The following is the unofficial transcript of a CNBC interview with Kraft Heinz President and Incoming CEO Carlos Abrams-Rivera from the CNBC Evolve Global Summit, which took place today, Thursday, November 2nd.
All references must be sourced to the CNBC Evolve Global Summit.
Becky Quick: Hey, Tyler. Thank you very much and welcome Carlos to our event today. We’re really glad to have you here to talk about the evolution that you’ve seen in the brand. But before we jump into that, I want us to start with your most recent results. Yesterday, your company came out with earnings. And the story was a better picture than the street was expecting stocks up about three and a half percent the last time I checked on this. Just wondering what happened? Where did you see some strength on this? You were able to increase sales and you did that I think by using some pricing power.
Carlos Abrams-Rivera: Thank you, first of all, always a pleasure to be with you. Yes, you know, we’re actually very proud of the results we’ve shown. And it supports the fact that our strategy is working. You know, we are growing in emerging markets, double digits. We’re growing our food service 9% and the growth platforms in the U.S. business are growing 3%. So when we’re making improvements in our volume, and our shares are continuing to improve. At the same time, we’re also driving efficiencies that we haven’t done in the past. So all those pillars are working for us and the result is what you saw yesterday. It is the continued commitment from our teams when doing the right thing and following our strategy.
Quick: Well, let’s dig a little deeper into some of those things. How would you say the American consumer is feeling right now just in terms of what you’re able to do in terms of raising prices, maybe not having to offer discounts? What’s it look like?
Abrams-Rivera: The way we are seeing right now is consumers no matter where you are, they’re looking for value. And we’re looking to deliver that value in very different ways so that the consumers who actually are able to think about how they get to the lower price per unit and price per serving. So those we’re actually looking to make sure we have the right products in the club type of environment. So we actually increase in the number of products we have available in club, whether it’s our meal club with our mac and cheese. Those are things that we have continued to make sure that we have available for them. There’s also a number of consumers who actually are more managing the value from a cash flow or their family. And those consumers are making two choices, one they’re looking for more of the lower price point overall and they’re also making some choices on the type of grocery stores they go to. So we’re making sure that we have more availability of the dollar type of products so that way we can make sure that they’re accessible to our brands, at a price point that allows them to manage their cash and will also increasing the number of SK use we have in the dollar channel for example. So that way, we are able to make sure that we are driving both of those consumers looking for value. The other thing I will say is you know you talked about pricing power, just the one thing Becky is that part of that too with making sure we continue to invest in our marketing so that no matter where consumers are shopping, they know that this is a brand worth paying for.
Quick: How do you do that? How do you create skews that are available in grocery stores that, or maybe dollar stores or something where if consumers are trying to trade down because they’re trying to make sure that they save money? How do you do that without diluting your, the quality of your brands and people who want to buy them maybe in a higher end store? Do you break it down where you have different products? Do you break it down where you have different brands?
Abrams-Rivera: No great question. You know, we’re doing a couple of different things. First of all, we’re taking kind of the same quality products, so we’re never going to compromise on the quality of our products, but we’re going to deliver in a packaging that is more accessible in terms of price point. So I gave an example of Lunchables, you know we have a Lunchables that we sell in grocery stores. We have a Lunchables now we actually sell with fruit in the front of the store and we have a Lunchable that sells at $1 in $1 channel too. So that idea of us being able to have different combination of packaging that allows us to get to the different price points. It is the way for us to make sure that we have access to those different types of channels without compromising on the great quality people expect from us.
Quick: You have said pretty publicly that you don’t think you’re gonna go crazy on discounts. You’re not going to get back to the pre pandemic levels where you discounted and offered coupons or some other way to kind of get consumers and you haven’t had to do that much.
Abrams-Rivera: We haven’t and we won’t. For us we said we will not going to return to the 2019 levels in terms of promotions. And to be honest, the reason for that too is the word just martyr in terms of the investment we have made in technology in the company to make sure that we are thinking through what is the right level of investment to get the right level of pool from consumers in a way that is still accessible. Ultimately, we’re a company we sell to the many, not the few. So we still going to make sure we are investing in promotions during the right time and you think about the holidays coming up. We’re just going to do in a smart way that allows us to have positive ROI rather than negative ROI we used to have in the past. So a huge amount of investing in revenue management and AI tools to allow us to get to those better returns on the investments we’re making.
Quick: How do you do things – I’m still going back to this idea of trying to make sure that you have products available in lots of different locations especially as some consumers feel that pressure and try and train down on things. How do you make sure that you have well known Kraft Heinz brands that are available in dollar stores without irritating the Walmart’s of the world, the Costco’s is of the world the A&P’s of the world? How do you make sure that you please all of your outlets to without them feeling like they’re getting dragged down in the process?
Abrams-Rivera: Well, first of all, I’ll say we have great relationship with all those retailers that you mentioned not only the U.S. but international as well. And for us it’s about making sure we have the right price back for the type of consumer that goes to the store. You know it started for us understanding their consumer, who are the people who are coming to their stores, what are they looking for, why do they shop with that particular retailer and not being agnostic on the kind of consumers we have, but we just want to make sure that we’re providing the solution for them. So a consumer that walks into a Sam’s or Costco is looking for a certain type of solution that is very different than when they walk in a Target or walk in a Walmart or walk in a $1 store. We’re just making sure that regardless of what their intention is, first that we understand it, that we have the right insights and that we provide a solution for what the consumers are looking for.
Quick: That makes sense but just to illustrate it a little more, what’s a product you would have at a Costco or Sam’s Club versus something that you would have, let’s say at a Walmart or a Target?
Abrams-Rivera: So if I take for example a Heinz ketchup, you can think of it as we can have anywhere from a 32 ounce product in a club store all the way to a much more, you know eight ounce kind of product in $1 store. That idea that if you think about walking into a Walmart, you’re probably going to find mostly a 20 ounce or a 30 ounce, that idea of us having different kind of format for the consumer. But again, it started with us understanding what is the shopper looking for in that particular outlet that we can provide a better solution.
Quick: I have spoken with some other CEOs recently just about innovation and how innovation in a lot of areas kind of fell by the wayside during the pandemic because everybody was so crazed with the supply chain issues just trying to chase product, trying to make sure that they were able to get their existing products into store shelves and beyond that. Now it starts to feel like there is some more innovation that’s kind of bubbling up again, would you agree with that initial assessment first?
Abrams-Rivera: What I will say is for us, I won’t speak for the rest of the industry but I will say for us what we did during that time is actually invest time in getting to the right consumer insights so by time we launch innovations, they are innovations that actually have the legs and the sustainability over time. You know, there was I think in the past Kraft Heinz will have probably gone to do a bunch of small things that wouldn’t last forever. Now we’re making sure the things that we do launch are things that are sustainable, and I’ll give you a couple of examples. I think that what we have done in full service, we just launched this year a new Heinz remix machine. It is a machine just to give you this, if you think about a machine that you can go in and can select up to 200 different sauces, not 20 100 different sauces, the same machine. And the beauty of that Bakey is that then we actually get data from them machine that we put in food service in a way that allows us to understand what our consumers favorite choices that then we can deploy into the retail environment as well.
Quick: Alright. I don’t think I can think of 20 – I got ketchup, I got mustard, relish, I got mayonnaise, I got Sriracha, maybe ranch.
Abrams-Rivera: Well think about combining those things. Think about what if I put a little mayonnaise with a little ketchup. What if I make that ketchup with a you know, habanero sauce. You know, those are the combinations you can get out of the Heinz remix machine.
Quick: Have you tried out 200 of those?
Abrams-Rivera: I have not tried 200 but you know I’m sure there are people in our company that have.
Quick: So these are the things that I would get if I’m out at the ballgame or at a movie theater or something, that’s going to be my option. Like I walk up to the soft drink and the coke has that machine where you can get 3,000 different flavors of soda that you can do, this is gonna be right next to it? Nacho sauce that’s another one.
Abrams-Rivera: That’s a great inspiration and for us again, it’s a good idea for us to get the data from them to understand what really consumers are looking for. I think you know, and I give you another example. You know, we just launched now a new 360 platform. We started with a launch of product and just to give you a sense for what that is Becky as you take a product like a grilled cheese, you put it in the microwave, and it’s gonna come out tasting like you just grilled it on the stovetop. So there’s a lot of patented technology and IP that Kraft Heinz has in order to develop this, you know, the high level view is there certain receptors in our packaging and certain things we’re doing in the product to make sure you get that crispness and then when you bite into it, it still has the chewy, gooey kind of cheese melt that you expect of a grilled cheese.
Quick: I remember a pizza Product a while ago, this was going back a long time that you can take the pizza out and put it on like an aluminum saying and stick it in the microwave. It must not have been aluminum because you could microwave it and that would supposedly make the crust a little crispier or am I thinking the right lines or like those – what was the taco products that you put it in or those pocket pizza things?
Abrams-Rivera: There’s some products that use the receptor. I think our IP is a little unique, because it’s also to make sure that for example, we use expect a grilled cheese you want to make sure that it has some edges that are a little more brown and more crispy, the middle may be a little different. So we actually recreate the whole experience for people to truly feel that they can actually get something that when they bite into it is truly had that kind of sense of you actually cook it yourself… that’s only one format of that technology that we’re going to use. You’re gonna see us actually diving in that disruptive innovation in different products throughout 2024 and 2025.
Quick: Alright, let’s talk about AI because it feels like we asked just about every CEO about this and the packaged goods and consumer products, no exception to this. You’re using AI to but I think you’re using it when it comes to the supply chain to see ahead and be able to better manage things.
Abrams-Rivera: Right. Today we have, you know, one of the things that probably people don’t know as much about Kraft Heinz because you just said there was COVID, there was inflation, a number of things that distracted I think people looking at how the companies were changing like ours. Today we have 34 different agile pods in North America working in our biggest opportunities out of those 19 of them actually have AI solutions embedded into that. And you mentioned logistics. That’s one of the early areas where we actually did our own homegrown AI in order to better understand how we can actually serve the customer much better. What it did, it allows us to ingest data directly from the customers, it improves our service, it improves the logistics time for us to get the product to them and it can minimize all the bottlenecks that we’re having in the logistics. So it was not enough to just get an order from a customer but understanding where the customer is coming, from what’s happening between our facilities and their stores that potentially could delay the order and how we actually work around those things, from weather patterns to traffic situations. That’s all embedded into an AI solution on our logistics area.
Quick: So how much does it actually help you on the bottom line? We’re trying to get the idea of AI, how much more effective, how much more efficient, it’s making companies. What would you say to that?
Abrams-Rivera: Well, what I’ll say is for our service, what it did is it improved, it reduced actually the logistics time by 35%. That obviously allows us to make sure that we improve our service, improve the orders, and that has an amplifying effect obviously ultimately in the P&L but we’re also using AI in areas in our sales customers’ orders. So for example our AI can understand based on the habits of the customers and where they normally shop, we actually can make recommendations to customers and say, this is the type of products your consumers made today in your store they actually may run to your store. So we actually now embedded that into our sales organizations so that they have the tools to better understand our customers. Their consumers have actually create a better experience for the consumer based on the AI algorithms that are coming in with the information from their own their own demand planning.
Quick: Who do you work with when it comes to the AI? How much of this is done in house? How much of it is help from somebody else? Because again, we’re all trying to figure out who’s doing AI right and who’s not?
Abrams-Rivera: We have done a lot, there’s more work to do so by no means am I going to declare victory. Two and a half years ago, we began this journey of investing in agile in a way that allows us to create those agile paths to organization. And we actually hired over 125 different sized data scientists in order to actually make sure we had the right tools internally in order to develop those. The logistic one for example is one that we invest in ourselves, we develop ourselves. At the same time we have a strong partnership with Microsoft that allows us to think through what is the best way for us to take some of the new areas in which they are actually developing solutions. And for us we’re using in our digital control tower for a manufacturing in which we are partnering with them in order to accelerate how we actually we go into our factories in a different way, using the understanding the digital control tower that allows us to solve problems in a manufacturing environment much faster than we were. So I will say that that’s a partnership that we continue to build on. And what’s exciting for me is that also part of the partnership is all thinking through what are the things that their solutions they haven’t solved and we haven’t solved that we can solve together. So there’s also horizon here of us working together with them on solutions that today nobody is facing, nobody yet has to answer. And we can come up with ideas together. But you’re right that the revolution AI is real, essentially, you know, we crossed this threshold and we’re not going back to that any other way of working anymore.
Quick: Carlos let’s talk about the evolution of the company. I think since Kraft Heinz was put together, the rub on the company has been that it was more focused on cost cutting and maybe less focused on building for the longer term. I know that’s evolved over the last several years. You all have been doing more to invest for the long term and trying to do some innovations for these things. But what would you say to that early criticism in terms of making sure that you’re investing for the future?
Abrams-Rivera: We’re a much different company than we were even three years ago. I joined the company now three and a half years ago and I can tell you that is it’s a different place. And I’ll say it starts with people. I know that’s, maybe not one of the topics you always may want to hear about but frankly any transformation begins we have in the right people who are motivated to do kind of the things that we have to do. We invested a lot in our culture to make sure we have this kind of sense of ambitious talent with a sense of ownership and collaboration. And frankly, that had led to a certain level of engagement that we hadn’t seen. You know, today we have the highest engagement that we ever had at Kraft Heinz. So that has helped us then allow us to think through what else we can deploy our people in terms of doing. We invested alone in our consumers understanding, all the things that we talked about innovation on how we are going to bring our brands in order to be more relevant to today’s consumer. That is all our thinking through how we invest in understanding our consumer better than anyone else. We’ve also invested our relationship with our customers. We mentioned customers a few times so far. I’ll tell you that we’re at very different ways that we were four years ago. Now we have relationship and we have trust that we can share information. In fact, I mentioned we are ingesting some of their data for a logistics AI deployment that comes for us working differently in partnerships. And I think Kraft Heinz was a very much internally focused company, which much more externally focused now. Some of the great partnership we have done whether it is the Microsoft, whether it is with our joint ventures… those are things that we do now we feel like there’s some opportunity with this strategy clear, how do we bring the right partner with us to accelerate our momentum?
Quick: Let me ask though, I pointed out that the stock last I looked today was up by about three and a half percent, but if you’re looking for the year to date, Kraft Heinz shares down 18%. What is Wall Street missing?
Abrams-Rivera: You know, you know, I think there is some factors related to the food sector overall, that I think I’m sure you know, in terms of what the yield is in right now, but at the same time, I’ll tell you, if I think about what we’re doing I feel so confident about the road that we have ahead of us. Our strategy continues to work. We have made investments in our people, they are engaged we have a clarity of strategy that is working, whether it’s in emerging markets and how we continue to drive that growth in our food service, our growth platforms. Those are things that are working and I know already some of the guy post suggested that in fact, we have we’re in the right track whether that is today seeing our improvements in our volume, improvement in our share. So that way, as we go into 2024, you only going to see a much better Kraft Heinz. The last thing I’ll say is, you know, four years ago, we were also in situation that our debt was probably not the right place right, today is 2.9 times. So that also gives us a lot more flexibility as a company for us to invest back in the business.
Quick: Taylor Swift. How’d you convince her to partner up?
Abrams-Rivera: Listen, first of all, I love Tay Tay. I have two daughters in college who in fact, we have gone to concert with her. But putting that aside for a second, but until you Is Taylor actually was the result of us investing back in our people and in our marketing. So over the last few years in the last three years, we have invested to have nine different creative agencies inside Kraft, Heinz one in North America and then eight across the world. What allows us to do is to move at a speed of culture that we haven’t done before. So this example of when there was a Tik Tok trend of us talking around, you know the fact that she was eating ketchup and Ranch, you know, within 24 hours, we actually created a product. We were able to create maybe four and a half billion impressions out of that. Then the two things that maybe some of your audience may not know is one, we actually were able to giveaway about 100 bottles of the product first, that allows us to get old first party data of consumer information that we can use to drive the personalization of our marketing. The second thing we did is we actually created a product specifically for one of our top retailers so they could have an exclusive high end ketchup and similar ranch product in their stores. So within 19 days, we went from a you know, image to having a product in stores and that is the speed in which the company is working right now.
Quick: What store got it?
Abrams-Rivera: It is one of our top retailers.
Quick: Tell me who, you can’t leave that out there as a cliffhanger. You gotta tell who is it?
Abrams-Rivera: Listen, it starts with a W let me just leave you with that.
Quick: Wegmans, Walmart. It’s gotta be that, Walmart, I’m going with that correct me if I’m wrong, though. Blink if I’m wrong.
Abrams-Rivera: The product today, you know, is exclusively in Walmart stores. But at the same time, it’s something that we feel like it is just another evidence of us showing up in a different way.
Quick: 19 days is fast. That is amazing. Carlos, we want to thank you very much for your time today. Carlos Abrams-Rivera is the incoming CEO at Kraft Heinz, he’s gonna be taking over in January, but obviously he’s been with company running North America, been there for three and a half years and it’s really great to see you.
Abrams-Rivera: Thank you Becky, same here.