Mondelez Reveals Cost-Cutting Progress
11 Sept 2015 --- At the Barclays Global Consumer Staples conference today, Mondelez International updated investors on aggressive cost-reduction programs and outlined how the company is increasing investments to accelerate revenue growth.
Gladden provided an update on the company's journey to reinvent its global supply chain, which is now delivering world-class productivity of more than 3 percent of cost of goods sold.
In addition, Gladden highlighted the company's efforts to reconfigure its manufacturing network. Since 2012, Mondelez International has closed, sold or streamlined 78 production facilities, and completed or announced the construction of 14 greenfield or brownfield sites, with 40 new state-of-the-art manufacturing lines expected to be on-stream by year-end 2015.
As part of its cost-management program, the company has implemented Zero-Based Budgeting tools to reset spending, identify specific cost reductions and capture sustainable savings. "Eighteen months into our ZBB efforts, we're delivering benefits faster than expected in all indirect cost packages," Gladden said.
The company is also building a global shared services capability to simplify and standardize over 150 back-office processes over the next two to three years. For each of these processes, on average, the company expects to deliver cost savings of approximately 50 percent.
As a result, the company expects to reduce overheads as a percent of revenue by at least 250 basis points between 2013 and 2016.
Building on Gladden's remarks, Mark Clouse, Executive Vice President and Chief Growth Officer, outlined the company's growth plan, which centers on two strategies: accelerating base business growth and filling in key consumer spaces. Cost savings will fuel this plan, and it will be governed by the same operational discipline that the company has applied to its cost agenda.
In terms of accelerating base business growth, the company is reinvesting cost savings into additional advertising and consumer support, while also shifting spending to digital and social channels. In addition, the company will expand packaging formats to increase accessibility to new households and new channels, as well as enter white spaces with proven innovation platforms.
In parallel, the company is addressing three global consumer trends that are creating additional growth opportunities: an increasing emphasis on well-being, time compression and shifts in income distribution.
"We intend to become the global leader in well-being snacks, with 50 percent of our portfolio in the well-being space by 2020, up from more than a third of total revenue today," said Clouse. "Our goal is to simplify and enhance the ingredient and nutritional profile of our base business while also focusing on breakthrough innovation to address consumers' well-being needs. Over the next five years, we expect to focus 70 percent of our new product development efforts on well-being platforms."
E-commerce is another key focus area, addressing the intersection between time compression and technology in snacks. Through a dedicated team, the company is optimizing existing e-commerce platforms by converting every consumer connection into a purchase opportunity as well as building the next-generation portfolio to take advantage of those incremental growth opportunities.
"We estimate that e-commerce could become one of the fastest-growing platforms within our company, increasing from less than $100 million in revenue today to as much as $1 billion by 2020," said Clouse.
Finally, the company is broadening its portfolio to target aspirant consumers on one end of the spectrum and affluent consumers on the other to respond to shifts in income distribution. By doing so, the company is maximizing its category reach and driving incremental consumers to its brands and categories.
During the presentation, the company also reaffirmed its 2015 growth outlook, targeting Organic Net Revenue growth of at least 3 percent, including a 100 basis points headwind from strategic decisions to improve the revenue mix. The company continues to target pro forma Adjusted Operating Income margin of approximately 14 percent in 2015, excluding a negative 20-30 basis point impact from stranded costs, and Adjusted OI margin of 15-16 percent in 2016.
The company also reaffirmed its long-term targets of Organic Net Revenue growth at or above category growth rates, high-single digit Adjusted Operating Income growth at constant currency and double-digit Adjusted EPS growth at constant currency.
