The Kraft Heinz Company (NASDAQ:KHC) Deutsche Bank Annual dbAccess Global Consumer Conference June 15, 2022 8:45 AM ET
Company Participants
Andre Maciel – Global Chief Financial Officer
Rafael Oliveira – EVP and President, International Markets
Conference Call Participants
Stephen Powers – Deutsche Bank
Stephen Powers
All right. Welcome back. Thanks, everybody, for joining us. Thanks especially to the Kraft Heinz Company for being here. It’s great to see you. With us today from Kraft Heinz is Andre Maciel, Executive Vice President and Global CFO; as well as Rafael or Rafa Oliviera, President of the International Zone for Kraft Heinz.
We’re going to run the session today entirely of Q&A, and we’ll try to balance some longer-term, more strategic topics with the inevitable near-term questions on cost and recession and pricing elasticity and private label, and all that good stuff.
Question-and-Answer Session
Q – Stephen Powers
For many investors, just given the nature of your appointments to your roles relative to pandemic, I think many folks are not as familiar. So maybe a brief introduction from each of you on your roles and your background. But then also collectively — and I’d also love your perspective on the journey that the company has taken over the past couple of years because I think it’s been significant. The company is in a very different position than it was in 2019, both operationally and strategically. So I’d love your perspective on that journey and how you’ve emerged stronger?
Rafael Oliveira
Yes, happy to — should I start? Yes, I’ll start. Steve, thanks a lot for having us here.
So my background, I grew up in Brazil, but been living out of Brazil for 20 years, actually started in equity research many years there. But then been living in many different countries, Europe, Asia for many years, then Australia for several years, for the last 8 years with Kraft Heinz, I started by managing the business in Australia 5 years ago, almost 6. Moved back to the Europe to run the U.K., then became Europe, EMEA and more recently, international. International is the globe but North America. So not U.S. and Canada, I look after the rest.
And I mean, just to complement what you started to allude, the transformation that we have been in Kraft Heinz which is significant, and frankly, we are quite proud of what’s happening in the last few years. I mean, if you look back 3 years ago, we were at the bottom. We were really down. Morale was very down in the organization. Our brands were under invested. Our assets, in some ways, depleted, not invested enough. There was a lack of confidence on investors. So we were really at the bottom. I think the transformation that has been happening in the last 3 years, we moved up now and we are good. But the reality is, good is not good enough, and we want to be great.
And if — just to reflect on this, a couple of months ago, 3 months ago, we had a global leadership conference and the theme was we choose greatness. So really, choosing greatness is an option that we have, is the ambition that we have, and we’ve been doing a lot of work into how we’re going to achieve this greatness, what greatness looks like and how we’re going to achieve it. And if you think about the — what has been happening across the company and how much we’ve been transforming, as you said, the — I would say the first thing is with people, right? As I mentioned, morale was very low, but then we started investing a lot more in people and our people and capabilities, but also hiring external talent with experience. So our people with purpose has really changed, and we have a team now not only on the leadership level, but below as well that very confident to lead this transformation.
Second is the strategy on the consumer platforms. We didn’t really have that, exactly laid out in detail how the consumer platforms would work. And we have defined that, the role of the platforms starting with Taste Elevation, but — and Easy Meals Made Better and other platforms that play different roles in the portfolio. So that has been very clearly defined in how we’ve been investing across that output.
The third thing — and it’s not a particular order, but the consumer focus. Frankly, we were not very consumer focused and we became. And Miguel, our CEO that came in 2 years ago, he brought that in very clearly. So the consumer focus obsession with what — how the consumer is evolving and what — using insights to do better market and to develop the right products.
Fourth, I would say, retail partnerships that, really, working together with the key retailers and how we can both grow our business together. We’ve been like in very close interaction across the globe and especially in times like now where you need this partnership to be able to pass on inflation or to be able to have the right activations, I mean, we’re very proud of how this has evolved. And now we’re really take advantage of our scale, of our knowledge of the categories that we operate with the retailers and evolving on that.
And I would say fifth is the supply chain. Really, as I said, our assets were underinvested. We started really a mentality of not only cost but much more focusing on efficiency and a continuous improvement mindset. And with that, I mean, I really believe we are definitely in a different space. And as you said, the market is starting to recognize that, although the journey is long and we really believe we are in the beginning. But as I said, I think we are now good, not great yet, and we believe we can be great. That’s the ambition to be great, and that’s the journey we’re going to be in.
Stephen Powers
Andre, just give your perspective?
Andre Maciel
Thanks, Steve, for the opportunity. Great pronunciation of my name. That’s great job, great job. And thanks for everyone to be here to be interested in hearing our story.
So look, a quick background by myself. Andre Maciel, I worked for the last more than 20 years in CPG. I’ve been within 12 different countries, I visited 80 countries. I have a lot of experience working in emerging markets, a few places in Latin America, Asia, North America, a few countries in Europe. So I think I feel proud about the opportunities that I have throughout the career from that regard. I’m an industrial engineering background and different than maybe some of my colleagues in finance that didn’t come from private equity, banking or accounting, so account from management consulting. I worked for many years in consulting, Accenture and McKinsey, happened to work a lot of time in CPG and a lot of time in post-merger integration, working quite a few big ones worldwide. Joined InBev 2008 in Belgium, then I had a very important role in the integration of Anheuser-Busch after the acquisition in St. Louis. Joined the company 9 years ago. Played different roles in Global Finance. I was the CFO for North America twice, and in the middle, I was in charge of the P&L of our Continental Europe. And then when Miguel became CEO, I came back to the U.S.
Last 2 years before I took the Global CFO role, I was working with Carlos’ zone, present very heavily, leading a lot of the transformation projects. And last year, in particular, I led the implementation of the digital transformation, which now we are taking this to the next level and elevating this to be our giant scale, which is going to be, I think, a very important enabler for us as we move forward in this journey.
As Rafa said, we still have a lot of work ahead of us in the middle of the transformation. We have a lot of opportunities and things that we need to do better. I think we reached that level of good, that Rafa said for us should be great, and that’s what we are aspiring for. We have a lot of opportunities, which are very exciting.
In addition to what Rafa said, I think our balance today in terms of top and bottom line, short and long term is a lot healthier than before. Ensure that everything we do from an efficiency standpoint is built to last, so continuous improvement mindset, very, very strong. And for us, it’s critical that we continue to drive efficiencies as part of our DNA, so that would be a critical source of funds for us to reinvest back in the business to drive the top line. We have been providing top-tier margins compared to the sector and very high return on invested capital, so — and those things are a distinctive factor for us that we want to preserve. And so that’s critical that we continue to generate more efficiency to be able to invest more be in market, be in marketing or CapEx, that also the top line. We need to preserve the profitability while we enhance the top line.
It’s helping we have been spending a lot of time in how we deploy the resources internally in a way that we can maximize that. We see big opportunities to you on how being allocated in the resources of the company internally and shifting being a lot more intention on how we have been deploying those resources, making clear choices before. I think we’re very democratic in and spreading the investments across all the businesses. And I think with the role of the platforms — and we can talk more about that, we’ve been making sure that we start investments in the place to have the greatest growth opportunities and funding that from the other parts of the portfolio.
Stephen Powers
Yes. Great. And we will talk about those platforms. You talked — you both talked about a lot of change in mentality and prioritization. We’ve got different roles in the company. Does the way that Miguel’s leadership team works together, is comprised, has the work and the work processes changed over the last couple of years, both because of his own preferences and priorities but also because of the learnings of the last couple of years of responding to lots of unexpected change? Have — is the way that you all interact and make decisions, has that evolved in a noticeable way?
Rafael Oliveira
For sure, Andre, you can complement. But for sure, it has evolved. As you said, we learned from mistakes that we made in the past. I think for the company, if I were to highlight one aspect, it was very siloed. Like, we had aspects, many times supply chain and the commercial side, operating independently in many ways. Many of the business units within the U.S., but then countries as well, not taking advantage of the scale we have as a company. So that has changed a lot. It has changed with more than 50% of the leadership team coming from outside with experience in their functional areas, so.
And then we’re really proud of ourselves of the agility that we operate. I mean, I think you could say we are not a company with a lot of bureaucracy, probably one of the least if not the least, among peers. And so really, the agility of decision-making.
And what we try to do as a leadership team is really try to set up the guidance, the strategy of the company and especially the capital allocation that Andre can talk more about it. But then letting the decision on the execution be done on the local level, either in the U.S. or across international, which is very important, really for the agility of the decision-making. So taking advantage of this agility at scale, it’s something very important for us, and we are living this on the day-to-day.
So yes, it has changed a lot, the dynamic, starting with the mindset, the experience, but also the ways of working in the operation. And this is reflecting — starting to reflect on the results.
You want to continue?
Andre Maciel
No, I think you covered very well. I think starting from us, we spend a disproportionate amount of time building the future. Even in moments like we’re living right now that the whole world is living through, obviously, you cannot keep our eyes off the short term. But we need, especially us in our situation, in our transformation, we need to spend our disproportionate amount of time during the future, and we have been doing such to ensure that our teams are also allocating this appropriately.
The silo breaking is massive for our company. I think what Rafa said is critical, how we’ve been breaking silos throughout the whole organization, have people working together and try to get the best. And they’re really thinking about a united strategy and making the choices, the right choices to improve our chances of success.
Rafael Oliveira
I’ll give you just one example on that. I mean, we used to have 75 different, call it, entities of measuring results, and people who are attached to these specific entities. So naturally, that wasn’t optimizing the resources of the company because individuals, they will look at their entity and how do they maximize their result. So we collapsed this into — okay, the U.S. is one entity and then the U.S. will focus on maximizing the best results for the U.S., and which might mean that in one category, you’re making choices that will benefit the overall. But that — for the collective good of the company, it’s much better. So that’s where we spend most of the time there
Stephen Powers
Okay. Great. So you’ve got a relatively new long-term algorithm, financially. So 2% to 3% top line, 4% to 6% EBITDA, 6% to 8% EPS and 100% free cash flow conversion. What are the — and again, over time, we’ll get to the here and now in a second. But what are the critical building blocks to that algorithm as you think about delivering it?
Andre Maciel
Sure. Yes. And what is important that we communicate in the algorithm at the beginning of the year. But our prior algorithm was very conservative, and I think as a consequence of where we start ourselves sitting in terms of even confidence on what we could do as a business, or it was extremely underwhelming.
And so starting with what we have communicated, 2%, 3% top line growth. Look, the key drivers here are: number one, we have been optimizing our portfolio and with the divestitures that we have made and the acquisitions we have made, that has an impact of a few bps in terms of already growth profile. Second, the market share performance in the U.S. has been a continuous leaking bucket for many years. And for us, it’s critical that we make our market share in the U.S. should be at a minimum flat. And I think we have — we are in a good trajectory to make that happen, and we have been communicated that in earnings, and we’re going to continue to hear from us in that regard.
And then we have 2 other building blocks which are the growth in emerging markets and the growth in foodservice. Those 2 combined, they represent 20% of our business and have been growing double digits for the last 3 years and gaining share worldwide. So we see a very good potential for us to continue to run in double-digit territory.
So to put in perspective about 2%, 3% means, if our entire portfolio, where you have flat market share worldwide, just by the pure industry growth, weight of average by where we’re playing, it will be already at 2%, 2.2%, okay? And then if you think in terms of foodservice and emerging markets as we are so underpenetrated, so gaining share in these markets has been doing, that takes us to the algorithm.
Talking about EBITDA of 4% to 6%. So in addition to this top line growth that obviously sets down, we have the $2 billion in efficiencies that we have communicated. We are well on track. We are near 3. Well on track to deliver those. We have maintained a $2 billion commitment despite the fact that we divested equivalent of 15% of our COGS is because we continue to find ways to operate in a more efficient manner, while at the same time, using part of these funds to reinvest in the business. So our marketing spend that historically have been under the sector, we closed last year at 4.3%. Our plan is to take it is all the way up to 5%.
And it’s not the spend for the sake of spend, okay? We need to ensure that we have meaningful things to spend the money against. And we feel good about those spaces. We have been spending a lot of our energy in transforming our marketing organization, and there are a lot of opportunities especially for these resources in a better way. We can talk more about that.
Finally, we have also been redeploying our SG&A in a way that makes more sense for the long term. So North America, for example, we just merged U.S. and Canada operations now at the end of Q2. So by making this merge, we eliminate a lot of redundancies that they had in both organizations. We delayered the organization. We saw that over days we have been building additional layers, which keeps the management far away from what’s really happening. So we delayer. And we have been centralizing functions that we don’t believe are critical for the long term. Like finance, for example, we had multiple finance team spread across, all the marketing teams doing redundant work and time spent to reconcile. It doesn’t take us anywhere. So to centralize certain activities, a lot of the resources that we free up, we were — that allowed us to invest in where it matters.
The AGILE@SCALE is critical for us. We are changing the way that we work. So in a couple of regards, one of them is to ensure that we have dedicated multifunctional people, working and changing their business and building solutions for the people that are running the business. We just created now, in the U.S., 25 pods, I’m going to explain what it is. Each pod comprise of 10 to 12 individuals, so that’s almost 300 people that are fully dedicated in North America to transform the business across revenue management, logistics, manufacturing, marketing, sales, and that’s extremely powerful. And we fund that from the other resources that I was mentioning about. So we’re able to do that in a cost-neutral way. How many companies probably can do something of this magnitude with the market decisions that we have taken? So I think it’s very exciting. And that’s — essentially, those are the key building blocks of the algorithm.
Stephen Powers
Great. I want to talk about AGILE@SCALE and how that plays into what you’re — how you manage through the here and now, but let’s define the here and now for a second. So let’s take it in terms of the headwinds first, and then we’ll talk about the levers you have to offset them.
From a cost and supply perspective, I think your supply chain overall, relative to peers and frankly, relative to where you were in ’19, has held up pretty well, both inbound and outbound. But clearly, there are supply challenges, U.S. and internationally. So just maybe talk a little bit about what you’re seeing on the supply front and how you’re navigating that? And alongside that, the cost inflation you’re seeing? Clearly, you’ve got defined cost inflation for ’22. I think your line of sight to that is pretty clean, given hedging and contracting and the like. So again, relative to peers, it’s pretty predictable. But looking out over the horizon, clearly, there’s more cost to come. So some perspective in terms of what — how you’re defining and sizing those challenges as we go forward?
Andre Maciel
Okay. So first, in terms of supply chain continuity, I think over the past 2 years of the pandemic, I think we had the privilege of having a team that has been working in a very, very resilient way, finding a lot of alternative solutions for us to keep their business running. And I think we’re very thankful to them that we didn’t have any major disruption in the business. Obviously, a lot of challenges every day, and they keep coming and the team have been navigating through that without any major disruption. And good thing that after several months of not being able to rebuild inventory because the demand has been kept at such a high level, we are now seeing for 4 months in a row being able to finally build inventory. So our service levels that reach the bottom of the pandemic December last year. So throughout this whole year consistently, we have been taking this. We’re still below the historical levels, but it’s actually visible already how that’s already alleviating. It’s improving our shop availability, and it’s improving a lot of the type of transactors. I think the whole sector is probably experiencing the same. Our scale helps a lot in this sense. And also we are very strategic to our suppliers. And when they need to make choices, we end up being like prioritized, given the importance that we have to them.
When it comes to inflation, we — as we said in the first quarter, we experienced high teens. And for the year, the guidance that you gave is mid-teens. At this point, we have already priced more than 90% of what we have in the guidance, okay. Probably is more like — a lot more than I, it’s good to say, so we feel good about where we are. So is it around the market has been announced and already accepted.
From an inflation standpoint, we — remember that we said that we can hedge about 30% of our COGS. That’s — this are the exposure to commodity. For that piece, we are covered through Q4, okay? So which should give us a lot more predictability. We have a good portion is — of the — the piece that is not commodity driven. Good portion of that is locked in contracts, so that also should reduce the amount of volatility. Obviously, we are not immune to changes. But relatively speaking, they are not as material any longer given where we are already in the year. So that gives us confidence for a year to go.
Stephen Powers
And in terms of — to manage that volatility and set yourself up for the future, how are you thinking about — I mean, the pricing so far has gone in. We’ve seen it. Elasticities, I think, been favorable. There are obviously pockets of the portfolio that are seeing more elasticity and more trade down and what have you. But my sense is that, it’s well within sort of what was planned.
How do you — I mean, obviously, the market is very concerned about those elasticities becoming more adverse, future rounds of pricing should they be needed, becoming much more difficult based on both consumer and retailer acceptance. I mean, it’s not lost. And I’m sure many folks listened to the Walmart call and heard lunch meats and bacon and macaroni and cheese and the like. And so top of mind for you, especially. So how are you thinking about the risk of elasticity is becoming worse? And your ability should you need to go back to the well and either take more price or flex other mechanisms of revenue growth management to navigate future increase — future cost increases?
Rafael Oliveira
I’ll let Andre expand on it, but Steve, you alluded to some of it. What happens naturally — and actually, back to your question — original question on the team, we feel quite good of being able to navigate this uncertain moments of inflation. The reality is within developed markets, not many people have lived to inflation scenario in the last 30 years. You haven’t seen any.
Stephen Powers
So they’ve not managed through it.
Rafael Oliveira
Yes. Not managed. In fact, our management team has lived through because of this global experience and living in countries where 2 things come to play very much. One is capacity to predict and the second is adaptability. So I’ll give you an example on predicting.
I mean, we’re really spending a lot of time and that’s part of the leadership team, spends time designing scenarios. What we think scenarios could be, what will happen in different scenarios. And one example is we have bean gum, which is a key product that goes into Philadelphia cream cheese. Basically, we were predicting disruption changes in the price of it. We stocked up a lot of bean gum. This bean gum is only really produced in Morocco, so it’s very concentrated. We managed to get a lot of this. Obviously, the market is suffering some of the shortages of these key ingredients, and we’ve managed to get this, get market share and fill out the office. So the capacity to predict ahead is key.
The second is adaptability. I mean, really, inflation and having personally lived through it and a lot of people in our team has. I mean, there’s a lot of uncertain things happen very fast, and we need to be able to react to it, not in as a crazy way, but to be able to react and make decisions fast, and that’s what we’ve been doing.
But back to your point on the price, it starts with price. And we’ve been indeed — we started early last year already pricing up. Now, the market has caught up and you’ve seen a lot of private label or some of the competition pricing as well. But then, you have a whole arsenal of other weapons to fight inflation that we’ve been working on. That normally — it doesn’t mean that you won’t price if you need to price more. You still need — it’s still a very valid and important weapon in that sense. But then all the other revenue management arsenal of things that we’ve been working on and the investments in technology that we made in the last couple of years make us very confident on the systems. So a few examples is how you play with packs, how you change the pack design or pack architecture? Or we have a system called BDTV, brand design-to-value.
So really going deeper into analyzing what’s creating value for the consumer for that specific product. So one example on cheese, on Singles cheese. We start looking, what are the attributes that consumers really value? And for example, we detected that we have vitamin D in certain — in the cheese. Frankly, the consumer studies show that consumers don’t really buy cheese for vitamin D. So we don’t need to have that. That’s an ingredient that you can take it out. There are many other opportunities. It’s just one example on value engineering that you can do, where not something that matters for the consumer, but can keep the profitability.
So — and definitely more, Andre can talk about the promotion side of it.
So in the end, pricing is still a key lever, is the first lever, but there’s a lot of other things that — a lot of other muscles that we’ve been exercising and we’re starting to deploy. And probably if you see ahead, you’re going to see a bigger proportion of this other weapons and less of price. That’s likely to happen. Yes, you want to complement more on…?
Andre Maciel
Look, on top of what Rafa said, we’ve been taking some actions even before the pandemic have been helping us a lot in regard. Mix management is one of that. During the last 3 years, we have reduced our number of SKUs in North America, 25%. We had a lot of very low-performing items on shelf with low margins that were not really working. And we’ve been continuously working on this, freeing up capacity for the launch, operating a more effective way. Even through the pandemic, because of the high demand, we had to take further the prioritization of items. And I think we’ve been learning that the cannibalization — the impact is also negative to us, and we’ve been taking incremental actions, so mix is something that we’re going to continue to manage on.
Promotions is a critical item. We have been intentionally, since the second half of 2019, reducing our promotional intensity. The reality is that we used a lot of promotion during ’17, ’19 with extremely low returns. And we have invested millions of dollars since 3 years ago in building a proprietary system that today I have real-time visibility on all the events that we run in North America. We run, in the U.S. alone, more than 100,000 promotional events per year. And we have every single piece of information, which SKU, which week it goes. And we have been continuously optimizing how we allocate these dollars in a way that is beneficial to retailers and to us. It’s a win-win. Looking at what’s the appropriate depth of discount? What’s the SKU that should be on discount and which one should not be on discount? For how many weeks it should be, what’s the right time of the year? And we have the intention of deploying that, and there’s still more room for us to do better. So we should not expect to go back to 2019 levels. I think that’s going to be reversed for the future as well.
Obviously, we do expect promotional activity to be higher than it has been in the last 12 months because we and others have been limited by capacity. So — but it’s not going to go back to the old level because it’s just money that’s not well spent.
In addition to that, our collaboration with retailers has been very important. They also are suffering from the same consequences that we are. And the fact that we have been in such a better really relationship with them over the — especially over the last 2.5 years is changing the tone of the conversation. So now, we have been talking together a lot and what’s the best path forward to protect us from the inflation in a way that protects our combined profitability, our P&L, but at the same time, it provides certain solutions to consumers.
You mentioned products like bacon and cheese to give an example. Those products, they have an important role to retail. They’re big traffic builders, right? So — and in those 2 categories, in particular, our price gaps have been expanding to private label. Even though in the average of the portfolio, they’re being flat for those 2 categories, they have been expanding. And we’ve been looking at that very closely because the price gaps matter. And we are being very intentionally working together with them to say what are the right moments where it should give good opportunities for consumers given the criticality of some of these items in a way that collaborates.
The fact that we are working in a less silo way also play a lot in our favor, and that’s probably Kraft Heinz thing, because they’re so siloed that everyone is trying to optimize their business today because of the scale we have. When you look at the resources, you look at that holistically. So yes, I might be willing to invest in a certain category because it makes sense to consumers with, better than us. But at the same time, it can compensate that elsewhere, and that’s very beneficial to us.
Stephen Powers
Rafa was talking about the need to be agile, right? So is AGILE@SCALE like, now that you’ve implemented that, maybe not foreseeing this environment, but the timing of when you implemented that program and across the business, does that become an important arrow in the quiver as we go forward? Just a new asset to — of the odds that you are able to move as fast as you need to adapt to what is going to be a changing environment?
Andre Maciel
Yes. We’re being a lot more — we were very self-centered before, and now we spend a lot of our time looking what’s — what rates looks like out there, even beyond food. And on the AGILE@SCALE, in particular, Carlos and I and a few other executives, we spend a lot of time going through several different industries to see how companies are doing, creative operating models that are creating value. And we got inspiration from some of the pharma companies like Pfizer is one of them, Walmart is one of them. I think today, we had Walmart in Mexico. They did a great job with that. We have banking in Europe, ING is one that — had a very important role a few years ago when they started this journey. And we were very fascinated by what this means and how people are using different ways of working and technology. In a industry like towers, they have been historically lagging, other more high-tech industries in terms of using data to drive their decisions and drive efficiency.
So we started last year with the digital transformation. We create them from scratch to have a digital factory. In the United States we have 100 tech talent that didn’t have before. I’m talking here data scientists, machine learning specialists, cloud architects, prem masters. So we have a whole breed of talent that we put them to work together with the different functions in a dedicated way to create digital solutions. And last year, I was very impressed and excited how we have this team working dedicated. And that’s important, the dedication, because our people get spread between day today and build in the future.
And we’re pretty much working like a tech company. Every 2 weeks, you have Sprint reviews that they have to build working prototypes to be distributing with the users of those solutions, get feedback and keep evolving from there, like an app you have in your phone, you have version 1.0, 1.1 and keep it going. And that creates a lot of speed to us and being customer-centric. And customer can be an internal customer like another function or it can be a retailer, can be a supplier. And this is helping us tremendously with what we have been doing. We now saw the opportunity to take this to another level and get other processes that are very cross-functional in nature, innovation being one of them. You have people from regulatory part manufacturing, marketing, et cetera.
These people work in a very silo mentality. Like I have my team role in this, I hand over to this one, but then I challenge what the other did and people stayed off time. So our time to market is very slow. And we didn’t have the habit as well of testing and learning. Our innovation, they’re all national big banks, so it take too much risk and it took too long to go to market. We started now a competitive different approach and these people working on a dedicated fashion, cross functional, booking prototypes. I think our connected to customers have been very helpful because we can put products out there, experience, get feedback from consumers and then evolve from there, which also improves the quality of the innovation. They like chances of success as we scale them up. So those things have been very powerful.
As I said, as we went out of the new organization model in North America, we now have 25 pods. We have teams working in innovation in creating marketing contract, working in logistics, leveraging data from the factories so we can make better recommendations on predictive maintenance or optimize the lines in a more active manner. So we’re doing a very holistic approach with the AGILE@SCALE. It’s covering all the big parts of the business and is a very value-creation approach. Like, if we don’t see things deliver the results expected, we stop and move to the next thing because you have a whole pipeline of user cases that already mapped, and we’ll keep going after those.
So it’s a very different way, and it’s very exciting what you can tangle, will help us with working capital, with cost, with top line, and we’ll be using a lot of partners as well. We just signed 2 very large partnerships with Google and Microsoft. Google is helping us to — on the marketing activation side. We have improved our first-party data a lot in the last 12 months, and there’s a lot more to do. We doubled the size of identities that we had from 16 million to 32 million in a matter of 12 months. And before in average, we knew 5 pieces of information about an identity and now we know 400. So we can understand exactly the consumer that we’re interacting, what they care about. But then each activated this content. So we created an in-house creative agency that is customizing content for this different type of consumer segments. So first, allow us to do that much faster than work in the traditional way and is also cost efficient. So we benefit, check both boxes. And now we’re able to be much more nimble and improving returns on these connections with consumers. The results that we’re having for the categories already rolled this out are very, very encouraged in terms of the uplift in marketing.
Stephen Powers
Great. We only have about 5 minutes left. And I want to make sure, Rafa, that I get you to weigh in on a couple of topics. Been spending a lot of time at this conference talking about developed markets in the U.S. specifically. I love your perspective on emerging market health generally, which I think outside of obvious pockets of volatility and weakness overall, is quite good. And then also get you talk about go-to-market strategy. And the importance of what you’re doing there to be able to leverage the opportunities that Kraft Heinz has in emerging market specifically?
Rafael Oliveira
Yes, they’re very connected, right? The emerging markets and the go-to-market for us. Frankly, Steve, among all these things that we are seeing and all the transformation that’s happening within Kraft Heinz, the emerging market strategy, and within that the go-to-market strategy, is definitely one of the sweetest if not the sweetest spot.
Because just to put in perspective, first, emerging markets for us is still relatively small. And we were about 7% a few years ago of our business in emerging markets 3 years ago, coming to close to 10%, but I mean, still very small. And when you think — we define very clearly, and that’s within International, obviously. Like we define very clearly our strategy is Taste Elevation, so the sauces and the adjacencies or sauce, and emerging markets. And within the emerging markets, happy to say the last 2 years, we’ve been growing double digits in emerging markets.
But the beauty of it is in the places we have implemented our go-to-market model, we are growing more than 20%, in some cases above 30%. So we started 4 years ago in Brazil with a model called [Cruzavas] in Brazil, where it’s a holistic go-to-market model where you start with like analytics, really mapping the whole country, mapping point of sale, what goes where in terms of portfolio, profitability of the portfolio. And it goes all the way into the execution in store, and how the — and you have a merchandise and that goes to store, he knows — he or she knows exactly what he has to do in the store, what are the SKUs he has to push to build displays to gain on shelf.
And in emerging markets, it’s not as a lot of developed markets where the shelves are preset by a centralized modern trade. Many times, you can win on the point of sale.
So having this process, which again, I said, started in Brazil, we took it to Russia, to China. This year, we are taking to Indonesia, to Poland, to Egypt. I mean, we were about 1/3 of our emerging markets business into this go-to-market model in the beginning of the year. We expect to close the year at about 75%, 75% on this model already. So it’s a sweet spot because it’s something that we already proved ourselves that we could make it work in more than one place, and now, we are picking this repeatable model everywhere, and it is bearing results. You saw in Q1 — and last year as well, we saw Q1 double-digit growth. We expect to continue that, and as I said, accelerate. So emerging markets should play a bigger role for Kraft Heinz or a bigger proportion of the results and we’ll be — in start, obviously, is self-fulfilling. As it gets bigger and the growth continues, you represent more and more of the overall growth algorithm of the company.
So — but emerging markets, there are challenges, indeed, as you alluded to in terms of macro. There is volatility. It goes up and down, but that’s the beauty of it. If you — depending on only one market, you’re more exposed to that. When you diversify into a few — I’m not talking 50 markets, I’m talking about 5 to 10 key markets. And then you go slowly from there. I mean, you tend to minimize a bit the disruptions that naturally happen. So that’s definitely a sweet spot that when people talk to investors, analysts talk about Kraft Heinz, naturally, people pay a lot more attention to the U.S. because it’s the biggest portion of our business, and there’s so it should be. But when you think of the long term, and our management team is spending so much time on the long term and when the growth will come from, I think this infrastructure that is proving results in emerging markets. We’re expecting to still see a lot of happenings coming from that in the long run.
Stephen Powers
Okay. With that, we’re — we could go for a lot longer, I’m sure. But with that, we’re out of time. And so I’d like to thank you both, Rafa and Andre, for joining us, and thank you all for joining us as well, and I hope you all have a great conference.
Andre Maciel
Thank you, Steve.
Rafael Oliveira
Thank you.
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