With more than 3,500 employees—or, as they are known in the company, team members—Ruiz Foods is a family-owned company and the largest manufacturer of frozen Mexican food in the United States. When Dan Antonelli became CEO of Ruiz Foods in February 2021, the company was facing headwinds from multiple directions. The COVID-19 pandemic disrupted virtually every aspect of the business, with effects ranging from widespread labor shortages and increasing supply costs to rapid shifts in consumer behavior.
At this critical juncture, the company decided to embark on a wide-ranging transformation program that would unlock new sources of value, mobilize broad swaths of team members, and develop the muscles for change. Rather than a one-time project, transformation has become the organizing principle for running the business. Antonelli believes that transformation is the core mechanism that has equipped the organization to navigate the volatility of the ongoing pandemic and that it will enable Ruiz Foods to thrive in the next normal.
McKinsey partner AD Bhatia recently sat down with Antonelli to discuss the company’s transformation journey and what it takes to change in turbulent times. An edited excerpt of their conversation follows.
The case for change
AD Bhatia: What were the challenges facing Ruiz Foods when you stepped into the CEO role in early 2021? And why did you decide to go all in on an enterprise-wide transformation?
Dan Antonelli: Of course, the COVID-19 pandemic had a dramatic effect on our business. Similar to many other companies, our biggest challenge was the inability to fully staff our plants—which meant that we couldn’t meet the pandemic-driven increase in customer demand for some time. We had to allocate product until we were able to bring in additional labor. We also experienced a significant increase in input costs—from labor rates to raw-material costs, packaging supply costs, and freight rates. Internally, we needed to build our capabilities to quickly adapt to this new external environment.
In reality, the pandemic only increased the urgency to make the changes that we already knew were necessary. After a strategic assessment was conducted earlier in the year, the board agreed to transform the business to focus more on profitable margin improvement. After several years of absorbing costs, margins had eroded to the point where the company would be unable to invest in its brands and long-term growth. We realized that to become a top-tier CPG [consumer-packaged-goods] food company, we needed to improve our bottom-line profitability—not only on a dollar basis but as a return on sales—in order to ensure sustainable growth.
The scale and the scope of the challenges we were facing, both externally and internally, called for an equally rigorous transformation program. We were committed to a total business change, not just a one-year cost reduction exercise. It wouldn’t be enough to focus on one area of the business at a time. It was necessary to identify every opportunity, from sales and marketing all the way down to operational improvements, even in the administrative areas.
We went on this transformation journey because it was right for the business in the long term. The real driver was: How do we fundamentally change the business over the next five years? And what resources and training do we need to make it happen?
AD Bhatia: You set an extremely aspirational target for the transformation. What was your thought process behind that?
Dan Antonelli: The strategic assessment identified an opportunity to improve our profitability. I chose to take that further and set a stretch goal of 150 percent of the initial opportunity range. That was an aspirational goal that I’m not sure any of us thought we could actually achieve. But if you don’t shoot high, then you won’t even realize midlevel savings. In my experience, when you set a very aggressive goal, it forces you out of your comfort zone. You can’t do things the way you’ve always done them and achieve those kinds of results.
Not only were we able to achieve that stretch target, but we built a bankable plan of well-validated initiatives that actually exceeded the stretch goal and that will enable us to meet growing demand for our products and invest in future growth. I can guarantee you the executive team took full ownership of it. It’s quite an achievement.
In my experience, when you set a very aggressive goal, it forces you out of your comfort zone. You can’t do things the way you’ve always done them and achieve those kinds of results.
AD Bhatia: It is often challenging to build alignment among the executive team to drive this magnitude of change. What did you do to get leaders on board with transformation?
Dan Antonelli: I have to admit there was some resistance in the early stages. The assessment identified some pretty aggressive savings targets, and they were concerned about how they would deliver the numbers.
One of the first things I did was explain the rationale for why the board was interested in growing the business profitably: if we wanted to be a top-tier CPG company, at least among our mid-cap peers, we needed to focus on bottom-line improvement while still driving profitable growth. The executive team saw my transition from the board to CEO as a strong signal that they really needed to embrace this level of change. Once I walked in the door, they were absolutely ready. They were willing to leap forward and invest with me in the change that we had to make in the company.
AD Bhatia: Beyond the executive team, how did you mobilize your team members from the ground up to lead and participate in the transformation?
Dan Antonelli: We took a bottom-up approach to transformation. If it’s a top-down, executive-driven change—say, ten people trying to get to a big number—you might be able to force things through and get some of that. But you aren’t really transforming the business. You’re not changing the way people think about how to participate in running the business. It’s absolutely critical to go as far down in the organization as possible to get engagement. And I think we’ve gone a long way toward engaging as many people as possible.
Another early step we took was to align our incentive compensation programs to the transformation objectives and to reward achievement of transformation initiatives. This alignment had an immediate, motivating impact on the team.
Everyone who has even touched our transformation effort has been asking themselves, “How can I contribute to bottom-line improvement for the company? How can I increase the value of the company through new ideas?” We’ve tried to be as welcoming as possible to all team members who bring forward their thoughts and their ideas on how to make a significant change, or even a small change, that would lead to improvement in the value of the company.
Because Ruiz is a family-owned company, the team members feel an even stronger sense of connection. They understand the values, they have stories that they share, and they see the Ruiz family on a regular basis. So many of them appreciate the opportunity to contribute to the transformation effort because they want to make this company successful—for themselves and for the benefit of the family. And they also want to make sure that the transformation process does not compromise the product quality and customer relationships built up over 55 years.
Everyone who has even touched our transformation effort has been asking themselves, ‘How can I contribute to bottom-line improvement for the company? How can I increase the value of the company through new ideas?’
AD Bhatia: At the start of the transformation, you developed a comprehensive, two-year road map of initiatives that span the entire business—in just eight weeks. Why did you decide to do this all at once, rather than follow a more methodical and sequenced approach?
Dan Antonelli: A transformation requires you to invest in an aggressive effort up front to learn the process and then to be able to make real change. As you mentioned, we went through an eight-week “boot camp”—an accelerated sprint to identify initiatives for how we could improve all areas of the business going forward. We covered the full gamut—from top-line sales growth to expense improvement and cost optimization throughout the company.
Why would we decide to build a two- to three-year road map in such a short period of time? The temptation is to take a more gradual approach. You know, what’s the rush? Why not just chunk it out into separate projects? Well, if you just chunk it out, it could take two, three, four years before you begin to see much change. It’s going to take you many years to get to the impact.
AD Bhatia: How were you able to accelerate the pace of the business and sustain that momentum over time?
Dan Antonelli: This magnitude of change would only happen if we did it fast. We had an aggressive weekly cadence. We set up a transformation office with two co–chief transformation officers (CTOs) who set the pace of the transformation. Without those weekly meetings, we would not have been able to get through the various stages and follow through with all of our initiatives.
In the beginning, it was tough because people are not used to moving that fast. Our prior cadence was not that fast. We did not have a bias for action. Decision making could be overly cautious at times, resulting in inaction. We now have a disciplined, risk-managed decision-making process that emphasizes prompt action based on best available data.
What I like about the transformation effort that we’ve put in place is that there is a consistent methodology around how to identify an initiative, how to value that initiative, how to validate it, and how to implement it. It’s like exercising a muscle. We didn’t know how to do it at first. But we’re becoming more fit, and little by little, we’ll get pretty good at it. And we hope to transition this into a successful second phase of our transformation effort next year.
This magnitude of change would only happen if we did it fast. We had an aggressive weekly cadence . . . It’s like exercising a muscle. We didn’t know how to do it at first. But we’re becoming more fit, and little by little, we’ll get pretty good at it.
AD Bhatia: Can you speak more about the CTO’s role in driving the transformation?
Dan Antonelli: The CTO is probably the most important role in the transformation. It is the responsibility of the CTO to hold all of the workstream sponsors accountable for implementing the initiatives. During the weekly meetings, each of those workstream sponsors has to discuss their progress with the CTOs and explain how they are going to meet their milestones.
At first, we had some bumps in the road because some people weren’t as prepared as they needed to be. Within two weeks, our co-CTOs were able to get those sponsors to be fully accountable and to explain what was happening and why. We were a bit behind in the first couple weeks, but we rapidly caught up after that. If you don’t have a CTO, you’re not going to be able to keep up the pace.
Another thing I learned is that the CTO position has to be filled by a person with authority. It really can’t be anyone less senior than the senior executive staff. In the beginning, I had many alternatives in mind, but now I’m absolutely convinced that it had to be somebody on my staff to lead the transformation. Because the rest of the organization will respect and view that person as my representative, and they will listen.
Driving the business forward
AD Bhatia: What advice would you give other CEOs who are considering a transformation program, especially when there are so many priorities that demand their attention?
Dan Antonelli: I understand the concern about implementing a transformation program. It is intensive. It requires a lot of commitment and a lot of effort. And it can seem like just one more thing on top of all the other things that you have to get done as a CEO.
What I would say is, after having gone through this, the transformation effort is an integrating mechanism. It is actually the core mechanism to be able to drive the business moving forward. Virtually everything we do now is tied to transformation and identifying initiatives to improve. If you take a sales and marketing perspective, every new product idea, every new promotion, every new investment behind a brand is an initiative—the purpose of which is to drive growth and profit improvement. It’s not a separate exercise; it's part of the transformation program.
AD Bhatia: What has been the most exciting aspect of the transformation for you?
Dan Antonelli: It’s interesting to think about the transformation in the context of the COVID-19 environment that we’ve all been experiencing. What we learned during the course of the transformation has enabled us to navigate the enormous number of challenges that the pandemic has surfaced for us and every other company. Because of the transformation, we are better equipped to identify problems, come up with solutions to various issues, and put together a road map to create value for the business.
What I’m excited about with the transformation is that this isn’t just a one-time effort. It’s not a project. We’ve tried to erase the word “project” from our description of transformation. This is a way of doing business. We are integrating this whole approach into every significant process we have in the company—from our annual budget process to our sales-and-operations, planning, forecast, and commodity-risk-management programs. It will be built into the regular cadence of how we run the business. We are making every effort to institutionalize this change so that it will last for many years to come.