“Kraft Heinz has changed dramatically over the last three or four years. I think it may be hard sometimes for investors to look to see it. I mean, we had the pandemic, we have high inflation, we have external wars, we have these things going on in the world. And, I think, in that time, we have rebuilt the organization from the ground up,” Carlos Abrams-Rivera, who took the helm as CEO earlier this year, said last week at Barclays 17th Annual Global Consumer Staples Conference.
“Because the transformation has been so great, I think it is hard for people to understand how much we have changed,” and as a result “our share today is very much undervalued,” he added.
Global CFO Andre Maciel echoed this sentiment, noting the company’s “performance has been now for the last five years very robust. Supply chain efficiencies, or efficiencies in general, are very robust. … The balance sheet is in great shape. We got upgraded twice by the [Better Business Bureau]. We are very pleased with the level that are. We generate now very good excess cash, which has been allowing us to not only invest the business organically to what they need. We feel that we are at a sufficient level for a CapEx standpoint, mostly there for marketing standpoint.”
An added point of pride, expressed by both men, is this growth has not come at the expense of the consumer – rather, they said, Kraft Heinz is working hard to meet consumers who are strained by inflation where they are.
‘We are very thoughtful and surgical when we deploy these promotions’
One way that Kraft Heinz is driving sales and growth without squeezing the consumer is by leaning on promotions at a time when many competitors continue to hold back on deals at the shelf.
“We are very thoughtful and surgical when we deploy these promotions,” Maciel said as he attempted to correct previous “misinterpretations” about the extent of their use at Kraft Heinz.
“We have 30%-40% of the portfolio in the US retail where it requires promotion. I think this maybe got misinterpreted [during the most recent earnings call]. I want to make it very clear: We refer to 30% of the categories where want to deploy [promotions], not 30% of the revenue there,” he said.
He explained that the company is promoting in categories where it has sustainable capacity, can expand the consumer base and can expand overall use.
For example, he said, within the company’s $1.7 billion Mac & Cheese business, the cups previously were limited by capacity but now that there is “plenty of available capacity this is a place that we are seeing that makes sense to deploy those promotions. And, in fact, we went from declining Q2 revenue there on sell-out now to quarter to date to be grown in part because of that.”
Abrams-Rivera added when Kraft Heinz invests in promotion it does so with two priorities in mind.
“One, being thoughtful about the return of those investments. So we do make internally a number of investments to improve our revenue growth management in a way that are driven by AI modeling that allows us to make sure we understand better what are the categories that make sense and what are the returns that we expect to see on those things,” he said.
“And then also understanding from the consumer point of view, what are the times during the year in which actually they are looking for solutions that if they get our products, it has a benefit outside of that particular season. So, if you think about back to school, if you think about holidays, some of our brands that play well during those times of the year, by us getting the consumers to actually engage with our brands, it allows us to have increased base volumes to post those promotions,” he added.
Ultimately, he explained, Kraft Heinz’s approach is disciplined, “but also thoughtful about how consumers are shopping in a way that we can provide a good investment without necessarily sacrificing the gross margins of the company.”
Enhanced innovation, distribution complement promotions
Promotions, which are often knocked for devaluing perceived value and eroding loyalty, is not the only way that Kraft Heinz is growing by engaging with financially strained consumers.
“The way we want to grow the business is by having meaningful marketing, good innovation, good renovation and not just relying on promotions,” said Maciel.
For example, Abrams-Rivera explained, Kraft Heinz ensures its products are “worth paying for” by ensuring everyone in the household will enjoy eating the products.
“If you have to throw away half of the product … that actually is not good value for consumers. So for us, it is continuing to stay focused on renovating our brands to make sure we continue to bring the high-quality benefits that consumers want,” he said.
Kraft Heinz also is innovating to offer benefits consumers want and expand distribution where they shop.
Last year, the company renovated Jell-O with a zero-sugar option so that “even in the world of GLP-1s, we are actually seeing tremendous growth in the desserts business because we are bringing actual benefits to consumers that they were not expecting to see from our category,” Abrams-Rivera said.
Likewise, the company innovated SKUs within its Capri Sun and Oscar Mayer businesses to expand distribution into new retail channels where the brands previously were not sold.
“Capri Sun, that has always been in a pouch and we actually brought it to a bottle that is 32-ounce and is a lower price per serving,” and it created smaller packs of its Oscar Mayer products so that they could be distributed at Dollar General and offer a new consumer base an entry point to the brand, he said.
Looking forward, both men said, the company will continue to explore how innovation, renovation, marketing and increased distribution can expand the business by growing the consumer base and boosting volume.