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Miguel Patricio, CEO of Kraft Heinz Credit - Charles Silverman, courtesy of Kraft Heinz
(The interview below was delivered to the inbox of Leadership Brief subscribers on Sunday morning, June 13. To receive weekly emails of conversations with the world’s top CEOs and business decisionmakers, click here.)
Shortly before our June 2 interview, Miguel Patricio, the CEO of Kraft Heinz, had asked his head of procurement to see how the cyberattack on JBS, one of the world’s largest meat packers, could affect Kraft’s line of Oscar Mayer hot dogs, bacon and cold cuts. The attack did not impact Oscar Mayer, but like other CEOs in this uncertain economy, Patricio is juggling an extraordinary confluence of challenges: rising raw-material prices, supply-chain shocks and key product outages.
So far, strong demand from the reopening of the closed-down country has managed to counter many recent disruptions, and Kraft’s business is doing well, but listening to Patricio makes one wonder how long the economy can continue to shrug off the litany of stresses.
“There’s a lack of soy. There’s a lack of chips for cars. There’s a lack of people to work for Uber,” says Patricio. “The whole supply chain is under a lot of stress. Everybody’s suffering. Everything is very tight.”
Under Patricio, who joined Kraft Heinz in 2019, the company has been a turnaround story, its results and stock price sharply improved. Patricio, who previously worked at Anheuser-Busch InBevAB, joined TIME for a video interview from his home office to discuss inflation, the great ketchup-package shortage of 2020–21 and his favorite advertising jingles from his childhood in Portugal.
(This interview has been condensed and edited for clarity.)
Let’s start with the ketchup shortage: When did supplies start getting squeezed?
It’s not that we don’t have ketchup. We have ketchup, but in different packages. The strain on demand started when people stopped going to restaurants and they were ordering takeout and home delivery. There would be a lot of packets in the takeout orders. So we have bottles; we don’t have enough pouches. There were pouches being sold on eBay.
How are you addressing this?
We saw this coming in July of last year. We said can you imagine the day that the restaurants are going to say, “Give me pouches instead of bottles, because people will still not feel confident enough to squeeze bottles that they don’t know who squeezed them before”? So we said we’re gonna have a big change in mix. It takes about a year to order, install and start operating a new line of ketchup.
So you built a new production line?
Eight new production lines. In July, we’ll increase our capacity by 25%. And that will solve the problem. Sometimes scarcity is a great way to check how popular you are.
Where are you seeing inflation in the supply chain?
Inflation is here—in raw materials, not necessarily in consumer products. And it’s pretty high in some products, like edible oils. Edible oil has a big demand right now. The crops were not great. And because of biodiesel. With the incentives for biodiesel, there’s more oil that is going to engines than before, so there’s a bigger demand and the prices are skyrocketing. [Soybean oil, which is an essential ingredient in Kraft’s mayo and salad dressing, is at a 12-year high.]
In many different things, [like] resin for packaging. There’s inflation in labor, inflation in logistics. There’s big cost spikes going on.
Have you passed on prices to consumers? Do you anticipate raising prices?
We haven’t increased prices to consumers. We do not know if we’ll have to increase prices or not yet. We are studying and building scenarios on that. We are very concerned, concerned but acting to mitigate the possibility of increasing prices through efficiencies.
Are you able to hire the people you need right now?
We are, but the level of absenteeism increased a little bit in our factories. Every day, we are hearing stories of restaurants having difficulty hiring people. During the pandemic, these people went to other jobs, and they don’t come back so easily. I don’t know if you tried to take an Uber lately. It’s hard to find an Uber nowadays. People that were working for Uber are maybe working for Amazon now. I don’t know, this pendulum has swung very fast.
How has the broad consumer trend to eat less processed food and be more mindful of what goes into your body impacted you?
We adapt by having better products. We have a Kraft mac and cheese that is organic. We have a Kraft mac and cheese that is gluten free. We have a Kraft mac and cheese that is made with dough from cauliflower. Our hot dogs don’t have nitrates, don’t have fillings, don’t have dyes. We are evolving.
Heinz has over 60% of the ketchup market. That’s a lot of tomatoes.
We are pretty big in agriculture. Not only tomatoes, but also beans. We buy 30% of all navy beans in the world. And we are pretty big in cucumbers. We buy a lot of tomatoes; we produce a lot of tomatoes. It’s about 9 billion tomatoes per year, which is crazy. We created a company that produces seeds and sells seeds. We sell today about 40% of all seeds in the world for tomatoes that are used to produce other products [like] pasta sauce or ketchup or other things. So we have a great expertise in tomatoes.
In 2019, your reported total compensation package was $43 million, landing you on Fortune’s list of the most overpaid CEOs in America.
That number is not correct. I didn’t make that money last year. That’s part of our long-term incentive that is divided over many, many years. So that’s not correct. [For 2020, Patricio’s total compensation was $6.1 million.]
What’s the first ad you remember from your childhood?
I remember a lot of things from when I was a kid in Portugal, a lot of advertising in Brazil, and it’s all connected with jingles. Jingles are that thing that stays in your mind and sticks to your mind. There’s one song about potato chips that is always on my mind. Pala-Pala … [Sings a few bars.] It’s a silly song, but when I’m 95 years old and lose my memory, I will still remember that song.