The Kraft Heinz Company (KHC) Earnings Call Transcript & Summary

Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's food, household products and beverage analyst. And I'm pleased to welcome Kraft Heinz to day 2 of Morgan Stanley's Global Consumer & Retail Conference. Before we begin, I do have to note some disclosures. For important disclosures, please see the Morgan Stanley research disclosure at www.morganstanley.com. If you have any questions, you can reach out to your Morgan Stanley sales representative. So with that, Kraft has recently announced a large reorganization with broad cultural and strategic changes, including shifting to a platform-based portfolio structure, adopting a more focused -- a bigger innovation focus and also generating incremental productivity to reinvest back behind the business and marketing. So it's a great time to have Carlos Abrams-Rivera here, President of the U.S. Zone, which makes up more than 2/3 of the company's total sales; and Chris Jakubik, Head of Investor Relations. So thank you very much for coming, guys.

Thank you.

So to start off, Carlos, let's dive into some of the recent strategic changes that were announced at your Analyst Day a couple of months back. You announced the new portfolio structure, moving to 6 platforms and 55 categories into those platforms; and dividing the portfolio into 3 different areas, growing, energizing and stabilizing, based on the growth portfolio of the brands. Maybe just take us back first to how this plan originated, why does this approach make sense, what gave you guys the comfort to put this in place and that this would generate improved trends over time.

Sure. Well, first of all, thank you for having me here. I really appreciate the opportunity. And by your opening comments, I can say that I'm glad that you were listening, too, to our Investor Day because you summarized it as well as I could have done. I think the one thing that I will say before I answer your question is simply part of the journey we're actually in as Kraft Heinz is also ways in which we can leverage our entire scale with the new agility that we can actually see because we're such a lean company that actually can move fast and very much believes in ownership and empowerment. And right now, what we are seeing in the market is actually the early progress of all the actions we have taken. The other thing I would say, I guess, is also the fact that this kind of work in this kind of circumstance just doesn't happen, with a huge amount of our company really getting behind us and really doing things that are extraordinary, particularly through this time. So I'm just very proud of the entire company and everybody who's working through this. Now specifically to your question around our portfolio strategy, what I would say is we knew we needed to make sure we have to go in to become a much more consumer-centric organization. And for that, it started with us understanding what are the consumer needs and pain points at this time and how are we actually going to be able to fulfill them better than anyone else. That is where the kind of the platform idea came into focus, the idea for us to think about -- not necessarily about a particular category, but what are those occasions in which consumers are actually going to the store and how do we lever the entire scale in order to solve those particular pain points through products that consumers are looking for. Now that had also allowed us to then take the strength of our icon brands, combined with our emerging and challenger brands, to create those solutions better than anyone else can. And I think that approach of platform really is going to help us think about the way consumers are thinking about their meal solutions. And I know that in Investor Day, and you made reference to, we talked about the burger occasion and how we are able to better service kind of how consumers are thinking about burgers. And I'll give you one more example that I didn't speak about that day, which is around breakfast. We have a huge opportunity to win in breakfast because we have a range of brands, whether it's Oscar Mayer, whether it's Philadelphia Cream Cheese, Ore-Ida, Just Crack an Egg and Maxwell House. So we are actually partnering with our retailers to create an in-store breakfast destination that leverage that scale and then saves the consumer much more time in store. It's really shifting the focus of what traditional CPG has done to talk about our brand, to really talk about our consumer solution and us partnering with retailers in a different way for us to win greater share of breakfast occasion rather than any one particular brand.

Great. That's helpful. And with your viewpoint as Head of the U.S., maybe can you talk about what some of the biggest areas of growth are in the U.S. from a category standpoint, which platforms you're focused on the most perhaps? And also, just organizationally, is this change sort of being embraced culturally at the company? Obviously, it's early but there have been some leadership changes ahead of the strategy changes you announced at Analyst Day. So I'd just be curious for your perspective on how ready the organization is for this cultural change and how it's embracing the change.

So let me -- thank you for the question, Dara. Let me answer in 2 ways. I think first, to your point around how we're thinking about those platforms. We identified 6 growth platforms that are relevant in the United States. But more importantly, we have also designated within those platforms those that are going to be much more focused on growth, energize and stabilize. Within the growth platforms, we have Taste Elevation, Easy Meals Made Better, Real Food Snacking. Those are actually places we actually already are seeing quite a bit of growth and penetration increases since we launched this new way of thinking as a company. And then we have areas like Fast Fresh Meals with a lot of our Oscar Mayer portfolio and cheese businesses that actually kind of energize, which we are renovating as we speak in order to drive future growth. Those stabilize platforms, whether it's desserts and Flavorful Hydration, are places which we feel like we need to do what is needed to maintain the focus on those platforms. But the [ distortion ] of resources, innovation, renovation will be in the growth and energize platforms. As far as how the company is thinking about this, I'll tell you and the folks watching the way I describe it to my family, which is when I walked into Kraft Heinz about -- it was now about 9 months ago, I felt that it was a company where it's almost like a bow that had been pulled back with an arrow ready to go. So it's a company that has a strong potential, very smart people, very aggressive people who are focusing on growth. We just need the clarity -- or the strategic clarity to go in the direction we wanted to -- we needed to grow. We have that now. We have now clarity of our purpose, clarity of our mission, a new set of values and a strategy underpinning all that, that allows for us to march into one area as one team. So I will tell you that the response has been excellent so far from our organization. There is a huge amount of pride. We are seeing that in engagement surveys that we have done, how the organization actually is much more engaged than in the past, much more focused in terms of positive about how they're feeling about the future of the company. And I think there is a response of, again, the fact that we have the strength of our company, the strength of how we work with ownership and empowerment and now the clarity of our strategic direction.

Great. That's helpful. And I mentioned earlier your focus on sort of fewer but bolder innovations, larger innovations. Can you just give us more detail from an innovation standpoint? What's changing from a process standpoint? Is it more sort of just understanding what the big bets are and galvanizing the organization behind it? Or are there more sort of process changes from an innovation standpoint that would pay off with these greater size of innovations over time?

So good question. I guess let me just first put innovation in the context of our turnaround. I see -- I think we're making progress in innovation. But the way I see it is, in the past, Kraft Heinz, we have shown that we can do innovation. In fact, we have done tons of innovation. The important element is making sure that innovation sticks, that it has the right insight and that it's executed flawlessly. So for us to be successful in innovation, we have to do some things first. We needed to make sure we improve the quality of our marketing, the sales execution and our supply chain. Those are the focus that we're doing right now, is basically creating the foundational base in which we can launch that innovation as we go forward. Now as you look at 2020, in fact, we've also -- already from last year to this year, we cut about half of the innovation in terms of number of projects because we do have to focus on fewer, bigger innovations. As we go into 2021, we actually have another 30% fewer projects as we go into next year. So net-net, we are basically half of the number of projects we have in 2021 that we had in 2019. It's a little early for me to talk about the specific innovations, but I'll tell you that I am confident that as we are doing right now the work to create the right fundamentals in the business, the innovation that is going to come out is one that is going to be more sticky. And it's going to be based on consumers' real insights about what they're looking for and in a collaboration with our retailers that we haven't done in the past.

Okay. And it sounds like that should start to pay off in terms of incremental revenue next year. Is that the way we should think about things? Or is it more of sort of a longer-term process that takes time to play out?

Listen, I think it's 2 pieces. I think the one part is we should be able to see the improvement in us executing better, being able to be having the kind of marketing elements that actually drive everything in -- that we do. In terms of innovation, I'll tell you that I think of it and the way the company are thinking about right now is renovation of our brands is just as important as innovation. So some of the innovation in terms -- that are sizable and platforms will take some time. We will see some of that in 2021. We will see more of those as we go into '22 and 23. What's important is that you'll see and feel quite a bit of renovation as well in our big brands to make sure we continue to build on the household penetration gains that we have made this year. So that is part of also the way you should think about what's coming out of Kraft Heinz.

Great. Okay. And then across the entire company, you announced a $2 billion gross cost savings target through 2024 at Analyst Day. How much of that stems from the U.S.? What are sort of the greatest areas of opportunity as you look at your cost structure, maybe total company, maybe U.S.? But how do you think about sort of biggest buckets and the balance between reinvesting behind the business and dropping to the bottom line?

Yes. I think it's interesting because this is probably one area that I've got a lot of questions come in at our Investor Day. So let me just put a little bit of context, which is what is the role of those savings. For us, it really is about efficiency gains and it's about us reinvesting back into the business for us to drive growth. So this is not a bottom line play. This is about us actually fueling growth as we go forward. And the total $2 billion you referred to is think about the U.S. being a proportional part of that savings, whether that may be slightly better than the proportion but think about it in terms of those terms. And those $2 billion is probably about 3% growth productivity. Now that excludes our big 4 commodity. And what we see as we go forward, what we need to deliver is about 20% of net savings to fuel our growth investments in things like working media and quality improvement. So I think those are places where we feel we have the view of how we're going to get to those. We have understanding how they're going to help us actually drive the growth that we need. And for us, we see 3 opportunities in terms of overall how we think about making sure that we have the confidence of getting to those savings. I think one, we're focused a lot more on variable costs versus fixed costs and overheads. We're using really proven methods, tools and processes. And in the Investor Day, I talked quite a bit around us adopting an integrated business planning as a way for us to think about the company, running the company in a way that allows us to drive savings too that in the past, had created a lot of complexity. And we also have now greater visibility on where and how those savings will be realized. So we are really making a big shift in order for us to go after the efficiency. And let me just give you 2 examples. I think one, in the past, we have thought about our relationship with suppliers as very tactical. We're moving to much more collaboration with our suppliers, where they can actually bring also benefits to us in terms of how we work through in terms of efficiency. And I mentioned integrated business planning. And the reason I think this is so critical for us as a company is because it's a way for us to break down all the operational silos that we had in the company, which, unfortunately, were slowing us down. So we have now started the journey, and we are very, actually, encouraged by the progress we're seeing on how the company is working together in a much different way than in the past.

Great. That's helpful. And then maybe shifting away from the Analyst Day announcements and strategic changes. Obviously, we've seen a period of much higher demand during COVID with increased at-home consumption, particularly in the U.S. Maybe, first, just could you discuss your efforts to hold on to this higher household penetration over time, the increased use of your products during COVID and strategies to hold on to that post COVID? And how sort of realistic is it that you can hold on to some of this higher penetration longer term, even assuming the pandemic is resolved and there's normalized consumer behavior in a year or 2?

Yes. So Dara, I guess what I will say is that first of all, just to get -- put a little bit of context of what we've seen so far in our results through October, which is those gains that we're seeing, I think they're more durable than episodic. We are seeing some changes in consumers' behavior that I think will have a lot much longer time and resonance than we maybe had thought originally. And if you look at the consumer platform that I spoke about at the beginning, all 6 of them have been driving increasing household penetration since February. And in fact, half of our brands are growing double-digit household penetration. So we are actually encouraged by the fact that we're seeing not only the health of penetration gains, but also when you look at new buyers, the rate of those new buyers repurchasing 2 or more of our products is actually double what we have seen in the past. So making gains in penetration, holding to those consumers, and those consumers are actually growing faster by repeating even stronger than in the past. I mentioned that we have made significant gains in our growth platforms, particularly Taste Elevations and Easy Meals Made Better, where we're actually seeing more than 1 point in terms of penetration rate. And that comes from us, I think, having the clarity of the platforms. And if I think about Taste Elevation, you talked -- we talked quite a bit about the fact that we wanted to make sure we think about it the way consumers are thinking about it. And they're thinking about what are the host foods that I need to enhance, whether that is burgers, fries, salads, and what are the ways that we can do that better. And I think the brands like Heinz has really benefited from us bringing that thinking into consumers, and we are seeing tremendous amount of gains. In Easy Meals Made Better, Mac & Cheese is a critical brand in that particular platform. And what we're telling -- what we're seeing is 2 things. One, during this situation, as consumers are spending more time at home and rediscovering some of our brands, what we're seeing is they are actually recognizing how great our products are and also what is the value that we can bring to them. Because it's just not -- it's not only great taste, but it's also something that is easy to prepare and that the whole family will really enjoy. So if I had to summarize, I would say what I take away from that is 2 things. One, our icon brands can and will resonate with these new consumers. We are seeing that already, that the new consumers that are discovering our brands are seeing great taste, quality and also value because it's something that really the whole family would love. And that is actually paying off, it seems like, the growth that we saw in Q3, our market shares trends. And for us, it gives us confidence to continue to drive investment behind these brands so that we can continue to fuel that growth as we go forward.

Okay. That's very helpful. And maybe you can compare and contrast this to the data you guys saw from the last recession and past economic cycles. Typically, I think what we've seen is the increased at-home food consumption during recessions in the past has generally dropped away pretty quickly afterwards. So I guess just what's different this time around? Is it the duration of the pandemic? Is it the psychological impact of the pandemic really causing changed behavior? Or maybe some of it is the repeat rates on new customers and the data you're seeing is sort of different than past recessions, but I'd love some context, relative to past recessions, on consumer behavior this time around.

Yes. And I think probably you and Morgan Stanley are probably better than anyone in terms of understanding the importance of looking at that no recession is ever the same. What we're seeing right now is that there is, as I mentioned, a more durable step up in terms of in-home consumption versus what we sell pre COVID. And I think unfortunately, the number of restaurant closures, it also means that consumers are really changing the way that they are kind of adopting new behavior as they think about in-home consumption versus in the past. Now if you look at the conditions of being able to have a recession as well as this kind of consumer being more comfortable eating at home, they actually tend to favor at-home consumption, so they tend to favor us. And that's even before we get into the things that we are actually doing in order for us to incentivize that behavior with our, again, new thinking of our growth platform. But if you look at what consumers are telling us when we do kind of a lot of research, what we show you is consumers actually discovering kind of the pleasure of cooking and rethinking how they think about health, safety, wellness in a way that they can control that environment a little more than in the past. So -- and in terms of how much further that will go and how much this is actually stickiness, I know that there have been some peers talking about 25%, 30% that will be sticking. I don't want to make -- I'm not in the business of guessing, and -- but I do think that it is a more durable step up in consumption that I think will help us. And I think why? The household penetrations that we're seeing gains continue to rise even -- whether it's from February until now. And I think that, combined with our improvement on marketing and improvement on sales execution, I think will make this something that will stay with us for a number of years.

Okay. That's very helpful. And then maybe a similar type of question but more focused specifically on your market share results. Early on, I think you had some supply constraints maybe and share didn't look as strong. But we've seen market share really recover in recent periods. And clearly, there's a shift to larger brands from a consumer standpoint in terms of shifting to trusted brands and from a retailer standpoint, with focusing on those higher-velocity brands and where they have supply readily available. So just as you think about that shift to larger brands, how durable is that longer term? And maybe also you can talk specifically about your retailer relationships and maybe how this changes the relationship a bit going forward and how you sort of use this period of higher market share to your advantage longer term.

Yes. First of all, I think there's no question that we need to grow market share in greater proportion of our portfolio for us to drive consistent growth. And at the same time, I've been in food for 25 years. And I could tell you I looked at market share a lot over the years. It is really [ now called ] metric. And what we focus right now is making sure that we are improving the household penetration, that we are improving the flawless execution. And then as we think about where we want to grow, it's growing in those platforms that we have designated as grow and energize. So that really is our focus. And again, I think share will come out of that. Now we are seeing stronger relative share performance in [ those platforms ]. We're seeing record share in places like ketchup as part of our Taste Elevation platforms. Whether that is -- and even in energize platform, we have brands like Philadelphia Cream Cheese and Kraft mayo and Lunchables all seeing record share gains as well but also because we are investing quite a bit in those businesses and adapting the way we're going to market with new communication that is relevant to consumers today, whether that's in Oscar Mayer, Ore-Ida. And actually, we're doing that while improving shares and actually spending less in our price promotion. Now as we go forward, what we want to do is we wanted to continue to amplify and accelerate our investment in marketing to make sure that we continue to fuel that. So we started the year probably less than 20% of our business growing share. And after Q3, we were about 40% of our business growing share. And actually, I'm very optimistic that we'll see much further improvement in terms of the overall size of the business improving share. And then to your second question around how that translates into our retailer collaboration, what I will say is 2 things. One, in a journey like this one that we've gone together as a nation, we have been able to partner and create trust and relationship with our retailers in a way that is unprecedented for us. And we have done that while, at the same time, really changing the entire sales organization at Kraft Heinz. And that has allowed us to have a clarity of how we're going to work with our customer in a different way, building trust, which more creates a different level of transparency between us and our retailers. If we -- as you mentioned at the beginning, we have some challenges in supply. Those are things we spoke to the retailers about to make sure they understand what we can and we cannot do, where we can substitute to give them more of certain things. That actual transparency allows us to be in a better position today in terms of the strength of our collaborations with our key customers. And they are partnering with us, and they're going through this journey with us as well. So they are seeing the progress in terms of us thinking differently about our consumers. And they're also seeing the better execution from our sales organization. And now they're also seeing a whole different level of transparency and trust that we haven't shown maybe in the past. And all those 3 things have been very much positive and welcomed by retailers.

Great. Okay. That's helpful. And in your answer, you touched a bit on promotion. Clearly, there's been below-average levels of promotion in this COVID environment over the last few quarters here. I know there's no exact crystal ball, but just your perspective on the promotional environment as we move into next year as you cycle over the periods of higher COVID demand. Do you think we move sort of more back to an average year? Do you think some of these lower level of promotions linger? Could it be the other way? Were they higher than an average year, just given volume challenges and sort of more of a fight for market share? How do you think about the promotional environment for next year, again, once we cycle COVID comps?

Well, first of all, if there was a crystal ball, I would love to buy it from you because there's a few things that are up in the air. Let me start with, I guess, what we're seeing so far, which is we are seeing more normal levels of promotions. And that actually showed up in back-to-school and in Labor Day. And I think that also translated into share performance as we go into Q3. So for us, it's making -- our focus right now is just making sure we get to the right customer service levels. It's a journey. And I think as we are going through this, we need to make sure that we're prudent on what are the places that we have the full opportunity to kind of supply what the consumers are looking for in a way that, again, is transparent with our customers. So what are the places that we feel like we want to continue to invest in promotion and what are the places we kind of want to make sure we get to the right levels of support. At the same time, I think that for us, we talked about having a virtuous cycle of growth. And the way I think about it, it starts with us having the right insights that drive the investments in our brand equity and product differentiation, which is why it's so important for us to drive product renovation. Revenue management initiatives are going to be part of that. So I would say that's our focus, not necessarily kind of heightening amount of promotion, but being smart with revenue management. It's using all the tools of revenue management as we go forward. I think -- I do think that is going to be a place in which we're going to be coming out of this in a stronger way as a company because it allows us then to start thinking around how do we invest more in those icon brands that maybe, in the past, we haven't invested as much, whether that is in Oscar Mayer and the things that we're seeing already, which we are investing more in marketing, less in price promotions. And our shares are actually responding in a positive way. And now at the same time, there will be seasons and some moments during the year in which we obviously need to have the right pricing. But we are also seeing another behavior as a result of all this, which I think changes a little bit the way you think about promotions, which is we're also seeing opportunity for us to extend what has been traditional kind of very seasonal brands. And I'll give you an example. Stuffing, traditionally, you see that with a huge amount of work around and consumer pull around the Thanksgiving Day period. We actually saw stuffing growth throughout the entire year; in fact, even through the summer. And that is because I think consumers are licking -- looking more for side dishes and experimenting with different things. That doesn't necessarily rely on promotion, but in fact, it relies from us having a different conversation about how the product fits into their lives and us continuing to invest behind the equity of those businesses. That is going to be our formula going forward.

Great. That's helpful. And then one of the areas that's caused some pressure in terms of share the last few years has been private label. It has generally done well in a lot of your categories in the U.S. Just as you think about your competitive position relative to private label specifically, what are sort of the key points for you to regain momentum versus private label over the next few years? And what do you think are some of the key factors that drove that private label pickup over the last few years? And how can that sort of change going forward?

I think my philosophy on this is that it's not about -- so much about fighting private label as it is how do you coexist with private label. And well, we did -- I'm encouraged by the fact that our brands, whether that is today, whether that is in past recessions, actually tend to do very well. And so I think whether you have -- as long as you have kind of iconic brand in the top #1, #2 position, even with private label, you tend to actually win in this kind of environment. And in fact, that's what we saw right now in Q3, in which our shares continued to improve. And as we go into Q4, we'll see, I think, that us being able to spend more behind our brands, reinforcing the value that we bring to consumers allows us to continue to gain share even in a moment like this, in which I think what tends to happen is more that some of the smaller brands tend to suffer in terms of share. And I'll give you an example. In cream cheese, for example, we -- it's a category that's essentially Philadelphia and private label. And what we're doing is making sure consumers understand the value that we bring to them and bringing in -- breaking through in an innovative way. We just launched a Philly Series 5, which is basically a campaign that essentially is taking the idea of gaming that happens every holiday with the new whatever console you want to buy for your kids or yourself. So we used that same idea and created kits for consumers that had kind of our Philadelphia Cream Cheese, and it had a way for them to actually make cream cheese -- cheesecakes in a very simple way. That work is actually driving huge amount of household penetration, repeat and growth. In fact, I think Philadelphia numbers are -- we are -- our household penetration is up 150 basis points and almost 45% over the latest 52 weeks. And the repeat rate is also higher, higher by about 5.5 points so far. So that I think is the way we think about it, which is how do we coexist, how we focus on the value that we bring. At the same time, we drive the investment behind those brands to make sure consumers understand how -- why we're different and why we're worth it in that particular time.

Right. Okay. And on the marketing front, you talked about stepping up the marketing to consumers over the next few years under your plans unveiled at Analyst Day. A, maybe from a corporate perspective, can you give us some color on which geography should see the most investment? And then B, as you look at the U.S., which are the categories or brands you're most excited about sort of investing incrementally behind from here?

Well, certainly, our investment is going to be proportionately, obviously, to our size. And let me speak specifically to the U.S. In Q3, we spent -- we added about 40% more than we did a year ago. And hopefully, you saw too a huge amount of new creative campaigns across the portfolio. So it is both spending more, but it's also actually improving the quality of how we spend. And when you go into Q4, you're actually going to see that our working media are going to be up year-over-year. The number is 70% higher than a year ago in Q4. So that is a trend that we want to continue to focus on. And in fact, when you look at 2021, roughly you'll see about $100 million more spending in marketing versus what we had in 2019. And it's both us being able to actually drive with better effectiveness but also increasing the efficiency of that. So we are actually going to see that, that $100 million also comes up with about 30% increase in the impressions that we have per dollar spent. So spending more, improving the quality and being smarter about how we are actually going to -- what we're going to get out of that particular investment. And for me, I've always believed that -- growing up in marketing, that one important measure is to think about the ROI of our marketing. So we need to make sure we continue to drive the return on that investment, and that comes out with us focusing on the quality. We have done that already by improving our insights, bringing new partners into Kraft Heinz that actually can see the vision that we have and better understand kind of how consumers are today and better put our brands into culture and breaking through in the advertising. And I'll give you an example. I think the work we're doing right now on MiO and on We Fix Water campaign is an example of that. It does -- thinking of it as in a moment in which people are looking for water and simple ways to just looking at tap water, which a brand that for a long time actually had been flat, is now accelerating. In fact, in Q3, it's up 25% as we have now come up with a clarity of an insight of us fixing water. And we see that -- in spite of the fact that we have 2/3 of that category, we see opportunity for us to continue to drive growth. So when you look at it overall in terms of -- if you think about our marketing, it is -- the 3 things that I will leave you, whether it's -- we're going to continue to increase the marketing dollars and making sure that it is going towards working media and not nonworking, that we're going to be [ distorting ] our marketing to the place where we see the biggest opportunity. And as I said earlier, it's the growth and energize platform. And we are making sure we have the highest amount of return on investment by making sure we have the right content with the right insights to drive the penetration on the households and continue to drive that repeat with consumers that are coming new to our franchise.

Just -- I'll build on that a little bit, to your question in terms of what countries and whatnot and the geographic distribution. As Carlos said, it is going to be quite proportional across the Kraft Heinz world. And -- but the spend is a bit different in the sense that for instance, in the U.S., as Carlos described, it's much more around repositioning and renovating the brands and driving household penetration. In emerging markets, it's much more about supporting distribution expansion. So there's a need in both places. So it's not necessarily going to be all in one place, developed versus emerging or anything like that.

Great. That's helpful. And then on the e-commerce side, obviously, a big pickup in this COVID environment. Can you just review for us your market share online versus brick and mortar, your strategic efforts in that channel? And how much of this is do you think sort of sticky post COVID? Or might there be a temporary step back in e-commerce in a post-COVID environment?

So this is where you're going to get the crystal ball out. No, I do think that, first of all, as a company, we need to be wherever and whenever consumers shop. We are seeing tremendous amount of e-commerce penetration. I think that it's not -- I think it's fair to say that we probably have advanced 3 or 4 years in terms of the e-commerce penetration across all demographics. And I think that just suggests that that's a trend that's going to continue, and I don't think we're going back. We are -- for us, we see about triple-digit growth in Q3 in our e-commerce performance. And the good news is that we have made some investments early on that really have actually driven us to have even stronger market shares in e-commerce than we do in brick-and-mortar. So that -- we feel confident about our plays in e-commerce. I think the actions that we're taking are actually paying off. And we are going to make sure that we continue to work with our customers, both in our pure-play e-commerce customer as well as kind of the click and collect. And our focus has been in 2 things. One is making sure we have the right product renovation that is suited for that particular e-commerce shopper. So think about what -- the packaging, the need, the size and so forth. And then secondly is that we continue to partner with our customers on testing new models of innovation on how to better service. A number of retailers are actually trying different ways in which to speed up that process, and I'm happy to say that we're partnering with them on testing some of those areas for us to be even faster to get to our consumers. So we are bringing those insights that we have uncovered through our work on the growth platforms. We are pairing that with our know-how and investments we have made in e-commerce. And now we're actually being able to better work with our customers to make sure we bring it all together in a way that services consumer better. That is leading to high gains in penetration and improving market share, specifically in e-commerce. And let me give you just one example on how I think about that being some advantage for us. If you look right now in the way we actually -- in our fulfillment centers, over the last 9 months, we've been able to actually cut the lead time by almost 7 to 10 days and reducing out-of-stocks at the same time. And that has been an effort for us to simplify the way we actually get to the fulfillment centers, and it actually also helped us reduce our cost. So to the extent that we continue to partner with our customers, whether that is going directly to their stores, some of their -- using dark stores, whether that is partnering with our large pure-play e-commerce places for us to better understand their own applications and actually how we make sure that we have a consistent view within the applications, that's actually going to continue to pay off for us. But already, we are seeing progress on how we are fulfilling through those channels, the shares we're gaining and the penetrations that we also are continuing to grow.

Okay. Great. And then maybe we can end -- I think we have time for one more question. So just on the commodity cost front, generally, it's been pretty benign in more recent periods. There are some commodities that look like they're spiking here. Freight costs in the U.S. is one in particular. So just maybe give us your thoughts around the commodity outlook as we look out over the next year or 2, and theoretically, there's a post-COVID recovery, and what you guys are thinking on that front.

Look, I think that -- if I think about inflation, I mean, there is a number of indicators that will say that inflation is coming. And it's not just because of the COVID-19, but it's also just there's places where we have seen some constraints in the overall supply chain whether that is because of weather or other factors. So that's happening. I don't think there's a denying of the trends that we see in that and the indicators that show that. But at Kraft Heinz, we have been pretty agile and fast to adapt to those. And as we think about 2021 gross savings plans, we actually feel that because we have the right savings plans in place and the right efficiency efforts in place, we're going to be able to manage that inflation within our way of us working and what we have committed to publicly. In Investor Day, we talked about having a strong pipeline of ideas for us to go after that $2 billion of efficiency. So that gives us comfort that we can -- actually are able to continue to adapt and be agile to make sure we can address that inflation that is coming and whether that is in the way procurement is looking to work with our suppliers to find those efficiencies and collaborate differently, whether that is us thinking about our supply chain in a more integrated way and focus on continuous improvements that we have -- in the past, maybe haven't focused as much as but now we have clarity of how we're going to do that. And it's also making sure that we have the -- both in manufacturing and distribution, put in the right processes in order to deliver those cost savings. So I think that while it's right that I think inflation may be coming as we go forward, I also feel very confident on the fact that we'll be able to manage those within the plans that we already had expected to deliver as we go into 2021.

Okay. Great. Well, with that, gentlemen, we're out of time. So this was a very informative discussion. So thanks a lot for joining us, Carlos and Chris, and we'll end things there.

My pleasure. And please stay safe and healthy, everyone.

Thank you.