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By Dave Fusaro, Editor in Chief | 11/29/2011
Heinz has two key philosophies for foreign markets. One is "buy and build," which means it acquires strong brands and companies and then invests in them – for manufacturing, product development and distribution of other Heinz brands.
The other philosophy is what Johnson calls the Four A's:
Without neglecting the home turf
There is enormous excitement (and the previous thousand or so words of this story) on foreign opportunities for Heinz. But North America remains the company's biggest market. With $4.7 billion in sales, "North American Heinz is not going away," says Scott O'Hara, an executive vice president and president/CEO of Heinz North America. "It's still our biggest and most profitable market, and largely provides the fuel to support our investments in emerging markets.
"Our strategy at Heinz North America is the same as the corporate strategy: to maximize the value in our region, to expand the core business," he says. However, he does it with a slightly different deck of cards.
For starters, Heinz North America plays primarily in only two of the three core businesses, ketchup & sauces and meals & snacks. Not in infant/nutrition, although there remains an infant/nutrition business in Canada. Things might have been different had Heinz acquired the Beech-Nut baby food business in 2001 (Heinz withdrew its offer after a U.S. Court of Appeals temporarily blocked the proposed combination of the nation's No. 2 and No. 3 baby-food makers on antitrust grounds). Heinz also is a big factor in U.S. foodservice, to the tune of $1.4 billion.
While O'Hara's unit largely is limited to organic growth, he presides over brands that hold significant market shares, customer affinity and potential for innovation within their categories.
Five megabrands – Heinz, Ore-Ida, Smart Ones, T.G.I. Friday's and Classico – represent 75 percent of Heinz North America's business. "Even though those are mature brands and categories, we have innovation under way in all five," he says.
Ore-Ida has come a long way from bags of frozen French fries – and appears to have a promising road ahead as the brand gets into frozen potato casseroles and sweet potatoes. Smart Ones appeals to the growing (pun intended) weight-conscious segment and claims to be a solid No. 2 brand in the segment. T.G.I. Friday's mines the seemingly endless array of appetizers inspired by the restaurant chain, but also offers Complete Skillet Meals (for two) and just launched single-serve bagged and tray dinners. Classico has stepped out of the red pasta sauce category with a line of alfredo and pizza sauces.
Don't forget the eponymous Heinz brand. Beans were enough of an icon in Britain to be featured on the cover of a 1967 Who album, but they just came to America this fall. As you read this, odds are good you have a bottle of Heinz gravy in your pantry – or just used it over the holidays. Even the venerable ketchup evolves, with organic and "Simply Heinz" versions debuting in recent years. All the 20-oz. ketchups now are in PlantBottle packaging, which is made from up to 30 percent plant material using technology that was developed by Coca-Cola Co. And Dip & Squeeze packets of ketchup just went retail after launching a year ago in quick-serve restaurants.
In Canada, Heinz also competes in chilled foods such as salad dressings, compliments of the Renee's Gourmet Foods acquisition of 2006. That kind of product line could be imported to the U.S. at any time.
"We have a very aggressive innovation plan," says O'Hara. "We're building a three-year R&D pipeline of new products to launch."
Acquisitions and spinoffs
All that acquisitive growth, both foreign and domestic, can't help but unfocus a company. In defining Heinz 2011, just as important as international growth are a number of transformational events for the company.
Johnson lists as a turning point the Ore-Ida acquisition of 1965, probably the company's first acquisition of a top-tier brand, one that was outside of Heinz's comfort zone but one that provided it with a platform for growth. Then a self-assessment in 1995-1996 that overhauled the supply chain and overhead structure.
"In addition to substantially reducing costs, it confirmed our interest in emerging markets and shone a light on categories where the company should focus," Johnson says.
What naturally followed was the portfolio realignment that resulted when businesses representing about $1.8 billion in sales were sold to Del Monte in 2002. Through acquisitions and internal growth, a frozen business gained critical mass. By about 2005, a new and refocused Heinz had taken shape.
That same year, the Heinz Global Innovation and Quality Center – believe it or not, the first central R&D center in the company's history -- opened in suburban Pittsburgh (more on that in the following story). The company is currently building one in Netherlands, and one is planned for China in two years.
Much of the direction of this company has been charted by strong chairmen/CEOs. Heinz has had a history of long-serving and strong leaders at the top, with the same person usually having both those titles.
The company history trumpets R. Burt Gookin, president/CEO 1966-1979, as moving Heinz "to the No. 1 spot in investment appreciation among its U.S. peers." Since then, delivering exceptional financial results has been a Heinz hallmark.
Tony O'Reilly -- Sir Anthony Joseph Francis O'Reilly, Ph.D. -- a native of Ireland and a former rugby star, was at the helm 1979-1998, during a time of acquisitions and global expansion. Regarded as high-profile, flamboyant and worldly, he was the first non-Heinz family member to become chairman.
Johnson joined Heinz in 1982 as general manager of new businesses for Heinz USA. At one point, he was CEO of Heinz Pet Products and then added Star-Kist. He took over as president/CEO in 1998, and was named chairman two years later. He's only the fifth chairman and sixth CEO in Heinz's 142-year history.
While maintaining overall growth, he focused the company on its current core categories and presided over some divestitures, foremost being the StarKist, pet foods, U.S. baby food and private label soup businesses sold to Del Monte Foods in 2002.
In addition to the acquisition in Indonesia, Johnson says another transformational event was the purchase of Russia's Petrosoyuz, a maker of ketchup, condiments and sauces, in 2005. "We had a small baby food business in Russia, and we were trying to bring our ketchup in [from European factories], but all the duties made it too pricey. Petrosoyuz gave us instant infrastructure across Russia's many time zones and expanded our reach. It came with a number of brands, which we eventually successfully rebranded as Heinz. Today we have a quarter-billion-dollar business there, most of it under the Heinz brand. This gave us confidence that [in some situations] we could change the local brand to the Heinz brand."
And today Heinz is the No. 1 brand of ketchup in Russia — as it is in seven of the world's top 10 ketchup markets.
When asked what Heinz still needs to improve upon, Johnson mentioned the transfer of ideas from unit to unit within the company. With as far-flung an empire as Heinz, it's difficult to keep everyone aware of successes and best practices halfway around the globe, to keep everyone connected as one family. "We're light years ahead of where we were a decade or so ago, but we still have a long ways to go," he says.