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By Dave Fusaro, Editor in Chief | 11/29/2011
Many companies have turning points. Maybe it's an acquisition, an audacious new product launch or visionary leader. For H.J. Heinz Co., it was the strategic decision to reshape and refocus its global portfolio, especially targeting highly populated emerging markets.
One of the most notable – and somewhat risky – acquisitions under that strategy occurred in Indonesia in 1999. "It was a big risk, a $70 million investment, a lot of money for that time," Chairman, President and CEO William Johnson says of the majority stake in ABC Central Food, a maker of soy and chili sauces, as well as ketchup.
"Indonesia was undergoing a radical change to democracy at the time, there was a high level of risk, and there was quite a debate in our board. But we bought into the business, and that business today is over $400 million in sales," he says. "It's paid for itself a couple times over. It gave us confidence that we could wend our way through the challenges local markets present through a combination of our capabilities and the right local talent."
Confidence in its ability to run foreign ventures is no longer a question at Heinz – actually, it hasn't been for most of the company's 142-year history. Heinz operates a number of businesses and 81 plants around the world for consumers in 200 countries on six continents. This is no longer the ketchup and pickle company from sleepy Pittsburgh. Nearly two-thirds of Heinz's $10.7 billion in sales are from outside the U.S., and more than 20 percent come from emerging markets, more than double their contribution in fiscal 2005.
As a result, Heinz calls itself "the most global U.S. food company." While that's an interesting part of the story, Heinz has many other claims to fame. Led by the Heinz brand, which itself has $4 billion in sales, the company's top 15 brands generate 70 percent of its revenue; 50 brands hold No. 1 or No. 2 positions in more than 50 countries on six continents. Even here in North America, some leading brands may not be recognized as owned by Heinz, including Ore-Ida, Classico pasta sauces and brands that it manufactures under license, such as T.G.I. Friday's frozen meals and snacks and Weight Watchers Smart Ones.
Heinz focuses on three categories: ketchup & sauces, meals & snacks and infant/nutrition, a fast-growing category that is being fueled by growing sales in emerging markets such as China and Latin America.
In addition to the $10.7 billion in sales, Heinz, which closed its fiscal 2011 on April 27, reported $990 million in net income. It has delivered a total shareholder return of more than 46 percent over its past five fiscal years, three times that of the S&P 500, and increased its dividend by 80 percent since fiscal 2004.
Not bad for a company coming out of a recession. For all those reasons, and many more that will become apparent in the next 19 pages, we're pleased to name H.J. Heinz Co. our seventh Processor of the Year.
Global from the start
This much global exposure, especially in emerging markets, looks very modern and maybe audacious, but it's something Heinz has been doing nearly since its founding. Henry John Heinz had been making horseradish since 1869 and ketchup since 1876. In 1886, he received his first order from overseas, from Fortnum & Mason, then a famous London store. English sales continued to grow, ironically at a time when the business was stagnating in the States, and H.J. opened his first overseas office in London in 1896.
"The world is our field," H.J. is reported to have told his employees.
His son, Howard, expanded into Australia in 1935. H.J. "Jack" Heinz, the founder's grandson, became the company's third CEO in 1941 and stepped up global expansion after the war, launching operations in the Netherlands, Venezuela, Japan, Italy and Portugal.
At the time, Heinz was making ketchup, pickles, soup, beans, condiments and sauces. In 1959, Heinz opened what then was the largest food processing plant in Europe, a factory in Kitt Green, England, to make baked beans and soup.
A number of key acquisitions followed: StarKist seafood, 9Lives pet food and Italian infant/nutrition company Plasmon, all in 1963; Ore-Ida in 1965; and Weight Watchers International in 1978. But global growth, especially, was stepped up in the 1980s and 1990s, with expansions into Africa, Eastern Europe, China and the Pacific Rim.
If there is increased interest now in Asia/Pacific, it may be because Johnson, as a corporate vice president, was overseeing the Heinz business there 1993-1996. "As I spent time over there, it dawned on me the opportunities: the number of people, the development of their markets, the growth of the middle class, the infrastructure. It all suggested to me there would be significant potential for those who were lightfooted enough to get into those markets early."
And he made sure Heinz was one of the pioneers.
Emerging markets "have become a critical component of our growth," Johnson continues. "Most of our acquisitions in the past several years have been in emerging markets, the most recent being Quero in Brazil [a $325 million sales maker of tomato sauces, vegetables and ketchup] and Foodstar in China [a $150 million maker of soy sauce and other condiments]. Our emerging markets focus should lead [that segment] to about 30 percent of our sales by 2016, and I think sooner than that because of both organic growth and acquisition opportunities."
The acquisition of Quero gave Heinz its first major business in Brazil, the world's fifth-most populated country with 200 million consumers, and the Foodstar transaction expanded the company's presence in China, which represents a significant growth opportunity because it has 1.3 billion consumers and the world's second-largest economy.