Citroën’s new China head arrives just in time for an industry meltdown

reuse toilet paper if they could.”

Buffett had seen that cost- cutting prowess firsthand since he and 3G acquired Heinz in 2013. He turned over management of the company to 3G, which set a goal of raising the adjusted profit margin from 18 percent to about 30 percent. Two years later, it’s already 27 percent, according to Heinz.

A McKinsey report about 3G produced in February 2015 says the firm acquires companies with marquee brands that need operational improvement. Then it “purges existing culture and management team” and employs zero-base budgeting, which requires every department to justify every expense annually. It squeezes suppliers and grows by buying more companies, not necessarily by building ones it owns. The report says that “while 3G has created tremendous operational value, its model may present long-term risks” to its brands.

At Heinz, about 90 percent of the senior executive team left within weeks of 3G taking over. In all, 3G cut more than 7,000 jobs—20 percent of the workforce—and closed five factories. Sales at Heinz dropped 5.1 percent from 2012 to 2014. According to McKinsey, Heinz has lost market share in 65 percent of its product categories. But adjusted earnings, which matter to financial investors like 3G and Buffett, rose 37.7 percent. 3G has been spending, too: Heinz ran its first Super Bowl ad in decades in 2014, and this spring it introduced an all- natural yellow mustard in grocery stores. 3G’s sharp-penciled approach has put the food industry on edge. Nestlé Chairman Peter Brabeck-Letmathe said earlier this year that Buffett and 3G have “pulverized the food industry market, particularly in America, with serial acquisitions.” He also said that 3G’s “ruthless cost-cutting” to improve profit margins has had a “revolutionary impact” on other food companies. Mondelēz, as well as Kellogg and Campbell Soup, have adopted versions of zero-base budgeting. When Buffett was questioned at his own shareholder meeting in May about 3G’s tactics, he said, “Efficiency is required over time in capitalism. … I really tip my hat to what the 3G people have done.”

Bernardo Hees, the former chief of Heinz who replaced Cahill as CEO of Kraft Heinz, announced in July that Kraft will move its headquarters from a sprawling 700,000-square-foot complex in a suburb of Chicago to a 170,000-square-foot office downtown. He and Chief Financial Officer Paulo Basilio sent out a memo about costcutting. Employees were told to print double-sided. Travel was restricted; conferences were put on hold. Refrigerators crammed with free Kraft snacks were removed the next day. Seven Kraft executives left after the merger in July. In August, Kraft Heinz said it was cutting 2,500 jobs, including more than a third of the workers at Kraft’s headquarters.

Kraft Heinz “is focused on growing our business profitably and sustainably,” company spokesman Michael Mullen said in an e-mail. He said it will

3G’s annual savings target by 2018 at Kraft Heinz $1.5b

emphasize fewer, bigger, and better innovations. 3G also expects to expand globally. But that could be difficult, Goldin says, since “they gave the brands with international cachet to Mondelēz.” That company also has international licenses to many brands that Kraft kept. “3G doesn’t care about growing sales,” says Edward Jones analyst Brian Yarbrough. “It’s about cost-cutting.” —Susan Berfield, with Noah Buhayar

The bottom line Kraft Heinz, with $29 billion in global sales, is the third-largest food company in North America. Now 3G will slash its costs.

Autos The Plum China Posting That’s Turned Sour

Citroën’s Scheunert arrives just as the market is taking a big fall

“I have to admit that I had no idea what was coming” When Sabine Scheunert was offered the job in March to lead French carmaker Citroën’s operations in China, she didn’t take long to accept. Little wonder: China surpassed the U.S. in 2009 to become the world’s biggest market for vehicle sales, bolstering the careers of many executives who once ran units there, including Takahiro Hachigo, now president of Honda Motor, and Joseph Hinrichs, Ford Motor’s executive vice president and president for the Americas.

But two months later, after Scheunert relocated from Paris to Shanghai, she was welcomed by a 10,500-vehicle drop in first-half sales— Citroën’s first decline for the period in three years. The lightning downturn in the mainland’s car market had begun.

Things have gotten worse. China’s auto manufacturers group slashed its growth forecast in July and reported that consumers bought the fewest passenger vehicles in 17 months. Car dealerships are offering record discounts to boost sales, but consumers aren’t biting because prices continue to slide. “I have to admit that I had no idea what was coming,” Scheunert says. “I was aware that somehow the market changed, but that it’s going to change so dramatically and so quickly, no one told me.”

Where once foreign auto executives’ big complaint in China was insufficient