Investing in biggest brands top priority at Heinz

by Eric Schroeder
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BOSTON — In May, executives with H.J. Heinz Co. announced plans to invest an incremental $120 million to drive growth, including an increase in marketing of approximately $70 million to build brands and invest in ideas and innovation. Updating that initiative in a Sept. 5 presentation at the Barclays Back to School Conference in Boston, Heinz said its priorities are squarely on investing in big brands in core categories, driving consumer value and fully supporting the best ideas, and collaborating across the globe to quickly adapt innovations and commercial successes.

The “crown jewel” category, representing nearly half of Heinz’ sales, is ketchup and sauces, said Art Winkleblack, executive vice-president and chief financial officer.

“This growing $110 billion category is propelled by increasing interest in varied flavors, greater uses in ingredients, global growth in the food service channel and the exploding middle class in emerging markets,” Mr. Winkleblack said.

He said Heinz constantly is innovating on ketchup, bringing out new flavor profiles and new packaging formats. Specifically, flexible packaging, which Mr. Winkleblack referred to as “the future” based on its convenience and affordability, has emerged as one of Heinz’ key global priorities.

“You can see that we have effectively used this package across our emerging markets, and we brought it to the U.S. late last fiscal year to provide consumers with a smaller, lower price point package that is doing well in alternate and value channels and with smaller households,” he said. “We are also expanding ketchup sales in developed markets, with ketchup variants for grown-up tastes, including ketchup with balsamic vinegar, and its newest sibling, Indian spices and real jalapeno. These flavors make ketchup relevant for more host foods in Europe.”

In fiscal 2011 Heinz acquired Caro, a producer of sauces and vegetable products in Brazil. Prior to the purchase Heinz exported only a small amount of tabletop ketchup into Brazil, primarily for use at high-end restaurants. Now the company’s investment plans call for a more significant presence in Brazil, Mr. Winkleblack said.

“We’ve now launched Heinz branded tomato paste and are distributing imported Heinz ketchup through the Caro sales and distribution network,” he said. “And we are excited about our plans to produce Heinz ketchup in our Caro manufacturing facility later this year, which will provide a significant cost improvement in that market.”

In the company’s second-largest category, meals and snacks, Mr. Winkleblack acknowledged that Ore-Ida “had a tough year in fiscal 2012” as the brand led on pricing and retail price gaps became too large.

But Heinz has worked successfully to rebalance the price value equation, he said, and market share improved and the brand returned to growth in the first quarter of fiscal 2013.

The latest innovations on Ore-Ida included new eating occasions and new channels.

“We launched Grillers last spring, which incorporates frozen potatoes into the outdoor grilling experience,” he said. “We broadened our sweet potato fries line-up to three s.k.u.s (stock-keeping units). We’re driving the 1-lb bag of Ore-Ida fries into dollar stores. We are expanding distribution of Easy Fries in an inexpensive and convenient single-serve package, and we are educating the consumer on the relative healthiness of Ore-Ida fries.”

Heinz’ infant nutrition business accounts for 11% of global sales. Mr. Winkleblack said the category is becoming an even more important part of its emerging market portfolio, and noted the pouch is becoming a favorite package in baby food.

“It is preferred over glass jars and cans due to its affordability, convenience and safety,” he said. “In FY ’13 we are investing in pouch capacity to keep up with the strong demand for this packaging alternative.”

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