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Kraft Heinz executive: 30% of our categories affected by supply chain challenges

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Kraft Heinz EVP & President of North America Zone Carlos Abrams-Rivera joins Yahoo Finance Live to discuss labor shortages, supply chain woes, customer demand, growth, and the company's move toward sustainable packaging and plant-based products.

Video Transcript

- Well, inflation concerns have been sweeping across the food space as companies like Kraft Heinz warn of further price hikes to come to counter the spiking cost of materials and transportation. To discuss more of that, let's bring in Carlos Abrams-Rivera, Kraft Heinz EVP and president of North America zone. We've also got Yahoo Finance's Brian Sozzi joining in on the conversation. Carlos, it is great to talk to you. In your most recent earnings call, you talked about the price increases you've already implemented, about roughly four percentage points. How much more price hikes do you anticipate when you consider the cost that you've had to accrue, whether that is from freight costs or wage increases?

CARLOS ABRAMS-RIVERA: Well, first of all, thank you for having me. As you said, we have done some pricing, we have also announced some additional pricing in 2022. But the reality is that we are also looking at other ways in which we can defray some of the inflation pressures. I mean, a company like ours, one of the advantages we have is that we can leverage our scale and agility to think about pricing in a different way, whether that is through other revenue management initiatives and different size packs and also being conscious of how do we make sure we offer consumers different options in which they can come into our category. Whether they are buying Oscar Mayer, whether they're buying Mac and Cheese, whether they're buying Maxwell House coffee, different ways in which we can maintain high quality products in an accessible way.

BRIAN SOZZI: Carlos, the supermarkets are filled with aisles that are absent product, depending what aisle you're going down to these days. Is Kraft Heinz still seeing shortages in Oscar Mayer bacon and Lunchables?

CARLOS ABRAMS-RIVERA: Right now what we have said, Brian, is that we have actually been able to continue to make tremendous progress on making sure we satisfy the consumer demand. At the same time, there are certain categories that we know we've have had some-- we're not servicing the way we want to. Now, many of those categories I will tell you will be completed in terms of being able to service at high levels by the end of Q1, the remainder by the end of Q2. And then we have about 30% of our categories today that are in some kind of challenge in terms of supply in which we are thinking differently and more creatively of a new game plan.

In fact, just this morning, we announced a strategic alliance with one of our partners, Simplot, in order for us to think about Ore-Ida potatoes in a different way than we have done in the past. That will allow us to actually continue to now invest in growing those categories and free us from the capacity constraints we've had in the past too. So for us, it's about continuing to push on the investments we're making as well as thinking creatively of new ways in which we can satisfy the consumer demand.

BRIAN SOZZI: Is one of the biggest challenges, Carlos, finding the labor you need just to meet this influx of demand you guys continue to see?

CARLOS ABRAMS-RIVERA: For us, actually the labor has been very much focused in a couple of plants. And we have about 40 plants across North America. Now, what I can tell you, though, is that, again, the tightness of the supply chain goes from the end to end supply. So what we're seeing, too, is some of our partners in terms of suppliers that we depend on for ingredients and packaging and so forth are also facing their own labor challenges. So it is a moment right now in which, again, having the scale that we have allows us to make sure we continue to look for opportunities with different partners. At the same time, the things we can control are the things that we're doing to improve our service quickly. And let me give you an example.

As we think about how are we actually making sure that if a particular ingredient is tight in our supply, we actually have come up with different ways of formulations of our products so that we can switch from one ingredient to the other based on what's available at that particular moment. We've done that in, for example, things like Capri Sun, where we had some challenges in getting apple juice at the beginning of the pandemic. We switched over to grape juice in a way for us to continue to maintain the level of supply we needed. And we have done that across packaging materials as well. So it's a way in which, again, we're looking to be agile in how we respond knowing that it's not just our supply that is tight, but again across the entire industry.

BRIAN CHEUNG: Hey, Carlos, Brian Cheung here. Big Capri Sun fan over here. But you mentioned packaging, and I want to drill down on that. Because it seems like you might actually have more flexibility to get around supply chain costs on the packaging side of things than in the ingredients because Kraft Singles still needs to be a Kraft Single and Maxwell House coffee still needs to be Maxwell House coffee. But what packaging you sell that in might be different, depending on what's expensive and what's not. So how are you getting around that while also at the same time being mindful of the environmental impact of the packaging that you choose?

CARLOS ABRAMS-RIVERA: Well, that's a great point. For us, we're looking at how we actually simplify all of our [? on-offers. ?] So for example, we've done a huge amount of work working on agile pods here in the company. And one of the things we discovered is that we were actually using different materials of our corrugated for boxes across the company. In fact, there were four different types of material, five different sizes for something that was very much a very simple box. We have been able to actually simplify it to get it to one type of material, one type of box that allows us to be much more efficient and being able to get to a better cost overall in terms of the kind of materials we have.

And that's something we're driving across all of our products. So you talked about the corrugated materials and packaging, but we're also doing that in actually our products. So one of the renovations we're doing in a product like Lunchables is actually, we're reducing the amount of plastics in Lunchables in order to make sure that we actually are both driving ESG initiatives that we're committed to and at the same time make sure it gives us the flexibility of having to use less overall materials in everything that we provide our consumers.

BRIAN SOZZI: Carlos, the Kraft Heinz story has changed a lot over the past year, in large part because of your leadership and the CEO of Miguel Patricio. Now, you guys moved quickly to sell off that Planter's business to Hormel. When you look at a business like Maxwell House, does that business warrant more investment by Kraft Heinz or do you see yourself getting rid of that brand?

CARLOS ABRAMS-RIVERA: What I can tell you is we have a very clear portfolio strategy. We're going to continue to stay within that particular strategy. And for us, we have designated within our businesses areas that we want to continue to drive a huge amount of growth, areas that we want to kind of energize, and the areas in which we are actually going to be able to maintain a certain level of sustainability on those businesses. And I will tell you, I think coffee for us is an important part of our portfolio and one that we're looking to make sure that, in fact, contributes to the long-term value of the company.

At the same time, for us it's again knowing that we have areas in our company that we want to invest disproportionately. If I think about things like taste elevation and think about all the [? enhancers ?] products we can provide, that's an area where we're going to continue to drive growth, whether that is in areas like fast fresh meals-- if you think about Oscar Mayer and Philadelphia Cream Cheese. The announcements we just made yesterday around our partnership with NotCo and the way in which we can provide plant-based solutions to our consumer, it's another way for us to stay within the strategic platforms that we have aligned to. So for us, it's continue to stay focused on strategy. It's working so far, and that's what we're going to continue doing.

- Carlos, I wonder if you can elaborate a bit more on that partnership you just talked about with NotCo. A lot of people hear plant-based, and you wonder how big that market is. But to your point, consumers are increasingly thinking about more sustainable options. What's the opportunity that Kraft Heinz sees?

CARLOS ABRAMS-RIVERA: I'm very excited about the opportunity here because it comes in a couple of different ways. One, clearly we understand that consumers are looking more and more for new different types of diets. Today in America, about a third of our consumers are looking for a flexitarian diet. And we wanted to provide options for consumers who are looking for the trust of brands like ours. So if we think about our purpose in this area, it's around us democratizing plant-based options by bringing basically brands that you know and trust now with a plant-based solution.

But the second part that I'm very excited about, too, is that NotCo also brings certain capabilities on AI-enabled solutions that we haven't seen in any other company. So the idea of bringing those technical solutions as well as making sure we go into a space that we know has a huge opportunity for us to grow is an exciting part of the joint venture. At the same time, we can leverage what we do best. We have a huge amount of scale as the company, we have a huge agility of us as a company. We understand food in a very deep consumer insight kind of way, and we can bring those two areas together in order for us to grow together as we go forward.