Heinz adapts marketing model

23 November 2010

NEW YORK: Heinz, the food group, plans to reallocate some of its marketing expenditure away from areas like the US and Western Europe, and towards nations delivering more rapid growth.

Speaking on a conference call with analysts, Bill Johnson, Heinz's ceo, reported the domestic climate remains uncertain.

"The US consumer is in a funk, and while we're seeing some glimmers of hope and some seem to be emerging from hibernation, the reality is that they are making conscious and significant tradeoffs in their budget," he said.

Rather than attempting to attract American or western European nations via promotions, Heinz is increasingly looking elsewhere.

"As we evaluate where to best put our marketing to get the maximum returns it's not necessarily in some of those businesses from a deal standpoint," said Johnson.

"It's in some of the emerging market consumer businesses."

Developing nations contributed 16% of the company's sales over the last six months, a figure Johnson forecast would hit 20% in 2013 and 25% "shortly thereafter".

"The CPG industry in the future will be very dependent on China, India, parts of Latin America, and probably parts of Eastern Europe," he said.

"We view the emerging markets as a target-rich base of consumers who are likely to spend more and more of their income on branded packaged foods as they prosper."

A third of Heinz's staff are now employed in China.

The firm recently purchased Food Star, and expects revenues to double 2009's totals within the next four years.

"I see China in particular as one of the keys to unlocking future value for Heinz, and consequently we are investing aggressively there to accelerate growth, especially in sauces and infant nutrition," said Johnson.

More broadly, the possibilities afforded by emerging nations mean they will secure greater resources going forward.

"We are ruthless in allocating marketing, and taking it away from those businesses that don't do well and putting it against those businesses that do," said Johnson.

"We are allocating additional marketing money into the emerging markets where we're seeing significant growth. And we're seeing some reallocations across Europe to some of the businesses that are performing better."

In facilitating this transition, the company is finalising the Heinz Marketing Productivity Process, which aims to apportion funds based on country and category data, and potential payback.

"So I think as we go forward, you will see marketing funds shifted from markets where we're not getting growth into markets where we are, and I think that process has started."

"And so the appetites in those markets are considerable, but the returns are even more considerable."

Given the challenges around the world, Johnson argued communications must focus on matters beyond price.

"My view of a marketer's job is it's to create new value, and price is an aspect of that value as is package quality, product quality, sustainability, all sorts of things," he said.

"We always talk about value, but I think we have to change the definition of value from a consumer aspect. We have to ensure that we're enhancing the levels of innovation we take to consumers, so that the consumer becomes indifferent to whether or not he or she is paying a higher price because he's getting added value."

Data sourced from SeekingAlpha; additional content by Warc staff