How many kinds of Heinz ketchup are there?
“I don’t know,” says Kraft Heinz CEO Miguel Patricio. “There’s ketchup organic, ketchup non-sugar. There’s ketchup with less sugar, ketchup with less salt. What else? Ketchup sweetened with honey…” A staffer later supplies the answer: There are more than 20 kinds of Heinz ketchup.
There were only a few when Patricio became CEO in the summer of 2019. The company’s subsequent tomatoey efflorescence exemplifies the turnaround of a onetime corporate aristocrat that Patricio is directing, an effort he acknowledges is still a work in progress.
Kraft Heinz’s brands are among the most famous in food and beverages; in addition to Kraft and Heinz, they include Oscar Mayer, Velveeta, Kool-Aid, Jell-O, Maxwell House, and dozens more worldwide. But as Patricio observed on an early call with Wall Street analysts, many of those brands were “a little bit dusty.” Can he revive them? Or, as some analysts believe, should he focus on creating new brands? It’s a case study that owners of proud brands everywhere are watching.
Warren Buffett’s Berkshire Hathaway and the Brazilian private equity firm 3G Capital created Kraft Heinz after buying Heinz in 2013 and merging it with Kraft two years later. Berkshire and 3G remain Kraft Heinz’s largest stockholders, and while Berkshire holds more shares (27% versus 3G’s 8%), Buffett has publicly deferred to 3G on managerial matters.
3G’s management playbook after a takeover has long called for strict meritocracy, firing most top managers, cutting costs to the bone, then buying more companies in the industry. Exhibit A is Anheuser-Busch InBev, which 3G built into the world’s biggest brewer. Kraft Heinz ran that playbook until it hit a wall in 2017. Always seeking new acquisitions, the company went after Unilever, which resisted. Buffett refused to participate in a hostile takeover, so Kraft Heinz looked elsewhere but couldn’t find attractive targets.
With takeovers off the table, Kraft Heinz had to focus on innovation and brand-building—about which the playbook said little. The company’s stock price peaked, drifted down, then plunged in 2019 when Kraft Heinz confessed its brands were worth $15.4 billion less than previously assumed. That’s when the company brought Patricio from his post as a top AB InBev marketing executive to become CEO, with a mission to innovate, build brands, and grow.
Patricio, 56, was born in Portugal and earned a business administration degree in São Paulo. Since his arrival, Kraft Heinz stock has been up 30%, about matching the S&P 500.
“We are good today. We are proud of what we did,” he tells Fortune from a conference room at the firm’s Chicago headquarters. “But we want to be great, and greatness is a different ball game.”
This interview has been edited and condensed for clarity.
When you arrived at Kraft Heinz in the summer of 2019, what was the situation you found? What were your priorities?
I accepted the job because the company needed a big, big transformation, and I love that. My first priority was people and culture. For the first six months, I was more of an evangelist than a CEO, visiting factories, teams, meetings, trainees, and MBAs, talking to people, trying to instill hope, a future, a vision, and especially optimism.
After six months, I got desperate because something called COVID came to town. I was like, “Oh, my God, what do I do now? I have to transform this company through Zoom and Teams? That’s impossible.” But we did it. I think actually that was a very important period for us because we could evolve a lot.
You also had to deal with a tough financial situation.
The month I arrived, the company’s [debt rating] was downgraded to high yield. We said, “Okay, we need to reduce the debt, but we need to define the strategy first.” So after people, I went to strategy. I always say that you can do anything but cannot do everything. We had a very, very complex portfolio [of products], and we needed focus.
We made two divestitures for which we got a pretty good price: the natural cheese business [Breakstone’s, Polly-O, Cracker Barrel, and other brands] and the nuts business [Planters and other brands]. We started having a very good tailwind because of consumption at home, and we reduced our debt by $10 billion in the past three years. We’re proud to say we were back to investment grade in two years.
I don’t want to give you the sense that the job is done. This is a journey. There’s a lot to be done. But we were at the bottom, and we are no longer at the bottom.
Many Kraft Heinz brands are very old, and outsiders said you needed to create or buy new ones. You took a different view. How come?
At a certain moment, our teams started apologizing about our brands and really believing that the future was launching new brands. To put it in perspective, in 2018 [the year before Patricio arrived], we launched five different salad dressing brands and failed on all of them. It’s very hard to launch new brands and be successful.
What I saw when I arrived was that we had incredible brands. We have six billion-dollar brands, and these brands are not only big, they are also meaningful in the minds of consumers. We had to do the opposite and grow the core. Kraft mac and cheese is an incredible franchise. Lunchables is an incredible brand for kids in this country. Capri Sun, Oscar Mayer—we have to renovate these brands and bring excitement to them again, which is what we’ve been doing.
What’s an example of product innovation?
There’s big growth in plant-based products, and we didn’t have anything on this. We were actually very strong in vegetables, with beans or even ketchup, but we didn’t have meat or dairy alternatives. So we partnered with NotCo, a very strong startup on plant-based products developed through artificial intelligence. For me, this example is incredible. We just launched this market test in Cleveland, and in two months, we became market leaders in plant-based cheese products. (Kraft Heinz plans a national rollout this year.)
We’re in a frenzy to be more agile, and this was a very good example that we could do it. I use these examples to continue my job as an evangelist and say we can do it—you see, we launched this product in just six months.
You’ve also introduced innovation and fun in promoting the brands.
Today’s world of marketing does not suit the model of [advertising] agencies. What is today on Twitter will be tomorrow on Instagram, and after tomorrow it’s old news. So we created our own digital agencies across the world. When something happens today, we communicate it to you today because it’s meaningful. I’ll give you an example.
One day John Legend showed a box of Kraft mac and cheese and said this is his favorite food. The same day, or the following day, we produced boxes with a picture of John Legend. We sent one to him, to his house. His wife [Chrissy Teigen] loved it. She has 40 million followers. She published that the next day.
What is your definition of success?
We are good today. We are happy and proud of this evolution. But we have our feet on the ground. We have to be humble and understand that we are not at the greatness we can be. That is how I define it to everyone in the company. When I meet with the R&D department on our five-year plan, I say, “Okay, you have to define what greatness looks like in R&D. Benchmark with other companies and tell me what greatness is. Then tell me what’s the plan to get to greatness.” I try to bring this discussion to absolutely everything in the company.
An employee at a town hall asked me, “If this was a baseball game, what inning would we be playing now?” I loved the question because it was a way to say, “I get we are on a journey, but how long will this take?” My answer at the time was that we were finishing the second inning and winning, but there’s a long game ahead. Then I told him we’d start a new game when this one finished. In reality, this journey never finishes. When we get to the destination, we’ll start again, and that’s the fun of it.
