Kraft-Heinz CEO Declares End to Volume Chase, Aiming for Profitable Sales Growth

"We are not going to be chasing volume"

Kraft-Heinz, the food giant behind everything from ketchup to Oscar Meyer cold cuts, grew revenue to $6.6 billion, a modest 1 percent uplift since last year. Meanwhile, margins pushed upwards. The third-quarter earnings call highlighted why: a strategic shift seen across the entire consumer goods industry. Profitability is now emphasized over market share. "We are not going to be chasing volume," CEO Miguel Patricio said. "We're going to be looking to drive profitable volume."

Nowhere is this more obvious than in the cold-cut segment. Oscar Meyer is a legacy brand with stiff price competition from other branded competitors. Retailers are entering the sandwich meat game with private labels. 

Thirty years ago, the company probably would have leaned into its scale to fend off competition. Lowering consumer prices but relying on production efficiencies to drive margin. Instead, management reintroduced some modest promotions to lower price gaps between competitors but let the market play out. The result was a mid to high single-digit decline on the top line but an equivalent growth on the bottom line.

Kraft-Heinz is sacrificing volume and share for profitability. Given the influx of competition, investors wondered if management was potentially looking to divest the business, wanting to avoid entering a price war to maintain shares. 

The answer was no. Profitability over scale is just the new normal.

 Core Products and Investments drove Q3

• Ketchup, mayonnaise, Mexican sauces, and frozen potatoes fueled the company's Q3 1.7% organic net sales growth. 

• Adjusted gross profit margin reached 34%, an increase of approximately 400 basis points compared to Q3 2022. Management credited pricing, improved gross supply chain efficiencies, and a favorable mix in North America.

• The company continues to reinvest, boosting marketing and technology spending by $238 million. That's a 25% increase. 

Reassessing Promotions

• Kraft-Heinz leadership clarified that the company will not revert to pre-2019 promotion levels, even as they prepare for the seasonality of Q4 and the upcoming holidays. "We're not going back to 2019 levels," Carlos Abrams-Rivera, the President of North America, said.

• The company will instead run fewer, more profitable promotions. 

Productivity Initiatives Showing Results

• Kraft-Heinz's productivity program is on track. The company committed to delivering cost savings of 3% of the Cost of Goods Sold (COGS).

• That breaks out to be approximately $900 million a year.

• The company said it is on pace to reduce COGS by 4% in 2023.

They Said It

CFO Andre Maciel on how management views growth:

Look, we believe that for us to grow top line in a profitable sustainable way is critical. So in an event where industry is 0, I think that doesn't change the game that you're trying to play because I don't know if you are implying that we will start to go aggressive on promotions to try to get volume through market share.

That's not the game we're going to play…Our strategy continues the same. It's working. We don't want to change direction because of temporary situations in the industry.