Dive Brief:
- Kraft Heinz is "on better footing because we are increasing visibility and control of our costs," CEO Miguel Patricio said on the company's third-quarter earnings call. After a years-long procurement scandal, which caused the company to restate several years of earnings and withdraw all financial guidance, Patricio took the helm in July. The company has yet to issue new financial guidance.
- One of the firm's major supply chain efforts in its crawl back to solid ground will be a SKU-by-SKU review "cutting anything with a negative margin, and in the process, removing complexity from the system to boost productivity and improve mix," explained Patricio. The CEO said based on early work on the task, the company has found cause to rationalize a "significant portion" of the total SKU count.
- Financial planning and forecasting are also in for an overhaul as Patricio said the company's planning cycle needs to move in line with its customers to usher in a more cooperative relationship.
Dive Insight:
There was little talk on the third quarter earnings call about the dubious procurement practices that brought the Securities and Exchange Commission (SEC) to investigate the food giant earlier this year.
Instead, on Patricio's second earnings presentation since taking over, he focused on operational and mindset changes.
He said for the last several years, Kraft Heinz has "been on a frenzy of innovation" in an attempt to make up for dwindling core sales with news SKUs. But it was not a successful effort, serving only to add complexity to the supply chain, highlight existing customer service issues and cannibalize existing SKUs. The overall consequence was "a lot of supply chain losses and lower margins," said Patricio.
The problem is complexity, but the fix is simple.
Kraft Heinz will review each SKU for sales volume and profitability and cut anything that doesn't pass muster. Fewer but bolder product innovations will be the way forward after the SKU count comes down, the CEO explained.
That work in a vacuum might be simpler to achieve, but ongoing costs and profitability will be complicated in the near term by inflation and price volatility in cheese and meats, warned Patricio. Still, more visibility has put the company in a better position to adjust.
