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Mondelez Reveals Cost-Reduction Progress

Published on Sep 12 2015 11:52 AM in A-Brands tagged: Production / Mondelez / Cost-Cutting

Mondelez Reveals Cost-Reduction Progress

Mondelez International has revealed details of its aggressive cost-reduction programs and outlined how the company is increasing investments to accelerate revenue growth.

"As the world's leading snacking company, we're proud to be one of few industry players with the assets, leadership and strategy to deliver strong top- and bottom-line growth over the long term. This is our point of difference," said Brian Gladden, executive vice president and CFO, speaking at the Barclays Global Consumer Staple conference this week.

"Our advantaged platform provides us the potential to be among the industry's fastest growing companies, with substantial margin upside and the highest EPS growth while also returning significant cash to our shareholders."

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 per cent 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 per cent.

As a result, the company expects to reduce overheads as a percent of revenue by at least 250 basis points between 2013 and 2016.

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 per cent 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 per cent 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.

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