Mondelez International, Inc. (MDLZ) Earnings Call Transcript & Summary

Welcome, everyone, to the Jefferies Consumer Conference. I'm Rob Dickerson, U.S. food analyst at Jefferies. We're honored to have with us today from Mondelez, Glen Walter, Executive Vice President and President, North America. In this role, Glen is responsible for leading the company's $8 billion business in the U.S. and Canada or approximately 30% of company revenues as of 2020, at least, including power brands, such as Oreo and belVita biscuits, Triscuit, GOOD THiNS crackers, Trident gum and Halls cough drops as well as the company's more entrepreneurial brands such as Enjoy Life Foods, Perfect Snacks and Tate's Bake Shop, excuse me. And then also the company's newest in-store baking business, Give & Go, that we want to touch on this morning. So with that, look, I'm going to turn it over to you, Glen, just for a couple of opening remarks, and then we'll jump into Q&A. So go ahead.

That's great, Rob. Thank you. Thanks for having me, and thanks, everybody, for tuning in today. Hopefully, we're at the end or at the ending stages of what's been a challenging 1.5 years, and we can do this in person maybe going forward. But really excited to be with you today. We've got a lot of exciting news on the portfolio. A lot of hard work went in long before COVID, certainly helped us through the pandemic and has only helped us become stronger as we come through it. So looking forward to have the conversation, Rob.

Perfect. Yes. I think that's actually a good start. I wanted to ask about how you think you could actually come out of the pandemic a bit stronger, right? I almost feel like it's like the batter's box, right? You warm up with weights on your bat for 12, 18 months, then all of a sudden, you're out in the bat a bit more freely. So I'm curious, one, where you maybe saw some of the advantages of the platform within North America relative to some competition during the pandemic, and then how you might feel you're coming out of the pandemic in just in a much better spot?

That's great. Yes. So I think, Rob, like you've heard us chat before, as this hit us, our first, second and third priority was the safety of our people and then we very quickly pivoted to how we could support the business to business continuity. And then to the latter part of your question, what can we do to actually emerge from this stronger. And I'd start with our brands. I've been a part of the team now for 4 years. During that time period, we started with an obsession around the consumer and the shopper and really understanding the role that our portfolio plays in consumer stacking, which is an enormously attractive market, where can the portfolio create these emotional connections with consumers, how can we distort investments towards that and make sure that we've got an efficient end-to-end business model. And so that work started and we started to see green shoots at the end of 2018. As we hit COVID, I think what you saw were the strength of our brands, our ability to pivot and have relevant messaging during a very, very difficult time for people and then end-to-end all through our supply chain, the ability to leverage our capabilities in DSD, the investments we had made long before COVID and e-commerce and the relevance, whether we're global brands or local brands as well as our ventures to provide people with snacking, nourishments, comfort during a very difficult time. And that translated through what was in 2020, 130 basis points of market share growth in our biscuit portfolio led by the brand you see behind me. We've seen across the biscuit portfolio a very strong household penetration. As we were in COVID in the spirit of never wasting a crisis, we simplified the portfolio. That was a major part of making sure that our supply chain could sustain these heightened levels of demand. And all of those elements, clear positioning in brands, strong distortion of investments, particularly in working media, very, very strong in and outlet execution led by DSD. The addition of our venture businesses and partners has translated even with the difficult comps we're cycling into strong household penetration retention and a path that we see that is very, very strong and exciting going forward.

Basically everything, right, helped you gain share. The strength of Mondelez. I like it. So just the one point you just made in terms of limiting some of your SKUs, right, not really rationalizing, so to speak, maybe longer term, but at least temporarily limiting those SKUs so the supply chain could execute more seamlessly and -- on a more simplified basis. I'm curious, though, were there learnings, right, that kind of came out of the pandemic such that maybe some SKUs don't need to go back in or maybe there were higher velocities on certain SKUs that you think could be sustainable? Just curious if anything that you would decide to do, maybe in terms of just shelving the different brands where your current mix is now relative to what you may have thought of prepandemic, and I'm ignoring acquisitions, right? We can get to that later, if any of that's changed?

Yes. So just to be clear, Rob, the simplification of the portfolio wasn't sort of a COVID pause. I mean we've rationalized 25% of our SKUs. And we've done that in a very thoughtful way, again, and you'll hear me repeat it, but it's so important to our growth strategy of listening to and understanding the consumer and the shopper. So we went by brand and looked at the long tail. We looked at demand spaces. We looked at channels. We looked at our value proposition, and we looked at the cost and complexity associated in the supply chain, and we've eliminated 25% of that business. We've maintained our shelf space. So it's allowed us to expand on our core. It's allowed us to bring in new price pack architecture for different snacking occasions or channel expansion or new innovation that's hitting the marketplace. So this, for me, is a part of the virtuous cycle of growth. Where are we investing in these new snacking occasions, how do we continue to drive our category leadership. It's also been something we've done with our customer partners and simplifying the shelf so they've got a more efficient shelf, not only for shoppers. But as you can imagine, the amount of click-and-collect picking are happening in stores. There's just simply -- there's simply no room for inefficiency on the shelf when they've got labor looking to pick orders for people who are pivoting into more e-commerce. So this, I think, is -- this is a less is more when it comes to really having a virtuous cycle around growth.

No, fair enough. It makes complete sense, and you're doing a great job. One of the best right now, I'd argue. Okay. Maybe we can touch on some of the more recent acquisitions or, let's say, recent as in getting back a few years since you've been there, right? I think that includes Tate's, Enjoy Life, Perfect Snacks, Hu, of course, and then also Give & Go. They're all great acquisitions, but all maybe a bit different in nature, right, it rounds out the portfolio. So just curious kind of collectively as you think through each one of the acquisitions, but then all of the acquisitions, right, together, right? How does that really add diversify kind of shift the portfolio a bit kind of -- and logic behind all of them in one, so to speak?

Yes. And it's been a great ride thus far over these 4 years. This obsession with consumer snacking, understanding what drives their snacking behaviors and purchases, where they're purchasing snacks, what are the right occasions to be in has really been our road map and the acquisitions that you've mentioned, all in different stages, but have been enormously valuable. So maybe I'll just touch on each of them a little bit. I mean, if you look at Tate's, I know many of you Tate's is in your heartland. This is an incredible brand. Whether it's around well-being, whether it's around indulgence, whether it's getting us into new adjacencies like a Give & Go, all of these play a role. Tate's has been unbelievable in our biscuit business. It's a premium well-being clean, indulgent brand. we've worked over the last 1.5 years to thoughtfully integrate that into our advantaged DSD capability. So we now have over half of the Tate's business into DSD. And you're seeing that wonderful combination of a strong brand combined with a great route to market, driving accelerated revenue growth, advantaged space, average items carried. So we think of Tate's, and we're just in the early stages of building out this incredible premium brand. But that is bringing us into sort of premium well-being biscuit categories. If you look at a Give & Go, which is a wonderful adjacency into a very large and addressable market, nearly $15 billion in whether it's in-store packaged bakery with cakes and pastries. Its perimeter of store, fresh indulgent snacking, whether it's on-the-go snacking, breakfast occasions, celebrations occasions, Give & Go has got some of the leading proprietary quality and innovation in the overall category. They also deliver a significant solution to retailers. They're one of the only, if not the only in-store bakery organization, the end-to-end from the actual platform, whether it's a brownie, a cookie, a muffin, can fully finish the goods with the most intricate decorations that has the packaging such that they can protect the integrity of those, so that stores don't need to do any of that. So you can deliver the shopper and the consumer a fully finished, highest quality delicious product at a great value. And they can then think about redeploying that labor in-store into other areas, click-and-collect, whatever they're having to do. So it's an end-to-end solution that is adjacent to ours, whether it's unbranded or it's a branded product like an Uncle Wally's or a two-bite brownie or even what we're doing now bringing brands like Oreo and Sour Patch Kids along with some licensing opportunities to even enhance the overall attractiveness of that. So I can go on. Hu, just recently, a great premium chocolate, paleo-centric brand, predominantly, as I said, a chocolate business, it's the #2 chocolate in Whole Foods, the fastest-growing. They're just now getting into crackers and cookies. So we see a very, very robust pipeline of premium, well-being snacking that are both bricks and mortar as well as e-commerce driven in a very differentiated platform. And then Perfect Snacks, the leading sort of plant-based, refrigerated, premium protein bar, an incredible family story. This brand is the #1 refrigerated snacking item. It continues even through the difficulty with some of the channels like Starbucks being closed down, weathered the storm through COVID are now reemerging in a very strong fashion with highly trusted, sought after premium brands. So all of these in a nutshell, Rob, fit into amplifying categories and spaces we're already in like a cakes and biscuit and premium cookie or they bring us close to a very well-thought through strategic snacking adjacency that we see a lot of runway in the future.

Yes. No, it's really interesting. I just want to go back to the Give & Go comments for a minute. I mean, I think the business, at least, I think, now is, I think, around, call it, $500 million in revenues, so it's not really insignificant. And you speak to all of your capabilities, right, that end-to-end solution for the retailer. I do believe there are other companies that provide that end-to-end solution. But you're Mondelez, right? I mean you're massive within the store. So it would seem as if when you approach retailers kind of with this capability within in-store bakery, obviously, you already have the credibility, right, everywhere else, especially just given the complexity of running such a large DSD system. So I'm curious, when you do think about Give & Go, and I touched on this because it doesn't really come up a lot with me when I speak with investors about Mondelez, but I do think it's really important to highlight. I mean it would just seem as if you go to a large mass retailer or any of the traditional grocers, right? And you say, well, look, this is what we have now. It's how we're thinking about it. We're also a category leader within snacks or within baked snacks. So it would seem as if they might be willing to kind of lean in with you more than some other smaller regional player, right? Okay, Mondelez is bringing us the solution. They've thought through it. They have the internal development capability. Just maybe if you could kind of just touch on how you think retailer reception, right, of kind of a rollout in a larger scale from Mondelez might be going.

Yes. Look, the collaboration that we've got with our customers in this space is fantastic. I mean first of all, Give & Go has done an incredible job of building very strong relationships with customers. They're -- obviously, they're dealing with a buyer in a different part of the store. But as we bring our 2 teams together, you're seeing 1 plus 1 equal 3, 4, 5. So -- and let me just reinforce that, that fresh in-store bakery, the size and value of that category is equal to, if not slightly greater than the overall cookie cracker market. So this is a significant piece of business for us to go after. And as you said, with Give & Go being about $0.5 billion, the opportunity for growth and accretive growth is robust. I will say it reinforces, I think it's really important. So not only Rob, if you said, so what is attractive to a retailer. Certainly, the opportunity or the capability we bring on shopper and snacking insights and where people today, where are they headed and how do retailers need to be thinking about whether it's perimeter of store or center of store, cake and pastry, biscuit, licensing, branding, humbly, we bring a very strong capability there. So that's one element that we're leveraging and collaborating with our partners and our customers on. The second, though, in the in-store bakery, the perimeter, many players in this space do a piece of the value chain. Give & Go is truly the only one that finishes it all the way through. So you've got plenty of great companies that will do the base of a muffin or the base of a cookie or the base of the cake needs to be finished then by somebody else typically retailer labor to do that in store. Give & Go is able to deliver that. So again, you're getting the product people like, very, very high quality, incredible innovation capability. They've invested significantly in the packaging capability that allows that product to show up at retail without an issue. You get ornately decorated mini cupcake with all kinds of sprinkles and whatever else. You flip that package upside down for a Give & Go, it stays completely as is from store to home. So they've got a strong differentiated model. While it's indulgent from a well-being standpoint, they're the leader in mini. So whether it's mini brownies, mini cupcakes. So it's a really strong proposition from where how consumers are snacking, the value it brings to the customer. And then you add to it the strength of our portfolio, again, humbly, I mean you're going to start -- you're starting to see Oreo show up, whether it's in the in-store bakery aisle or in what they call their celebrations, the kits business. Gingerbread houses and Easter and Halloween decorations that do-it-yourself, which has only been amplified coming out of COVID. All of those things are great co-branding and licensing opportunities that we're taking advantage of. So it's a -- we're obviously excited. Our retail partners are excited, and it's just a huge growth corridor as we look to the future.

Yes. It's so interesting, right? Because if you go back even, what, 7 years to talk about, right, the growth potential of Mondelez, we always talked about emerging market diversification, what have you. But I'd argue right now, you have a lot going on in North America, right? So it's not just this no growth. North America, whole margin generate cash, it's still growth co.

Yes. And continuing to be very thoughtful around margin expansion and generating cash. So they're certainly not mutually exclusive.

Fair enough. And then I guess, maybe just to kind of finish the M&A conversation. I look at Tate's, we always have some kind of Tate cookie in our house. I also look at Hu, right? I mean, Hu has a good, more premium chocolate product but also has now been extended, right, within -- in the crackers. Both brands seem like they have ongoing potential, right, to branch out, right? We haven't seen much yet from Tate's. I know it's kind of a unique product. I know there are brownies, right? I'm just curious, as you think about Give & Go, what that provides, there's Perfect Snacks, right? There's so much you can play with, right? Because you're just touching on all occasions with all different -- slightly different brands. If I just think about a brand like Tate's or if I think about a brand like Hu, how do you think conceptually broadly 3, 5 years out, right? Where does Tate's go? Where does Hu go?

Yes. Yes, I mean it's a good problem to have with these strong brands. I mean, I think first and foremost, Rob, we try to strike the balance. And this is also, I think, at the core of how we operate these companies where we want founders to continue to be entrepreneurial, very nimble to be running them as if they were still a start-up. But on the back end, have the capabilities that we can bring around consumer insights, snacking insights, procurement, route to market. So we try to strike that right balance. And within that starts, first and foremost, with continuing to build the core. So you take a Tate's or a Hu chocolate, particularly the chocolate piece. The opportunity to continue to drive basic distribution, average items carried, all of those elements is enormous. But then we layer on top our snacking capabilities and understanding where the consumer is going. And as you said, how do you expand Tate's while keeping the specialness and the premiumness of the brand, whether that's going into items you might find for those of you who've been to South Hampton, have been to the bakeshop, it could be brownies, it could be a whole range of things. How do you bring that authentic bakeshop experience to retail? So that is, while staying premium and delicious and not distracting from the core, which is really the heartbeat of the business. So we -- what I would just share with you is we've got a robust pipeline of ideas. We're using test and learn capabilities so that we can make mistakes on a small scale, pivot very quickly and then scale out with the right solution. But it's an exciting path forward, but all of those products: Perfect Bar, Hu, Give & Go, Tate's, Enjoy Life, all of them, they've got a very clear consumer proposition, a clear differentiation in our overall snacking strategy and a very, very long runway of profitable growth.

Yes. That all sounds great. So look, Glen, your background is unique in the sense, right, that you did come from Coke and now you're at Mondelez, North America, these are 2 of the largest DSD players in our country. I'm just curious, given a perspective that you have, how you view DSD, and it's -- I'm assuming potential very clear competitive advantage route to market and maybe how you can best leverage that, right? You mentioned now Tate's, right, is on that system. So I'm curious how that might give you some advantage over other competitors as you really stuck with and kind of dug into DSD.

Yes. And as you mentioned, Rob, actually, this is my third opportunity in North America with DSD, whether it was InBev, an independent distributor or a Coke model. And so -- it is a competitive advantage and is one of those models where if you were not in it today, the costs associated with getting into it would be massively prohibitive. So we look at it now and say, okay, with that being the case, whether it's speed to market, in-stock condition, the value in which we can partner with our customers so that when we collectively invest in trade and promotional activity, we can quickly see immediate feature display conversion, all of those elements that lead to profitable growth. At the same time, though, and as you mentioned, there are brands like a Tate's, where we can see a clear path to integrating that into DSD. Since we've integrated Tate's, we've got over half the business in the DSD now. We're seeing revenue growth, shelf expansion, average items carried, display penetration, the list goes on and on with the benefits we're seeing in Tate's. But we also look to push up against some of the areas within our portfolio. You mentioned Halls earlier. As mobility picks back up, one of the unfortunate, just simple realities is we'll get back into cold and flu season. And so as we prepare for that, the ability to leverage a DSD capability against our confections business could be Halls. Could be a Sour Patch Kids program, could be a Trident Vibes gum execution. But leveraging those capabilities to get traditional warehouse brands executed in the marketplace is a very, very exciting opportunity. As we approach the Olympics, partnerships we've got with the Olympics or the NBA, limited editions like a Lady Gaga Oreo, all of those things come to life in an amplified fashion because of DSD. So it's a huge capability. It's a big investment. We continue to optimize that using technology, understanding how e-commerce and click-and-collect is changing shopping behavior. How do we ensure that we're evolving DSD capability to be a competitive advantage and to continue to be very, very thoughtful on the overhead investment and really evolvement over time. So I'm pleased with what I've been seeing coming from 2 other DSD businesses. And see, again, just a significant opportunity on how we can sweat this capability going forward.

Yes. You just mentioned Halls and maybe think Trident too, right? These are 2 mobility brands and categories. I'm just curious, kind of with the intention to potentially divest other parts of the gum business but -- globally, but maybe hold on to it in the U.S. and we've all seen and talked about the trajectory of that category for a multiyear period. One of the strongest brands, right? You're still one of the leaders within that category. Similar to, I guess, your comments on DSD, right? So cost prohibitive, but we're already there. So we have a lot of advantages. Do you kind of conceptually think, okay, yes, we don't want to relinquish this brand in the U.S. because we are strong. We are big, right, and category cycle over time. So it would be kind of premature for us to kind of exit that category despite the drag kind of on the top line over time. Just any broad comments because, obviously, -- you've all been talking gum for 5 years.

Yes. I mean look, and long before COVID, gum has been a difficult category. It does play an important role in snacking. It is -- in North America, it is relatively smaller, but it's important to us when we think about, again, the role it plays in snacking, whether it's around refreshment or hygiene. Nowadays, there's a lot of insight and consumer connectivity around focus, appetite suppression, a whole range of things. The Trident is an incredibly strong brand. I would say there are sort of 3 things that are well its early stages. Our team is focused on and I'm seeing some positive outcomes. One is a very, very clear positioning that resonates with consumers, all of our consumer communication and equity copy is testing very, very strongly and resonating with this idea of delivering sort of relief through chewing, right? And so we've got a very strong equity campaign, number one. The second, focusing on the fundamentals. We need to make sure that we are executing with excellence in front of store that we're arresting any of our TDP declines and that's typically coming through a focus of our Trident Vibes innovation that is now several years in the market and is a delicious soft chew pellet in the bottle, which is on trend with where shoppers and consumers are, as well as our new, what we call our larger size pocket pack, kind of a multipack, if you will, in gum that are doing well. And we've got good innovation around flavor and sensorial. So we're seeing early stage progress with the combination of how we're investing in working media and messaging, in-store execution and innovation that's creating value. So the goal there is to get our footing back underneath us, get this stable, control the things that are in our control and make sure that as mobility increases, which we're starting to see, we're in a position to be a very, very strong choice for consumers. I mean, remember, you have Trident and Amazon is the #1 gum. So we've got a very, very strong brand, and we're making sure that the investments we've made in other channels, whether it's traditional food and mass front of store, back of store or front of store and C-stores, this recovers that we're in a position to be a strong choice for consumers.

That makes sense, and it gives you, right, another kind of box checked on the occasion side. Keeps you there. Just the sake of time, I would hate to run out of time and not be able to ask you kind of the standard cost inflation question at this point, right? Everyone's talking about it. It seems like it's fairly prevalent everywhere. So I'm just curious, just kind of any general color commentary around that inflationary cost backdrop that you see now in North America. I'm sure there are differences with Europe as well. And then just in terms of revenue management levers to offset pricing expectations, what have you. I think just an update would be helpful given your seat.

No, that's great, Rob. I mean you mentioned the secret here. So for the past 3 years, and this is certainly something that was a strength in the Coke system, is investing and building the capability around revenue growth management. Revenue growth management is the rocket fuel behind what allows us to invest in our growth brands like an Oreo or Ritz or a belVita. It's what allows us to bring the life-exciting new innovation like a gluten-free Oreo or gives us the cash to go out and thoughtfully identify great acquisitions like a Tang. So revenue growth management is the fuel for growth. But behind that, it absolutely also is a very strong tool. We find these episodic inflationary pressures that we are certainly seeing like everybody else. And so what -- within revenue growth, think of this as a toolbox. It allows us to continue to deliver value to consumers. It allows us to continue to evolve our price pack architecture. So we've got the right packs for the right occasions for the right value proposition. It lets our trade work a lot more efficiently between us and our customers, and it also allows for us to take pricing. We've taken list pricing in the last 3 years. Revenue growth management is not something we react to when inflation spikes up. Revenue growth management, again, sorry for repeating, but it is the fuel for growth. And if you think about selling 1 pack of Oreos for a certain price in the past, what this allows us to do is to move headline pricing onto Oreo, but to deliver consumers, you buy 1 pack at X, you buy 2 packs at Y, you buy 3 packs at Z, all while as you buy more packages, we're delivering you more value. The research that we've done on consumer shopping behavior, they were already buying more than 1 pack to begin with. So we're not asking them or forcing them to buy something that's not already ingrained in behavior. We know we've got an expandable consumable category. So this is a virtuous cycle that lets us invest for growth, continue to deliver value to consumers, have trade working for us and our customers better and also take less pricing. We're 3 years into it. Inflation certainly is pronounced. We see it in the labor market. We've got certain commodities that it's hitting. We were able to take list pricing this past March, and revenue growth is, I think, a differentiated capability you're going to see us continue to invest in. That's a key element of our growth going forward.

Glen, Thank you so much. Really appreciate the time. Shep as well. Thank you for participating in the Jefferies Consumer Conference this year. Have a great day. You have a lot of great meetings, you have a lot to discuss and just always appreciate it. So thank you, guys. Have a good one.

Great. Thanks, Rob. Thanks for having us.