Mondelēz CEO Dirk Van de Put joins Yahoo Finance Live’s Brian Sozzi from the Milken Institute’s 26th annual Global Conference in Beverly Hills, CA, to discuss company earnings, acquisitions, the demand for snacks, product expansion, pricing power, and the growth for the future of snacking.
Video Transcript
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- "Recession" is the unfortunate word of the moment. But we've been hearing another one that goes against the narrative-- "snacks." A research note from Bank of America last week laid out the growth story. Snack brands are poised to take more share from the traditional food items and can be seen as a good investment opportunity. Don't take it from B of A alone, though. Testimony from PepsiCo to Hershey and Campbell's Soup all attests that American consumers still need a treat, even if they are pinching pennies elsewhere.
Where sweet treats are concerned, Chicago-based Mondelez is a power player. Its portfolio of brands includes the likes of Oreo, Cadbury, and Belvita, each worth billions in their own right. And the company's stellar first-quarter results were helped by another buzz phrase of recent months-- pricing power. Mondelez is just one of a swathe of consumer goods groups utilizing strong operating leverage to boost margins even when times are tough.
So was its best quarter ever a US story or one that translates across Europe and emerging markets? Yahoo Finance's executive editor, Brian Sozzi, caught up with CEO Dirk Van De Put to get some answers.
DIRK VAN DE PUT: It started during the pandemic where the consumer sitting at home got used to have regularly a snack. They needed it or to share with the kids or to calm themselves down a little bit in a time of distress. And the habit got installed. Consumers are still spending a lot of time at home. They got used to the brands. They got used to the product.
So now when inflation comes and prices start to increase, it's clear that they are attached to it and that they don't feel like they want to give that up. So that's the fundamentals of what's going on. You also have two new generations, millennials and Generation Z, taking more and more of a percentage of the consumption. And they eat in a completely different way. They're not three meals a day type of thinkers. So those two combined, that's really what's causing the success of snacks.
BRAIN SOZZI: The amount of data that you must have on consumers must be mind-blowing. So what you're saying is that maybe this next generation of people in this country not eating dinner, just snacking more throughout the day?
DIRK VAN DE PUT: Yeah, yes. The average consumer now already snacks three times a day. And the percentage of people that's doing that is about 78%. So yeah, we clearly see that habit going up.
BRAIN SOZZI: Take us inside how you reinvent some of these snack foods. I've seen it in Mondelez. I've seen it in some of your competitors. I've d at my team that we are now in the Golden age of packaged food where a lot of brands that we've known for many years look completely different.
DIRK VAN DE PUT: Yeah, everybody does it in a different way. But the way we do it is we try to find a purpose for the brand that really is linked into the products of the brand, that has to see with the history of the brand, and that really resonates with consumers around the world. Because consumers have become very knowledgeable about brands, especially those younger generations. So they want to see something more than it tastes good or it has a great packaging. And if you can link it to a great purpose, that is really what causes the reinvention.
BRAIN SOZZI: Do you see anything on the horizon that would suggest that the snacking boom-- and I'll call it a boom-- could end?
DIRK VAN DE PUT: No, no, I don't think it's a boom. If you start to look at consumers since the '60s, snacking has been on the rise the whole time. I think it's only in the last 10 years there's been a lot of discussion about snacking because it's becoming so big. But as consumers live a more mobile life or spend more time at home, both benefit from snacking in a strange way. I think the consumption will continue to increase.
The other thing that's interesting about snacking is an elastic consumption. You can have five, six a day if you would like to. There's no limit to it versus typical meals, they're more limited in the quantity that you will consume.
BRAIN SOZZI: What's the outlook for prices on snacks this year?
DIRK VAN DE PUT: The what?
BRAIN SOZZI: Prices. Do you have more pricing power, you think, in the products that you sell?
DIRK VAN DE PUT: Yeah, I mean, unfortunately, the inflation, the input cost inflation that we're seeing this year is as big as it was last year. So we had to price as much this year as last year, which on average is about 12%, 13%. So the consumer is confronted with prices that have gone up over a two-year period of 25%.
During the last so many years, we've been constantly increasing the investment in our brands, connecting better with consumers. The pandemic arrived with the changes I was explaining. So what's clear is that even when they clearly see the price go up, consumers are prepared to stick with their habit.
Going forward, I think what we're seeing at the moment-- we're only May, but our forecast is that commodity prices will start to come down-- not that much. I mean, it's really nothing to speak of right now. But it's not going up. Last year in May, we already knew that this year was going to be a big increase of commodities again. We don't see that for 2024. So I think it will start to taper off, and those big price increases should stop second half of this year and the beginning of next year.
BRAIN SOZZI: When you talk to investors, do they appreciate what you have done to turn this company around? It is a different company over the past three or four years, in part because the products are better, but because of the acquisitions you made. Take us inside your acquisition strategy, and how is this transforming the company? Clif Bar was one of your most recent ones, right?
DIRK VAN DE PUT: Yes. Well, first of all, we changed the mindset of the company from let's try to save money and get high margins to let's grow the business. And that liberates everybody in the company. They love that idea. So that's really the--
BRAIN SOZZI: What leader doesn't like more money?
DIRK VAN DE PUT: Yeah, exactly. And so as we mapped out where could we go to grow, where is the growth of the future in snacking going to happen, we plotted out who are the companies that are doing really well. And that's really guiding our acquisition strategy. And we've been luckily enough to convince some of those companies to sell to us.
And then the other side of that, of course, is once you have bought the company, you need to have a real playbook on how you're going to integrate, how you're going to keep the talent, how you're going to get the cost to be reduced, how do you grow faster. And so far, we've been able to execute against that playbook. But we're very disciplined in what are the financial criteria, what needs to be in place, what growth do we expect. And so far, that has really worked out for us.
BRAIN SOZZI: Do you want to just stay in snacks, or you're now eyeing a push into beverages? What other categories do you find attractive?
DIRK VAN DE PUT: Not really, no. I like where we are. We want to be the company in chocolate and the company in biscuits and baked snacks. That universe is big. It's growing. There's plenty of opportunities for us around the world. That's what we know. So it seems to make sense to stay there. And so far, the growth is really coming for us.
BRAIN SOZZI: Lastly, if I did my math right, Chips Ahoy is now 60 years old.
DIRK VAN DE PUT: Yes.
BRAIN SOZZI: How is it how important is that to have a brand like that in your portfolio? And then how do you go upon keeping it relevant for the next 60 years?
DIRK VAN DE PUT: Yeah, that's an interesting question because Chips Ahoy is doing better than ever. We just gave it a big push in China, and it's really booming there. I think the idea of a chocolate chip cookie and a brand dedicated to that, albeit with a bit of a clunky name, I would say, still resonates with consumers. And then we've been able to work a lot on the product itself, worked on the image that the brand has, link it to the right events, the right seasons, and so on. And that's really about keeping the brand alive in the mind of the consumer.
BRAIN SOZZI: Is that a $1 billion brand?
DIRK VAN DE PUT: Yes, yes, it is. It's our sixth-biggest brand, yes.
BRAIN SOZZI: Wow. And then Oreo is still the category leader. How much in business will that do?
DIRK VAN DE PUT: Oreo is well over $4 billion now, growing 15% a year.
BRAIN SOZZI: How do you keep that brand relevant? Where else do you think that brand has a right to play?
DIRK VAN DE PUT: Well, Oreo is about playfulness, and it's about relationship between kids and their parents. And it's a brand that really can connect to special events, or you can make a Batman Oreo. You can make a Lady Gaga Oreo, and so on. So it's really a playful brand that you can link.
Oreo-- as long as there are categories where the flavor of Oreo and the cookie crumble of Oreo plays a role, like in ice cream, that's the categories we can go in. So we've got a yogurt with Oreo. We've got ice cream with Oreo. We got pastries with Oreo. That's the universe where Oreo can play.
- That was Mondelez CEO Dirk Van Der Put alongside Yahoo Finance Executive Editor Brian Sozzi. Stay tuned for Brian Sozzi's next interview from Milken. He's going to be speaking with Ares Wealth Management's Raj Dhanda on the state of the banking sector and the future of wealth management. You won't want to miss it.
