Kraft Heinz is ready to move beyond ‘good’ to ‘great,’ which ‘is a very different game’

By Elizabeth Crawford contact

- Last updated on GMT

Source: Getty/We Are
Source: Getty/We Are

Related tags: Kraft heinz, Innovation, financial results

After previous plans to boost Kraft Heinz’s profit margins and add value by aggressively cutting costs and practicing zero-based budgeting went awry and caused the company’s stock and consumer trust to plummet, Miguel Patricio was focused on the basics when he took over as CEO in 2019. But now, three years later, he and the leadership team are setting their sights and ambitions for the company higher.

“Before we were on the bottom and our expectation was just to grow, to start growing,”​ Carlos Abrams-Rivera, executive vice president and president of Kraft Heinz’s North America Zone, said last week at Barclays Global Consumer Staples Conference in Boston. But now, he added, “we are no longer at the bottom. I think we are good now. And so, we have now an ambition to become great. And that is a very different game.”

And it is one the company plans to win with its strategic agile@scale initiative, in which the company plans to leverage partnerships with tech giants and innovators to reframe its size from a burden to an asset with significant capabilities at scale and financial flexibility to acquire what else it needs to level-up.

This requires a shift in mindset, which Patricio acknowledged is “more intangible”​ and difficult to manage but something he and other leaders are doing through weekly meetings with talent that foster personal connections and a sense of teamwork and also provide him with a “pulse on how the company is growing and moving.”

For example, he said, during a recent meeting with top talent he received “super energized”​ answers to his question about what excites them and what they are doing.

“They were talking a very different language,”​ from three years ago “with a growth mindset,”​ that allowed them to look beyond traditional plays into new areas of growth, such as cream cheese beyond cheesecake and bagels and how to take a frozen food Mexican brand into new categories.

Based on the company’s transformation so far, Patricio said Kraft Heinz is “raising the bar” for its financial targets – boosting its expected organic net sales growth from 1-2% to 2-3%, its adjusted EBITDA from 2-3% to 4-6% and adjusted EPS from 4-6% to 6-8%.

The building blocks for success

This is possible thanks in part to the strong foundation and capabilities established in Phase 2 of the company’s transformation and because there is a clear strategic roadmap going forward, said Abrams-Rivera.

“When it comes to the building blocks on the top line … essentially there are three components, each one of them roughly representing one percentage point,”​ he explained.

“The first one is market share stabilization in North America, relying on our growth platforms. So, we are counting that the US business can grow at 1-2 on the retail part, which is essentially what the category has been growing pre-pandemic levels, so stabilization,”​ he said.

“The second building block is on food service, which represents 13-15% of our business. We expect this to continue to grow at mid-to-high single digits as we have bene reemphasizing the performance we have been obtaining on that.

“The third building block is on emerging markets, so which represents roughly 10% of our business and we expect to continue to grow double digits moving forward,”​ he added.

As for reaching and EBITDA of 4-6%, Abrams-Rivera said he expects the cost of goods and services to have about 3% gross productivity moving forward to reach closer to $500m per year – a step up from the previously expected $400m. This is possible thanks to the company leveraging its scale and increasing marketing over the years by about one percentage point.

Finally, to the new EPS target the company will continue to pay down its debt and estimates it CAPEX investments in the range of 4% in the medium to long term, “which I think is important to enable the top line growth and free cash flow around 100%,”​ Abrams-Rivera said.

He added that while this may sound ambitious, he believes it is possible because of the hard work the company has done in the last three years.

“We’ve been transforming the entire company even through this pandemic and difficult inflationary environments that we’ve had. So, part of it is also having built away the foundations of the business and having clarity of strategy that now gives us the confidence for us to think differently about our future and aim a lot higher,”​ he said.

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