CHICAGO – When Miguel Patricio took over as chief executive officer of the Kraft Heinz Co. he sought to turn the company around by realigning its product portfolio and using its scale to improve results. Now Kraft Heinz is entering phase three of his strategy and plans to embed agility into the organization with digital technologies that will improve customer service, innovation and marketing initiatives.
“The first two phases of our transformation were designed to bring scale and agility together,” Patricio said Feb. 22 during a presentation at the virtual Consumer Analyst Group of New York conference. “It had mainly been an internally focused process to get established best practices in place and bring us to industry standards.
“We focused on capabilities, processes and disciplines that, in many ways, were new to Kraft Heinz, but not necessarily new to the world. This has allowed us to close the gap against best-in-class standards of efficiency and execution across the value chain.”
The company is calling phase three of its strategy Agile@Scale and Patricio said it will enable Kraft Heinz to accelerate the pace of innovation with better, more meaningful customer insights, and use company resources more efficiently.
“In other words, we are building a more powerful engine to supercharge our operating model,” Patricio said. “So, same transformation strategy, same proven operating model, better engine. Agile@Scale is how we will go about opening new growth opportunities and unlocking greater efficiencies. This will lead to generating meaningful free cash flow.”
Carlos A. Abrams-Rivera, president of Kraft Heinz’s North America business unit, said the company has been investing in its “tech ecosystem” to maximize value creation by upgrading and scaling partner solutions, upgrading internal solutions and launching a digital lab to build new digital solutions.
“This is not just about speed,” he said. “We’re striving for sustainable innovation that will meaningfully contribute to our market share.”
An example of the company’s new strategy may be seen in its recent acquisition of Just Spices, Dusseldorf, Germany. Just Spices is a manufacturer of spices, spice blends, salad dressings and meal kits, and approximately 70% of the company’s sales are direct-to-consumer.
“Just Spices brings a proven AI (artificial intelligence) solution and differentiated approach to spices with a focus on recipes and (that targets) younger consumers through a fully integrated direct-to-consumer marketplace,” Abrams-Rivera said.
The second area of focus will be to engage consumers using insights generated by real-time data across internal and external sources.
“We are creating a much deeper and granular level of understanding of our consumers, who they are, their needs and their behaviors,” Abrams-Rivera said. “From here, we can tailor our content and approach, so we reach consumers with the right message at the right time, all while deepening our connection to turn engagement into conversions and consumer loyalty.”
Embedding agility into the organization also will allow it to better serve customers. Abrams-Rivera said that one year ago Kraft Heinz was managing between 60% and 70% variability in its shipments.
“Having variability this sizable did not fully meet our customer needs as we would frequently run the risk of out of stocks,” he said. “As a solution, we created a Kraft Heinz proprietary ecosystem to design the perfect shipment. The first step was to ingest approximately 50 data sources, aggregating internal data, like historical inventory turnover, trade promotions and sales activity, alongside external data, such macroeconomic factors like weather to create demand planning view all the way down to the store and SKU (stock-keeping unit) level.
“Using this as our base, we then developed an AI power system to learn the patterns of inventory rotation, coupled with the internal and external factors that caused the rotation. The system then provides a recommendation of the optimal shipment at a granular level, providing each store with the product they needed, while accounting for availability and demand.”
The results of the initiative, according to the company, have been a three- to five-point improvement in shipment mix accuracy that will eventually result in $100 million in efficiencies, lower inventory levels and better customer service.
“But that's just the beginning,” Abrams-Rivera said. “The perfect shipment tool will evolve to predict and anticipate future consumer and customer needs by constantly changing signals in the database, connecting our supply chain and recommended shipments that can drive incremental upside.”
Taking its new growth strategy into account, Kraft Heinz Co. updated its long-term financial outlook with organic net sales growth going from 1% to 2% to 2% to 3%; adjusted EBITDA is rising from 2% to 3% to 4% to 6%; and adjusted earnings per share were raised from 4% to 6% to 6% to 8%.