Exclusive: Arnott’s CEO opens up on a year of challenges

It’s been a colossal 12 months for Australian biscuit brand Arnott’s. Following the most talked about deal in FMCG last year, the brand began its next chapter under new owners, global private-equity firm KKR.Former Kraft Heinz executive George Zoghbi returned to Australia from the US to take up the top job at Arnott’s in March, just as the Covid-19 outbreak hit. Since then, he has seen the business through Covid-19 stockpiling, reported a surge in sales in FY20 and launched a new corporate identity for the brand – all that in just six months on the job.Zoghbi spoke to Inside FMCG about a career change in a pandemic, managing changing consumer behaviour and goals for the future. Inside FMCG: You started this role right at the onset of the Covid-19 outbreak in Australia. Between the pressures of leading Arnott’s through this new chapter as an independent company and then dealing with months of intense panic buying, how have those first six months been? George Zoghbi: They weren’t the six months I had planned in February. I planned a nice homecoming back to Australia to work with an iconic Australian brand, living in Sydney, and so forth. I arrived here and the world went into lockdown. I didn’t get enough time to meet everyone on the team, or learn a lot about the business. So for me, I had to go into crisis mode. And very quickly, I felt that I had three objectives to achieve: 1) keeping people safe; 2) keeping our business running, and 3) reemerging strong. I broke my leadership team into two, one focusing on keeping our people safe, the other one focusing on keeping the business going, things like the supply chain running, sourcing and the two teams come to me every day, and we’re making daily decisions. That certainly was not the business plan before coming in here, but looking back, keeping our people safe was the prerequisite actually to keeping the business going and reemerging stronger.What’s it like as a leader forging connections with a new team when suddenly the whole way the business operates is turned on its head? When needs are changing, you have to figure out different ways of doing it. We had to use technology. I had to rely a lot more on that, as opposed to getting the feel, because as you know as a leader you get to feel the body language, the chemistry between you and particularly your leadership team.Then for us as NSW started to open up again, we split the leadership team into different days coming to the office so I had the chance to start building these personal relationships. But it wasn’t easy. There was no playbook on how to do that. But, like everybody, we had to adjust and I did.Can you tell me a bit about how the pandemic impacted the business in terms of manufacturing and supply chain?For us, when the pandemic began we didn’t know what to expect. We first were looking at “What is the negative impact?” Then all the panic buying started and we were looking at different challenges, keeping people safe to keep the business running and keeping the supply chain intact. I was very fortunate because at Arnott’s we have a very experienced long tenured workforce, we have a very well invested supply chain, and almost the end-to end of the supply chain is very well localised, and our three largest geographies, Australia, Indonesia and Malaysia, we have local manufacturing in all three of them. In Australia, for example, we buy all our flour from regional Australia. We buy our dairy from Australia and New Zealand, we buy our sugar from Queensland. So, all our manufacturing in Australia, supplying the Australian markets are based here in Australia; in Queensland, in New South Wales, Victoria and South Australia, and our customers are based here so we were very fortunate that we had the ability to respond quickly and keep the supply chain intact, with a very experienced workforce and well invested supply chain.Arnott’s has just reported its strongest financial performance in recent years, helped by more people cooking and eating at home; how does Arnott’s plan to harness that change in shopping behaviour to ensure a long-term benefit?Well, we don’t know for sure what the impact is going to be long term. There are a lot of variables to make a prediction a probability, or more accurate. Having said that, we have to plan a business. We can’t just plan it on a daily basis so we have to have a view. What we know is this: during the pandemic there was a significant increase in in-home consumption. This took two different shapes: people consuming more at home because they’re staying more at home, but we also saw increases in cooking and baking habits. We released some recipes for baking, some of our great products, to just keep engaging with consumers. We know that consumers are no longer spending most of their time at work or in an office environment, and there is a probability that this may not go back to the way it was, there will be more flexibility around work arrangements, which means there will be more time spent at home whether working or for family purposes. We also saw an uptick of support for locally made products, and that is a good thing for us. But also we saw some economic impact, and that economic impact will dictate what consumers will consume and where they consume it. If you look at all these factors, put together they point to a situation where we may not see the growth rates that we saw during the pandemic, but we also may not go back to the consumption levels pre pandemic – it will be somewhere in between. That’s as good as we can guess.Are there any other global trends you’re keen to tap into? The major opportunities and challenges are in how consumers make up their mind about brands and companies based on the company’s practices and where consumers are going to shop. Are they going to shop in bricks and mortars, or are they going to shop online? We saw the significant increase in penetration of the online shopping channel. We don’t have a plan to go direct to consumers now, because it’s not an efficient model for a low-cost product. We have different means to build a direct relationship with consumers, other than selling to them directly.Has the export side of the business faced challenges during this time? Our export business is running very well. Of course, during the pandemic, we really prioritised the local supply to ensure that customers here and our consumers are getting the product, but we saw a resurgence in export straight after that. We had a very good month last month in export. We have businesses overseas, not just export businesses. We produce and run businesses outside Australia and New Zealand as well. We have a biscuit manufacturing site in Indonesia supplying the Indonesian market under three different brands, we have a meals business in Malaysia supplying the Malaysian market and Singapore market. We have a meals business locally in Hong Kong.So, we have a variety hybrid model of export and locally made. Obviously in Australia we don’t import much, we make everything here for our own market.Boris Johnson seemed keen to get some Arnott’s products over to the UK now that a free trade deal is in the works. Is that something that’s on your radar?When that happened, when the Prime Minister of Britain highlighted our brand and the importance of our brands we felt so good because we love our brands. Everyone talks about iconic brands, but these are the moments that you know that your brands are iconic, when something like this happens. For us sure, we all like to see free trade and free trade is good for consumers, and good for business.Can you explain a bit about the new corporate identity and the thinking around that?Well for us, remember our name was Campbell Arnott’s in Australia, part of Campbell’s Asia Pacific, part of Campbell’s International, part of Campbell’s Soup worldwide. So when we became a standalone business we could no longer use that identity so we had to think, what do we call ourselves? For us it was a very, very simple decision, to go back to our roots. For us, it all started more than 150 years ago in Newcastle, NSW with William Arnott and we decided to call ourselves the Arnott’s Group. The group has a number of businesses in Australia and New Zealand, Indonesia, Malaysia, Singapore, Hong Kong, has a number of brands whether we own or we license from Campbells, like Arnott’s, Campbell, Prego, Kimball, V8 there are a number of brands that we operate. So the change for us was not more than a name change but going back to our heritage. None of the consumer brands will be changing, nor have we plans to change any of the consumer brands. For us, the excitement is now we are a standalone business, with its own values. We are making sure that we are maintaining the good thing about us and our heritage and painting a great picture for the future.A big part of your strategy is minimising the company’s environmental impact. How do you intend to do that?When we announced our corporate identity internally, we had a set of values that we said are non-negotiable for our people. Sustainability was one of the values and the strategic platform as well. It’s no longer just values, it’s no longer a thing that you do for reporting. For us, sustainability has three platforms. The first one is a healthy planet, and one of the three areas we look at is shrinking our environmental footprint. We’ve been doing a lot of work, like many other companies, for years. But we’ve taken it a little bit further, to increase the reuse or recycle, so it’s not a one-and-done economy. We truly support that. We’re not there yet but that’s the ambition. Then there’s sustainable sourcing. Many of our ingredients cost us many more millions of dollars because we insist on sustainable sourcing.The second platform is about better communities. We have the Arnott’s Foundation, where we do a lot of work with communities and charitable organisations. So we already have a good start, but we got to be more ambitious and build on that. And the third one is the commitment to human rights, and that’s about equality in the workplace; to be blind to gender, race, colour, ethnicity, faith, anything. The only thing that is going to define you is your character and your performance. Number two is the freedom of opinion. I explained that internally you cannot make up your own policy, but you need to have the freedom to have a view without the consequences. Three is fair pay. And for us, all of them combined is what we call our sustainability platform, because without any one of them you are really on a shaky footing. In some areas we have done a lot of work, in others we still have some work to do, but we have good foundations we can build on.Can you share some of your long-term goals as CEO of Arnott’s?I just want this pandemic to end! But from a business point of view, we just need to make sure that we are putting the right initiatives to translate our strategic initiatives into reality. So we made a number of key investment areas, particularly in four areas. The first one is around people and capabilities. In normal times, people are panicking about how they can find work. Can you imagine what they’re feeling like now? We announced a very formal graduate program from the end of this year for this year’s grads. We will take about 25 or so people, they get full pay and full training for an entire year. Then the successful one will get placement, and we want to continue that program.We also made an announcement in the area of digitising the organisation, building data analytics and building sustainability so this is what I call the first capabilities investment. We also announced that over the next four or five years this strategic cycle we will be investing about $250–300 million in tangible assets. So if you want to start making the products of the future that consumers want to buy, you need new technologies, new assets. Therefore we need to start building this technology now. We increased our marketing investment year on year from FY20 to FY21, and we also accelerated our new product development pipeline. So these are the four things that we’re working on to set ourselves up for success in the future.What’s the best piece of business advice you’ve ever received?The best piece of advice I received is “Know when you are a teacher and when you are a student”. It doesn’t matter what your level in business is, just remember: not all the time you can be a teacher, and not all the time you can be a student.Who do you admire in business or a leadership position?I don’t have a leader in mind, but I have leadership moments ingrained in my mind all the time about acts of leadership, like the famous walk out of prison by Nelson Mandela. So for me there isn’t a person I purely follow, but I try to pick great leadership moments from people in all walks of life.What lessons have you learned throughout your career that have shaped your leadership style today?One thing leaders always get wrong is what they think of themselves versus what people think of them. So I always say I’m the wrong person to ask about my leadership style, you’re better off asking the people who work for me! I like to create a vision with a guardrail for people to perform. I like to stretch people because I have a belief that people can do a lot more than what they think they can. I always use a look-back example and I did that when we announced our results. We went through what we did as a team, and I’m talking about the broader team, the entire 3000 to 4000 people. People were surprised at how much we did in five months.That shows that people have the capability to do much more than what they think. What I love as a leader is seeing someone doing much more than she or he thought they could do.