. What is the origin story of Kraft Mac and Cheese? So if you go way back, the mac and cheese story starts with a gentleman by the name of James L. Kraft. Naturally. Kraft was a cheese seller in Illinois. He started out selling cheese out of a horse-drawn wagon, as one did. I can hear the sort of like film reel in the background as you're talking. Yes, yes.

3:15And our protagonist, James Kraft, he went on to make processed cheese and then to make mac and cheese. And so Kraft mac and cheese, as we know it, was introduced in 1937. When it was released, it cost 19 cents a box. And it became wildly popular during the Great Depression and during World War II. Kraft mac and cheese was marketed as a quick, tasty, and affordable meal for busy families. And that's been the brand's message for decades. I have a problem. It's my husband. He comes home for lunch. There's an easy solution. Kraft macaroni and cheese dinner.

4:02As time went on, Kraft began marketing its mac and cheese to kids. The brand partnered with popular cartoons, like the Flintstones, The macaroni made for the modern Stone Age family. Scooby-Doo. Like this is getting weird, Scoobony. And Rugrats. It's Rugrats macaroni and cheese. It's Rugrats adventure. And that cheesy formula worked. Kids loved it, and Kraft kept its hold on the mac and cheese market. it. But as the 2000s became the 2010s, consumer priorities began to shift. People were turning to other brands in the mac and cheese aisle, like Annie's, which promised an organic alternative. People are looking for fresher food, healthier food.

4:47They want cleaner labels, simpler ingredients. And a lot of Kraft's products, including Kraft mac and cheese, just comes to be seen as sort of the epitome of processed food. This was true of many of their brands. Think Jell-O, Kool-Aid. We loved them as kids, but a lot of parents were already reaching for healthier options. In the face of these bigger shifts in the food industry, Kraft made a drastic move. In 2015, the company merged with another huge name in packaged food, Heinz. And I really can't overstate how big a deal this is in the food industry. This is supposed to be sort of a new chapter for many of these brands.

5:31Executives at the time said that the merger was going to make the brands more relevant. It was really going to rescue what, you know, already at this time, in some cases, were ailing brands. One of the architects of the merger was a private equity firm called 3G, which was known for its strategy of aggressive cost-cutting. They pretty quickly start to eliminate a lot of jobs. They close plants. And it's a big change at the start of Kraft Heinz life. And did that strategy improve the business? So it did improve profits. Okay. Kraft Heinz starts to, you know, boast the highest operating profit margin among food companies.

6:11However, 3G has a lot of critics and among them, Wall Street analysts, former employees, these watchers of the industry who all say that, okay, you cut costs, but you lose all kinds of institutional knowledge. You lose marketing capabilities. You lose expertise in research and sales. And a lot of people view it as they just really gut the organization and that they cut costs at the expense of future growth. Though profits were up, over time, sales declined. In 2019, Kraft Heinz was forced to write down the value of its assets by$17 billion, in part because of some accounting errors. At the time, Kraft Heinz executives said that the changes to the food industry had a stronger impact on the company's brands than they anticipated.

7:09The pandemic brought some relief. Consumers turned back to home cooking and nostalgic comfort food, including those beloved blue boxes. In 2020, the president of U.S. business at Kraft Heinz told investors that the company had online sales that totaled to nearly 90 million pounds of mac and cheese. He said that was equivalent to 41 statues of liberty. But even as Kraft mac and cheese was seeing a surge, new competitors were eyeing the market. One of them was a former Kraft employee named Paul Earle. And around 2020, Paul Earl is on the hunt for his next project. And he told me that he's sort of wandering grocery stores in Chicago, trying to figure out what to do next.

7:55And he stops dead in the mac and cheese aisle. And there, Earl had an idea. He bought a few brands of mac and cheese and took them home. He has his son, his young son, as a taste tester. They taste a sort of better-for-you version, doesn't get great marks. and then they taste Kraft mac and cheese. And Paul Earle said, look, you know, it still tasted pretty good. And most of all, it just brought back really fond memories. There's a lot of nostalgia. But he thought to himself, this is no healthier than it was when I worked at Kraft decades ago. And this light goes off for him and he says, I can do this better.

8:36And that is the beginning of a mac and cheese product, a brand called Goodles. And Goudles, as you might guess from the name, they pitch it as this really fun, healthier take on an old classic. They call it Noodles Gooder. Goudles launched in 2021. It cost more than twice as much as Kraft's, but it advertised itself as more nutritious with higher protein and also as more grown up, offering flavors like Parmesan and Cacio e Pepe and names like Shella Good and Twist My Parm. They hit on what they think is a really key insight, which is that mac and cheese isn't just for kids. They think there's a whole different group out there that is either secretly eating mac and cheese, this being sort of young adults.

9:26And so they target a very different population. And Goodall says, look, we're bringing in this higher income consumer, this younger consumer. It's exactly the type of consumer that grocery stores are trying to bring back to the center of the store. It's exactly the type of consumer that, you know, some of the incumbents are losing. To supercharge its launch, Goodles enlisted the help of Wonder Woman. I'm extremely excited to share these news with you. Actor Gal Gadot signed on as a Goodles brand ambassador, praising the mac and cheese to her millions of followers on social media. You asked, we listened, and now Goodall's is starting to roll on shelves at Target stores around the country.

10:10So look for us, take a shelfie. How was Goodall's viewed by Kraft Heinz executives? Were they, like, concerned about this new kind of upstart in their space? Executives weren't super worried initially. Now, employees at Kraft Heinz, that was another story. That's after the break.

11:0224-7 and without a German. That's just the app that understands us. Steuern completed. Safe. With Viso Steuer. Now try it out.

11:32And Goudl's Chetty Mac, which seems to be the closest flavor that Goudl's offers to the classic craft. In the spirit of impartiality, I asked my husband to whip them up for me.

11:45When they were ready, he served them in two bowls, and I tried each of them while blindfolded. Okay, I'm going to start with the right one. Okay, that one tastes like mac and cheese. You cook them really well. Thank you. It's cheesy. It's a little salty. It's pretty creamy. The pasta's got like a nice texture to it. All right. And then we've got this one on the left. Bowl number two. Hmm. That's also really good. The pasta texture is a little bit different. I figured out which was which pretty quickly. Goudles had that slightly earthier texture to the pasta, while Kraft was sort of silkier. But they did taste remarkably similar.

12:30They're both delicious, gotta say. But yeah, I could tell just from the texture immediately that this was slightly different.

12:41Kraft Heinz employees came to a similar conclusion, at least with Goudl's Chetty Mac flavor. When it first hit store shelves in 2022, employees set up their own taste test. Here's our colleague Jesse again. So the Chetty Mac, it was decided, tasted pretty good. On the other flavors, you know, opinions varied. And the sense was that there was more work that was needed. And it was particularly the texture that was described to me as a bit iffy. But it was pretty close to Kraft's nostalgic flavor. And the fact was that Goudles was just one competitor in a growing number of brands in the mac and cheese market.

13:18And that worried Kraft employees. They started telling executives at Kraft Heinz, hey, you know, we might have a problem here. Every major retailer has a new mac and cheese brand. You know, they've been dealing with competition from Annie's. And more broadly, they're seeing that consumers are, they're leaving the mac and cheese category altogether. They are turning to other quick foods like ramen, which comes on the scene with a lot of new exciting flavors. And then Kraft mac and cheese buyers are going to some of these less expensive store brands like, you know, say Walmart's Great Value. So there are signs of trouble in mac and cheese.

14:00And then there's Goodles. But Kraft mac and cheese was still selling a billion dollars worth of product a year. And company executives had more pressing things on their minds. Other parts of the business were also struggling, from Oscar Mayer to Maxwell House. According to Jesse, a lot of Kraft Heinz products just happen to be on the wrong side of consumer trends. So I just want to say one other thing just to mention that is sort of going on holistically across the business. And this is a pervasive problem that I think gets in the way of Kraft mac and cheese making more progress. And that is what I would just refer to as sort of like general corporate chaos.

14:44There's a lot of restructures. There's a lot of churn among employees. And what was described to me was how that really disrupted things. And, you know, it meant that there was like constantly new priorities. In the midst of all this, Kraft Mac & Cheese continued to lose market share. Eventually, the company turned its attention to its blue boxes. And Kraft Heinz declared 2025 the year of mac and cheese. And they decide that, you know, flavors is a big part of the answer. And so they launch a bunch of new flavors. Some of them are limited edition, like pizza and garlic parmesan. Pizza. Pizza mac and cheese.

15:26Pizza. Everything bagel. Uh-huh. Garlic, hot honey. Wow. So they really go hard on the flavors. The company also dialed up the cheese. It introduced a bigger box that said it can feed a family of five for$2. And it updated its packaging to show that the product doesn't contain artificial flavors, preservatives, or dyes. But all that still hasn't been enough to turn things around, either for Kraft Heinz or its mac and cheese. And in September, Kraft Heinz announced that it was unwinding its merger and splitting up into two companies. And as for its mac and cheese brand? Between 2022 and 2025, they went from capturing 45 % of American mac and cheese dollars to 39%.

16:16So they've lost a significant amount of market share. So did the year of mac and cheese help at all? Through the year, sales were still down compared to the year prior. Now, the company has said things are improving. They pointed to this four-week period in November where sales were up. So they said, look, you know, things, we're not happy with it where things are, but we are seeing progress. One executive at Kraft Heinz told Jesse that the company now knows its brands better than it's ever known them. And this year, the company plans to roll out a higher protein mac and cheese that it said will be more affordable than competitors' versions.

17:00It's also working on a premium line with bolder flavors and fancier cheeses. Where did Kraft kind of lose its way here? At the end of the day, it is a story of mismanagement and executives who missed signals and opportunities. They really rested on the laurels of these longtime brands that, in fact, no longer had the cachet with consumers that they once did. So I think they missed an opportunity to listen to employees who were close to consumers and who were close to retailers who were saying this product needs an upgrade. And they thought that retailers wouldn't get rid of the blue box. And that's largely true.

17:55But as we've seen, they could sure shrink its presence on shelves if something better comes along. And something better will always come along because there are brands out there fighting to give consumers what they want. And if you aren't one of them, you're very vulnerable and best of luck to you.

18:35That's all for today, Monday, February 2nd. The Journal is a co-production of Spotify and The Wall Street Journal. Special shout out to my husband, Dylan Lewis, for offering his culinary talents.

18:49Thanks for listening. See you tomorrow. Thank you.