H.J. Heinz Company (NYSE: HNZ) makes processed food products like condiments, sauces, and frozen foods. The company is best known for its namesake brand, Heinz ketchup, which has 60% market share in the US, 70% in Canada, and 78% in the U.K Heinz' other product lines include condiments and sauces such as salad dressing and soy sauce, frozen food, soups, beans and pasta meals, and infant food. The company's 15 top brands, including the flagship Heinz brand, make up over 70% of total sales. In FY 2010, Heinz had sales of nearly $10.5 billion with a net income of $864.9 million.
Heinz has spent a good part of the last decade restructuring its business, shedding less profitable brands and instead focusing more cash on marketing and product development. The firm's renewed efficiency has recently been tested by rising commodities prices, which are driving up the costs of making and packaging food - high fructose corn syrup is a key ingredient in almost all Heinz products, and oil is refined to make plastic bottles for sauces and condiments.
Many of Heinz’s products are prepared from recipes developed in their own research laboratories and experimental kitchens. After the ingredients are selected, they are shipped off to one of the company’s 68 owned factories or 9 leased factories to be processed. Methods of processing include sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking, and extruding.
In order to obtain a portion of certain raw products such as tomatoes, cucumbers, potatoes, and some other fruits and vegetables, the company makes pre-season futures contracts with farmers, which provides some protection against volatile commodity prices; for example, if the price of tomatoes suddenly skyrockets, Heinz is able to still buy them at the low price agreed upon in the contract. Other products such as dairy, meat, sugar, sweeteners, spices, flour, and other fruits and vegetables are purchased on the open market .
The company's core 15 brands accounted for 70% of total sales. Emerging markets currently generate 15% of the company's total sales, however Heinz's goal is to have them generate 25% of earnings by 2016 and up to 40% in the long term. Company shows 11.6% market share in frozen dinner food
North American Consumer Products – includes operations in the United States in Canada, specifically the manufacturing, marketing, and sale of ketchup, condiments, sauces, pasta meals, entrees, and snacks to grocery stores. Other popular company owned brands include Classico, Jack Daniels, Bella Rosa, Weight Watchers, Bagel Bites, Boston Market, T.G.I. Friday’s, Lea & Perrins, and HP. Heinz owns the food and licensing rights for these various brands. Wal-Mart (WMT) is the company's largest customer, accounting for roughly a tenth of sales.
U.S. Foodservice – similar to the North American Consumer Products segment, but deals with commercial (bars, restaurants, travel/leisure places, vending machines, take-out) and non-commercial (schools, hospitals, prisons, military) food outlets and distributors.
Europe – includes the operations in Europe of products in all categories. Other popular company owned brands include: Orlando, Karvan Cevitam, Weight Watchers*, Brinta, Nipiol, and Plasmon.
Asia/Pacific – includes the operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, and Singapore of products in all categories. Other popular company owned brands include: Tim Piper, Wattie’s, ABC, Bruno, and Winna. The company plans to begin producing baby food at plants in China and Russia and to grow its child nutrition business in India. Baby food is the company's highest margin product, yet only accounts for 11% of revenue ($1.1 billion); the company is the world fifth largest company in total baby food. China's infant formula market is estimated to be worth $2-$3.7 billion and Heinz already has 3.1% market share (includes 48% share of prepared baby food market). A couple of competitors in China's baby food market may be potential takeover targets, especially as Heinz continues the worldwide trend of consolidation in the baby food market, following Nestle's acquisition of Gerber and Danone's purchase of Numico.
Rest of World – includes operations in Africa, India, and Latin America of products in all categories. Other popular company brands include: Wellington’s Complan, Glucon D, John West, and Banquete.
|Ketchup and Sauces||42%||42%||41%|
|Meals and Snacks||41%||42%||44%|
As consumers have become more health conscious, they have shown a growing demand for healthier alternatives across all food categories. Riding this wave of consumer sentiment, Heinz introduced a certified organic ketchup "Heinz Organic Ketchup" and "Heinz Light", which are low sugar ketchups, as well as a number of other healthy alternatives. The biggest competitor in the organic ketchup market is a private company which makes "Annie's Organic Ketchup".
Because Heinz makes a wide range of products selling in different markets, the company faces competition from both big companies with a diversified line of products and smaller companies with a narrower focus.