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Kraft Heinz CEO: Inflation and supply shortages are here to stay for a while

<i>Zbigniew Bzdak/Chicago Tribune/Tribune News Service/Getty Images</i><br/>Packages of Easy Mac Macaroni & Cheese Cups move along the production line on March 27
TNS via Getty Images
Zbigniew Bzdak/Chicago Tribune/Tribune News Service/Getty Images
Packages of Easy Mac Macaroni & Cheese Cups move along the production line on March 27

By Christine Romans, CNN

Kraft Heinz CEO Miguel Patricio says higher inflation and supply issues are coursing through the food industry, forcing companies to adopt new strategies for everything from production to promotion to packaging.

And he doesn’t see an end to either issue anytime soon.

“We’ve already increased the prices that we were expecting this year, but I’m predicting that next year, inflation will continue, and as a consequence [we] will have other rounds of price increases,” Patricio said in an interview with CNN Business.

For its second quarter ended June 25, Kraft Heinz raised its prices overall by 12.4 percentage points compared to the year-earlier period. The company is scheduled to report third-quarter earnings on Wednesday.

Beyond the double-barrel challenges of shortages of raw materials and inflation, issues like the continuing pandemic, the war in Ukraine and climate change are adding to the uncertainty.

“It has been very hard,” Patricio said. “This has been hard for the entire industry.”

Patricio said Kraft Heinz has tried “to minimize inflation on everything we do” because “it would be very easy just to pass the price to consumers, but that has consequences.”

So to keep costs low for the end consumer, Patricio said his company has had to be “much more efficient in our factories” and careful about procurement costs.

Kraft Heinz has also leaned into different packaging and pricing options for consumers, including bulk value packs of Kraft Macaroni and Cheese and wider variety of bottle sizes for products like Heinz ketchup for shoppers who want smaller, lower-priced choices.

“It’s a constant fight to try to minimize price increases,” Patricio said.

Part of that fight is Patricio’s “obsessive” tracking of potential supply chain issues. Almost three years of challenges have trained the company to predict where a snag will occur and respond quickly.

“Every day we have a new problem. It’s the new normal,” he said. “At the beginning we thought it was a crisis — now we know it’s a new normal and we have to adapt to that.” He later added: “If you predict that that’s gonna be a problem, you can go faster. If you adapt faster, you can win. And this is what we’re trying to do.”

Those supply issues are broader than the Covid era, however. A crushing three-year drought has led to a shortage of tomatoes, for example.

“Every day there’s a shortage of something,” Patricio said. “It doesn’t help [that] with the global warming that the crops have not been good. So there’s lack of tomatoes in the world, there’s lack of potatoes in the world, there’s lack of beans in the world.”

Despite that tomato shortage, Patricio vows Heinz ketchup will stay on the shelves as usual.

“We predicted that we would have a problem with the crop of tomatoes,” he said, “so we bought them in advance.”

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