THE KRAFT HEINZ NOT COMPANY: A JOINT

VENTURE OPPORTUNITY
Health, environmental, and animal welfare concerns have in recent years propelled consumers in
increasing numbers to switch to plant-based products. With more customers identifying as
vegetarian, vegan, and flexitarian, demand has grown for plant-based products marketed as meat,
dairy, and eggs. According to the Plant Based Foods Association, the two biggest product
categories in 2022 were plant-based milk and meat alternatives. The total U.S. market for plant-
based food was valued at $8 billion, a 6.6 % increase in sales over 2021. Among U.S. households,
six in 10 purchased plant-based products, amounting to only 1.4% of total 2022 food and beverage
dollar sales in the United States.

In 2022, responding to these trends and to accelerate its presence in the plant-based market, Kraft
Heinz announced an equity joint venture (JV) with NotCo, a Chilean food-tech startup. Kraft
Heinz and NotCo launched a new entity, the Kraft Heinz Not Company, whose purpose was to
grow the plant-based business. They planned to introduce co-branded products with speed and
efficiency, capitalize on their joint strengths, and share risks, while continuing to operate as
individual companies.

Lucho Lopez-May, previously the NotCo CEO for North America, became CEO of the new
company. Lopez-May and his leadership team wondered how best to prepare for the challenges
and opportunities that lay ahead. How could the new entity best grow in the plant-based food
market? How were Kraft Heinz and NotCo positioned to reach their goals, and what role should
the JV play in their individual strategies and tactics? What were the main challenges of creating a
JV from companies with distinct business models?

Background: The U.S. Plant-based Food Industry

According to the Plant Based Foods Association, in 2022, U.S. retail sales of plant-based foods,
defined as foods made from plants and containing no animal-derived ingredients, grew 6.6%.2
Plant-based products were projected to make up one-third of the protein market by 2054.3 In
2022, the largest plant-based category was milk, accounting for $2.8 billion or 15% of all retail
milk sales.4 In 2022, 41% of U.S. households purchased plant-based milk, and 76% of plant-based
milk buyers purchased it multiple times.5

Also in 2022, plant-based meat alternatives (PBMA) as the second largest plant-based food
category in the United States reached $1.4 billion in sales (2.5% of U.S. retail packaged meat
sales), which represented a decrease of 1.2% compared to 2021. 6 PBMA included, among other
ingredients, plant- or vegetable-sourced proteins and semi-processed protein sources such as tofu
and seitan. Between 2017 and early 2022, the market for PBMA had doubled due to category
innovativeness, trendiness, consumer interest, and preference changes leading to lower meat
consumption.7 In 2022, 18% of U.S. households purchased PBMA, and 63% of these buyers
purchased multiple times.8

The PBMA market included most legacy companies in the food industry as well as new, small,
innovative players. The four largest producers accounted for approximately 70% of the PBMA
market. (See Exhibit 1 for sales by company.) All companies aimed to introduce new brands
replicating the taste, texture, and appearance of meat. (See Exhibit 2 for ingredients by
company.)

Kellogg Company had established itself as the biggest producer in the PBMA category,9 even
though their market share in the food and beverage industry in 2021-2022 accounted for only
1.7% of total sales in North America.10 Kellogg’s MorningStar Farms was one of the most
recognized brands in the PBMA category, offering a variety of products such as chicken nuggets,
hotdogs, and bacon. Kellogg had purchased MorningStar Farms in 1999 from Bayer AG.11 More
recently, Kellogg launched Incogmeato, a PBMA brand operating within the MorningStar Farms
portfolio. As part of their strategy, MorningStar actively pursued partnerships with organizations
such as the San Francisco 49ers, Nextbite, and Sodexo. In June 2022, Kellogg announced its
transformation into three, distinct, yet-to-be-named businesses focused on snacks, cereals, and
plant-based food. Each of these business units was to become an independent public company
with its own company culture and strategic priorities. 12

2
The second largest company in the PBMA category was Beyond Meat. After MorningStar, it
commanded the second largest PBMA brand awareness in the United States.13 Founded in 2009,
the company specialized in PBMA that emulated beef, chicken, meatball, pork, and sausage. In
2019, Beyond Meat signed a three-year contract with McDonald’s, one of Tyson’s biggest
customers, as the preferred supplier of its new McPlant burger. Their products sold in more than
80 countries, and in 2021 they opened a new R&D center in Shanghai.14 By July 2022, Beyond
Meat had around 28,000 U.S. distribution centers15 and partnerships with companies such as
Tesco, KFC, Pizza Hut, Starbucks, and PepsiCo.

Conagra Brands, a legacy company formerly known as ConAgra Foods, had established itself as
an important innovator in the plant-based foods market.16 Conagra introduced more than two
dozen new plant-based foods in summer 2020 to respond to changing customer needs. They
included in their portfolio brands such as Earth Balance, Birds Eye, Marie Callender's, and
Healthy Choice. Conagra acquired Gardein parent company Pinnacle Foods in 2018 for $10.9
billion.17 In spring 2022, Gardein added products to their already extensive PBMA offering,
especially building their frozen category.

The fourth largest PBMA producer was Impossible Foods. They launched their signature product,
the Impossible Burger, in 2016. In 2019, they introduced Impossible Whopper in partnership with
Burger King across the United States. The company distributed products through 22,000 grocery
stores and 40,000 restaurants with sales in several countries. It was believed that Impossible
Foods was the highest growth, plant-based, U.S. retail meat company.18

The retail segment led the PBMA market, accounting for 67% of revenue in 2021. This segment
included hypermarkets, supermarkets, convenience stores, mini markets, and department stores.
Most plant-based brands launched products through big supermarket chains such as Walmart
and Kroger. The foodservice segment, including outlets such as restaurants, hotels, and lounges
was also relevant (33% of revenues) and was expected to grow at a compound annual rate of 43%
from 2022 to 2030.19

The PBMA market also experienced significant growth in the private label category. In addition
to food companies and startups, retailers entered this market with their own private labels. They
aimed to improve their ability to negotiate with channel partners, to differentiate themselves in a
competitive market, and to build customer loyalty. Inflationary pressures in 2022 provided
impetus for cost-conscious customers to trade into private label offerings.20

Venture capital showed high interest in PBMA startups, reflecting the level of competition in this
industry. (See Exhibit 3 for investment figures.) Venture capital investments in this market grew
in the decade 2010-2020 but slowed in 2022. The venture market trajectory aligned with an
overall decline in U.S. PBMA sales in 2022. Impossible Foods was an exception to this trend,
possibly due to expanded distribution according to Mintel, attributing slower adoption partially
to consumer concerns about taste and texture. Weak loyalty in the PBMA category presented an
opportunity for companies to continue to innovate regarding product definition. It was expected
that improvements in production and processing technologies would support future cost
decreases in PBMA.21

The U.S. Food and Beverage Industry

According to Statista, the five largest companies in the food and beverage industry controlled 38%
of the total U.S sales of $471.9 billion.22 The food and beverage industry had experienced
significant disruptions due to customer changes in taste and concerns about environment, health,
and animal welfare. Legacy companies in the industry had accelerated the use of their commercial
capabilities, knowledge of the food business, food production, and scale advantages, as well as
their deep pockets to capture new opportunities in the plant-based market. (See Exhibit 4 for
company data.)

Nestlé as the world’s largest food company had an extensive plant-based portfolio, including the
brands Garden Gourmet, Natural Bliss, Vuna, and Sweet Earth (acquired in 2017). The company
planned more acquisitions to increase its presence in this market.23 Nestlé’s plant-based portfolio
included products such as dairy-free KitKat bars and Nescafé.24

PepsiCo entered the plant-based market through a joint venture, The PLANeT Partnership, with
Beyond Meat in 2022. The PLANeT Partnership was a limited liability company whose objective
was to develop, produce, and market innovative snack and beverage products made from plant-
based protein. The first product launched by the JV was a meatless jerky.25

JBS, one of the world´s largest meat producers, introduced their OZO brand in early 2022
through their plant-based division Planterra. However, in 2022, JBS closed Planterra’s U.S.
division due to supply chain issues, inflation, and changes in consumer trends. JBS continued
plant-based operations in Brazil and Europe through different brands.26

As the world’s fourth largest meat producer, Tyson Foods had entered the PBMA market in 2016
with an investment in Beyond Meat. They subsequently divested to focus on creating their own
product portfolio. In 2019, Tyson introduced a variety of PBMA products under the brand Raised
& Rooted.27

Kraft Heinz
The Kraft Heinz Company (known as Kraft Heinz), the fifth largest food and beverage company
in the world in annual sales in 2021, was created via the merger of Kraft Foods and H. J. Heinz in
2015. Shareholders of the new Kraft Heinz entity were among the most prominent and the largest
investment funds in the United States. 28 Kraft Heinz like larger competitors offered different
product categories from processed tomatoes to meats and owned some of the most iconic
American food brands. (See Exhibit 5 for a timeline of Kraft Heinz and NotCo to joint venture.)

Kraft Heinz had an established reputation in traditional food processing, with know-how and
strong capabilities in manufacturing, commercialization, and distribution. Their go-to-market
knowledge, competence managing distribution channels (retail and food service companies), and
online sales through e-commerce platforms and retailers were well established. After the merger,
Kraft Heinz struggled with operational and organizational challenges. These often resulted in
cost-cutting, ultimately leading to a $15 billion write-down of the value of the Kraft and Oscar
Mayer brands, a loss of $12.6 billion. In 2019, the SEC asked Kraft Heinz to refile its financial
statement.29 That same year, a new CEO, Miguel Patricio, was hired July 1 to focus on growth
opportunities in the rapidly evolving food industry.30

Kraft Heinz was one of the first legacy entrants in the PBMA category. Kraft purchased Boca
Burger, Inc., in early 2000. The Boca soy-based burger was one of the leading plant-based meat
brands in the United States. Kraft Heinz reformulated and repackaged the Boca burger in 2018 to
provide a more modern look and improved taste and texture, targeting younger demographics
and millennials.31 Due to slowed sales growth in developed markets, growing competition, and
the 2019 re-set, Kraft Heinz increased efforts to identify product opportunities in fresher,
healthier, food categories. Nevertheless, Kraft Heinz struggled through 2020 and the COVID-19
lockdowns as customer eating habits shifted from processed to fresh and plant-based foods.32
From 2020 to 2022, Kraft Heinz continued to work on strategic transformation. As part of this
plan, the company announced a new purpose, "Let’s Make Life Delicious," and an all new vision,
"To sustainably grow by delighting more consumers globally."33 Kraft Heinz also released its 2020
Environmental Social Governance report with goals to make 100% of their product packaging
recyclable, reusable, or compostable by 2025.34 To increase its presence in plant-based markets,
Kraft Heinz used partnerships, for example in 2022 with Papa John’s, Domino, and Burger King.35
They also partnered with Microsoft to leverage machine learning and advanced analytics to
accelerate innovation, access more data, and improve promotions.

Kraft Heinz aimed to use marketing capabilities to improve its value proposition through
innovation, promotions, variety, and an omnichannel approach.36 The company continued to
focus on the partner program, centralized customer development, and revenue management
teams for sustaining profitable sales. The 2018 post-merger filing shared plans to transform the
category management system.37 The plan was to: reduce complexity; implement real-time, data-
driven pricing; and implement promotions, resource allocation, and inventory management by
categories and SKUs. Kraft Heinz wanted to take advantage of its manufacturing capabilities to
produce plant-based and animal-based food products.

In 2022, Kraft Heinz announced the creation of a JV with NotCo to advance its commitment to
plant-based foods, continuous improvement, and a brand-refresh strategy.

NotCo
NotCo was founded in 2015 with a mission to replace animal-based foods without sacrificing taste,
functionality, or consumption experience.38 As a food-tech company, they used machine learning
algorithms to replicate animal-based food products with plant-based equivalents. NotCo achieved
unicorn status at a valuation of $1.5 billion, after a star-studded $235 million Series D round in
July 2021.39 NotCo was named one of the World’s Most Innovative Companies in 2021 and
ranked#1 in Latin America and the top 50 globally.40 Among NotCo minority owners were The
Craftory41 and Bezos Expeditions, a vehicle created by Jeff Bezos to manage his personal
investments.42

NotCo launched numerous plant-based products in different categories and became the fastest
growing food-tech company in Latin America. NotCo products included NotMayo, NotMilk,
NotIceCream, NotBurger, and NotChicken, among others.43 In 2022, NotCo products were sold
in the United States, Canada, Brazil, Argentina, Chile, Mexico, Peru, Colombia, and Australia.
NotCo products in the United States could be found on the shelves of Whole Foods, Sprouts
Farmers Market, Costco, Walmart, Publix, and Wegmans.44 NotCo focused on R&D and
developing innovative products for themselves and others, while outsourcing non-core activities
such as manufacturing and logistics.

NotCo argued that plant-based products had a considerably smaller negative impact on the
planet´s environment than animal-based counterparts. The company claimed that animal
farming used one-third of the earth's surface, emitted significant CO2, and required big quantities
of water, land, and energy. Deforestation, pollution, and human health conditions could also be
affected by animal-based food consumption. In contrast, a plant-based diet was associated with
improved health and reduced risk of disease.45 It was believed that livestock production was
responsible for 14.5% of global greenhouse gas (GHG) emissions. Research had shown that it was
impossible to limit global temperature increase to a target of 35.6 degrees Fahrenheit if meat and
dairy consumption continued at current levels.46

Giuseppe: The Artificial Intelligence Factory

NotCo´s critical and differentiating asset was its proprietary artificial intelligence, Giuseppe.
Giuseppe contained a set of algorithms that replicated animal-based products using millions of
combinations from a universe of more than 300,000 plants. (An average human being ate around
200 different types of plants.) The platform analyzed the structure of an animal-based product at
its molecular level and generated variations of different recipes for a product it wanted to create.
Giuseppe looked for matches in flavor, texture, nutrition, and functionality, among other
characteristics. (See Exhibit 6 for an illustration of work done by NotCo’s Giuseppe.) It also
analyzed how molecules made each product interact with another.47 By processing and learning
plant combinations, Giuseppe managed to obtain and store an enormous amount of chemical,
molecular, and physical information, surpassing human cognitive capability.
NotCo founders chose the name Giuseppe after Giuseppe Arcimboldo (1526 or 1527-1593), an
Italian painter famous for his portraits of faces made of flowers, fruits, plants, and animals. The
NotCo founders pointed out that “His paintings tell us that, with intelligence, talent, and lots of
fruit and vegetables, we can solve everything. …. Our Giuseppe’s passion is not painting, but
cooking.”48

Giuseppe was created by Karim Pichara, one of the NotCo founders. Pichara, a Ph.D. in computer
science from Universidad de Chile and a postdoc in applied computer science from Harvard
University, was well positioned to lead the NotCo AI team, which included machine learning
engineers, UI/UX designers, food scientists, software engineers, experimental and research chefs,
and product developers.49 Giuseppe worked together with NotCo research and experimental chefs
who, using an interactive and iterative system, provided feedback on various food formulations
until they found what they considered the best. The feedback allowed Giuseppe to learn and
improve preparations with each iteration.50 Founder Pablo Zamora added 51:

Giuseppe sometimes makes mistakes. He can make milk that tastes perfect, except it’s
pink! So the team tells Giuseppe there’s a problem and he reformulates the algorithm to
get the right color. …. Giuseppe never ceases to surprise with his combinations of
ingredients, which no human could think up. For mayonnaise, we use lupines, which,
mixed with certain chickpea components, makes an emulsion very close to that of eggs.
Mushrooms are used to heighten the sensation of sweetness in chocolate and canary grass
seeds to alter the density of certain kind of milks.

Giuseppe built an ingredient recommendation engine, which allowed scientists to test and re-test
ingredients to match a target functionality, such as foaming and gelation. For example, in the case
of foaming, the algorithm started without knowing anything about ingredients related to milk
foaming. It started by exploring different combinations of ingredients, then iteratively optimized
through feedback to converge on an optimum, in which successful foaming was achieved. The
optimization of the formulation allowed scientists to reduce the number of lab trials needed to
reach a desired outcome. The recommendation algorithm also identified protein structures and
considered reformulations due to issues arising from sourcing, availability, or ingredient pricing.
Giuseppe found that pineapple and cabbage yielded milky and creamy features useful in
formulating NotMilk.

In the case of flavors, Giuseppe aimed to understand the mapping of aroma components across
animal and plant-based options. With over 30,000 molecules included in the system, the
algorithm suggested aroma compounds from plants that could be recombined to imitate the taste
of products such as dairy and meat. For example, with NotChicken, the algorithm identified oils
and extracts from tomatoes, strawberries, and peaches to approximate the chicken taste.
The first product NotCo launched was NotMayo, then NotMilk, NotIcecream, NotMeat,
NotBurger, and NotChicken. (See Exhibit 7 for information about time needed to launch each
product.)52 Among the ingredients of NotMilk were: water, sunflower oil, pea protein, pineapple
juice concentrate, dipotassium phosphate, calcium carbonate, acacia gum, monocalcium phosphate,
natural flavor, cabbage juice concentrate, and vitamins D2 and B12.53

In May 2022, NotCo entered a partnership with the U.S. fast-food, burger chain Shake Shack. The
partnership started with the development of dairy-free chocolate custard and a chocolate shake
to be tested in 10 restaurant locations. Shake Shack was a major player in the fast-food sector,
mainly known for frozen custards and shakes. The partnership with NotCo enabled Shake Shack
to expand their offerings with plant-based treats. Giuseppe analyzed and mimicked Shake Shack
menu items to mirror the flavor, creaminess, and in-mouth feel of custards and shakes, despite
the removal of all dairy and eggs. Product development took less than four months.54 Other
successes were: the NotCo alliance with Dunkin’ Donuts at the end of 2022 to launch two new
plant-based donuts, the Boston NotManjxr and the Sugar NotManjxr; and the NotCo alliance with
Starbucks at the beginning of 2023 to offer NotMilk as an option for Starbucks handcrafted
beverages.55

NotCo announced it had raised $70 million to support a new B2B platform business model at the
end of 2022. The goal was to license the NotCo proprietary technology platform and maximize
opportunities for new plant-based product development working with different stakeholders,
including food companies, restaurant chains, ingredient suppliers, and technology providers.56
NotCo was becoming a company with multiple business models such as NotCo Foods (B2C) and
NotCo Tech (B2B).57

Kraft Heinz Not Company

In February 2022, Kraft Heinz and NotCo announced the new JV under the name “The Kraft
Heinz Not Company.” The new JV had headquarters in Chicago and research and development
facilities in San Francisco. Kraft Heinz provided production, logistics, and distribution
capabilities, as well as its portfolio of iconic brands, while NotCo contributed its artificial-
intelligence-based technology to create new products. 58 The Kraft Heinz Not Company focused
on plant-based innovation across the Kraft Heinz product categories. The company initially
restricted activity to certain geographic areas in the United States and Canada.59 Announcing the
JV, NotCo CEO Matias Muchnick said, “This is an exciting milestone for the plant-based industry
and shows the power that technology plays in driving widespread adoption.60 When we started
NotCo, it was our goal to make our technology a catalyzer for a more sustainable food system not
only for us but for other brands and manufacturers who share the same ambition.”61

Kraft Heinz CEO Miguel Patricio noted,62 “The joint venture with The Not Company is a critical
step in the transformation of our product portfolio and a tremendous addition to our brand
design-to-value capabilities. It helps deliver on our vision to offer more clean, green, and delicious
products for consumers. We believe the technology that NotCo brings is revolutionizing the
creation of delicious plant-based foods with simpler ingredients.”

Later, Muchnick added: 63

I think we both bring to the table something very important. They bring the familiarity of
their brands. Philadelphia Cream Cheese has a market penetration of something like 70%
of American households, so putting out a plant version of that in the market can move the
needle in terms of market penetration of the plant-based industry as a whole. This is also
why we created the joint venture with Kraft Heinz. We can become a platform company
for innovation for other brands but still get the recognition for our brands.

Looking Ahead
The Kraft Heinz Not Company successfully introduced several new plant-based products, The Not
Kraft Singles and The Not Cheese. Nevertheless, the beginning of 2023 presented challenges for
the leadership of all three companies. In the context of the 2022 inflationary environment and
perceived higher prices of plant-based products compared to conventional foods, customers
slightly decreased purchases of plant-based products and increased consumption of conventional
food products. As economic uncertainty and volatility persisted, consumers chose more familiar
products and attributes.

Sales volatility in 2022 indicated further challenges associated with consumer interest in plant-
based products. Some plant-based products such as PBMAs were perceived to be highly
processed. As choices in the plant-based space became more plentiful, consumers became
increasingly aware of their ingredients, such as artificial coloring, sugar, and other additives.
Overall, consumer acceptance of plant-based products remained a major challenge and
opportunity for producers.
At the end of 2022, Lucho Lopez-May, Kraft Heinz Not Company CEO, was working with his team
to identify strategic priorities and potential challenges for the joint venture. Kraft Heinz was
focused on growth opportunities in mature markets and how best to face shifting customer
preferences especially with younger customers. They knew time was of the essence for increasing
their presence in plant-based markets while managing their legacy business. NotCo focused
singularly on opportunities to proliferate their proprietary know-how across the plant-based food
value chain. Questions that resonated with management were: 1) how Kraft Heinz and NotCo
should think about investment allocation across their own businesses vs. the JV; 2) whether the
interests of both companies were aligned; 3) conflicts likely to arise and how to anticipate them;
4) how to manage potential re-alignment of incentives while taking advantage of the strengths of
both companies; and 5) whether the joint venture structure was the best operational format to
maximize growth for both entities.