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.
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:
- Applicability — "You have to make sure your products suit local tastes," he says.
- Availability — "Means people have to be able to find your products -- and in the emerging world, that's using different channels than we're used to."
- Affordability — "You have to tier-price for different markets, even different income strata within those markets."
- Affinity — "We want local customers and employees to develop an affinity for our brands, but we also need to have affinity for them, to recognize the cultural nuances of doing business in their market."
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.