Kraft Heinz pulls Lunchables meals from US low-income lunch program

Adds background on lunch program, consumer group's report, comments by CEO, paragraphs 3-11

By Jessica DiNapoli

NEW YORK, Nov 12 (Reuters) - Kraft Heinz KHC.O is no longer making its packaged lunch brand Lunchables for low-income students receiving free and reduced-priced meals from a federal program due to weak demand, according to a company statement, the latest blow to one of its best-known products.

Chicago-based Kraft Heinz announced plans to sell to the school lunch program early last year at an industry conference, saying it would target the $25-billion educational market.

But demand fell short of the packaged food manufacturer's expectations, the company said, as it looks to revive its well-worn brands such as Lunchables, Jell-O and Crystal Light, and grow sales volumes, which have faltered after multiple price hikes.

A 3.2-ounce (90-gram) ham and American cheese Lunchables sells for $1.87 on Walmart.com.

“While many school administrators were excited to have these options, the demand did not meet our targets," Kraft Heinz said in a statement. "This happens occasionally across our broad portfolio, especially as we explore new sales channels. Lunchables products are not available in schools this year and we hope to revisit at a future date."

The U.S. Department of Agriculture’s school lunch program provides free and low-cost lunches to about 30 million children who are from low-income families or meet other federal requirements.

Kraft Heinz hoped the move would expand its distribution and sales, and help the food company reach new consumers. Schools were eager to serve pre-made lunches that do not require additional labor to prepare. But the launch fell flat after U.S. consumer-watchdog group Consumer Reports said in April that Lunchables for the school lunch program had high sodium levels, raising questions about whether the cracker-and-bread-based meal kits should be served to kids in kindergarten through high school.

The company said in a statement on Tuesday that "all Lunchables products are safe and made with quality ingredients that meet our own high standards as well as strict safety standards set by government agencies."

"Nothing is more important to us than the quality and safety of our food," the company said, adding that the reason for pulling the product from the school lunch program was unrelated to Consumer Reports' findings.

Lunchables, created in the 1980s for time-strapped working moms, dragged on Kraft Heinz's overall sales in its quarter ended Sept. 28. Sales directly to shoppers were down 15%, Kraft Heinz CEO Carlos Abrams-Rivera said on a call with investors on Oct. 30.

"The negative publicity that we received from that misleading interest group appears to be lingering longer," Abrams-Rivera said. "And remember, this is a brand that is focused on families and kids, so rebuilding that trust just takes some time.”

One of the company's suppliers was unable to continue to provide an important ingredient for one high-selling variety of Lunchables, Abrams-Rivera said.

He said on the conference call that the company was continuing to work on overhauling the Lunchables brand by expanding flavors, such as spicy nacho.

Kraft Heinz has tried reinventing the lunch-box staple over the years, including a "Brunchables" in 2019. Last year, the company added fresh apples, grapes, pineapples and clementines to the meal kit.

Adding to its woes, Lunchables faces new competitors. YouTube personality Mr. Beast introduced a competing product called Lunchly in recent months. The new brand, however, has been plagued by reports of mold on social media.

(Reporting by Jessica DiNapoli in New York; Editing by Chizu Nomiyama and Rod Nickel)

((Jessica.DiNapoli@thomsonreuters.com; 845-591-4428; Reuters Messaging: Twitter: @jessicadinapoli))