New York CNN Business  — 

It seems that Kraft Heinz was so focused on cutting costs that it forgot the most important thing for a food company to do: Make tasty products that people actually want to buy and eat.

Kraft Heinz shocked investors Thursday when it posted a gigantic loss due to the writedown of its Kraft and Oscar Mayer brands, slashed its dividend and disclosed an SEC probe into its accounting.

Investors never like to find out the SEC is investigating a company’s books. But the bigger problem for Kraft Heinz is that analysts are now questioning the company’s strategy and are worried that it has lost its way in the highly competitive food business.

Kraft Heinz (KHC) was created nearly four years ago when Heinz, which was bought by Warren Buffett’s Berkshire Hathaway (BRKB) and private equity firm 3G Capital in 2013, merged with Kraft. 3G installed one of its partners, Bernardo Hees, as Heinz CEO after that deal and Hees is now the leader of Kraft Heinz (KHC).

The combined company quickly went to work to reduce expenses after their merger in order to boost profits. Kraft Heinz even hoped that another deal could lead to more big savings.

Kraft Heinz bid more than $140 billion in 2017 for UK-Dutch food and beauty products conglomerate Unilever (UN) (UL), the owner of Ben & Jerry’s, Lipton and Hellmann’s as well as Dove, Vaseline and Q-Tips. Unilever (UN) (UL) rejected the deal and Kraft Heinz walked away.

Kraft Heinz needs healthier food

It’s been all downhill for the company since. Shares have plunged more than 60% during the past two years, including Friday’s 26% drop due to the latest bad news.

Analysts rushed to downgrade Kraft Heinz shares Friday.

Many were quick to point out that the biggest problem for Kraft Heinz, the maker of Jell-O and Kraft Macaroni & Cheese, is that the company hasn’t adapted to changing consumer tastes. There’s a growing interest in healthier and organic food as opposed to processed cheese and lunch meat.

Several of Kraft Heinz’ competitors have already latched on to this trend.

General Mills (GIS) bought Annie’s in 2014. Hershey (HSY) acquired SkinnyPop maker Amplify Snack Brands in 2017 and also bought the maker of Pirate’s Booty from B&G Foods, last year. And ConAgra (CAG) scooped up Pinnacle, owner of Smart Balance and the Udi’s brand of gluten free food last year.

Analysts have grown sour on the Kraft Heinz deal strategy

If Kraft Heinz was hoping to expand in organic food through acquisitions, that may now be tough, if not impossible, to do. The window for any future mergers may have been sealed shut.

“We now must accept that getting an attractive deal done may be less likely than we had hoped,” said Michael Lavery, an analyst with Piper Jaffray, in a report Friday. Lavery was one of several analysts to downgrade Kraft Heinz following its deluge of bad news.

JPMorgan’s Ken Goldman also downgraded the stock. And he was painfully blunt about his thoughts on the company’s strategy.

“We think it is fair to ask if 3G has created any value since Kraft and Heinz merged,” Goldman wrote.

Stifel analyst Christopher Growe downgraded Kraft Heinz as well. He also expressed growing impatience with the company.

“Gone are the days of investors giving this management team instant credit for any future cost savings from an acquisition – we believe investors will maintain a skeptical eye,” Growe wrote.

Despite this, Kraft Heinz management still seems to think that acquisitions will be a big part of its growth strategy. The company mentioned “future consolidation” eight times during a conference call with analysts Thursday.

Food deflation in aisle 11 due to Amazon and Walmart

But even before Thursday’s earnings bombshell, many investors were worried about the pressure Kraft Heinz and other food companies were facing.

Prices have come down for many supermarket staples as Amazon (AMZN)/Whole Foods, Walmart (WMT) and Target (TGT) become even bigger players in the grocery business. That’s hurt profit margins.

So it should come as no surprise that Kraft Heinz wasn’t the only food stock tumbling Friday. Its bad news spilled over to rivals ConAgra, General Mills, Campbell Soup (CPB), Smucker (SJM) and Kellogg (K) as well.