HJ Heinz’s most recent annual report features a bottle of ketchup adorned with flags from Brazil, China and Russia, among other countries. The food manufacturer clearly sees these markets as offering big growth potential.
“Our priority is highly populated countries with growing wealth and economies,” says chief executive William R Johnson. No wonder then that the company has ambitions to grow in places such as those mentioned above, as well as India and Indonesia.
But conquering these markets means overcoming some major hurdles. For a start, Brazil and China have radically different (and often confusing) business cultures from Heinz’s home market in the US. And, of course, consumers in Brazil and China will also have very different tastes from those in the West.
But despite these obstacles, Heinz may have found the winning recipe. In 2012 , 21% of Heinz’s sales came from emerging markets and the company predicts this will rise to 25% in 2013.
Testing the waters
While headquartered in Pittsburgh, Heinz claims to be present in virtually every country in the world, and 60% of its sales come from outside the US. Historically, however, Heinz has expanded slowly and cautiously, choosing Canada and the UK as the first places for its international ventures.
By 1920, Heinz could taste international success, with exports of about 10,000 tonnes of food products to the UK annually. Back then, the company conquered the market not only by catering to consumer preferences, but also by introducing completely new categories of products.
“Heinz has a history of not so much adapting to the culture, as making its products part of culture,” says Quentin Skrabec, the author of HJ Heinz: A Biography and a professor of business at the University of Findlay in Ohio. “The company brought baked beans to the UK in the 1900s and they are more popular over there than in the US. The people in the UK consume more baked beans per capita than any other country in the world.”
Buying a way in
These days Heinz mostly enters new markets through acquisitions. Between 2003 and 2012, the company launched only eight greenfield projects worldwide, according to data from greenfield investment monitor fDi Markets.
In China, where the company’s market entrance was particularly successful, between 2003 and 2012 Heinz set up only one new venture, but spent more than $225m to acquire leading soy sauce producer Foodstar. “The acquisition of Foodstar and its Master brand in 2010 gave Heinz a solid growth platform in China’s growing $4bn-plus soy sauce market,” says Mr Johnson. Heinz’s shopping list in other emerging markets includes pasta sauce producer Quero in Brazil, beverage brand Complan in India and chilli and soy sauce producer ABC in Indonesia.
A presence in emerging markets not only gives Heinz a growth vehicle when consumption in the West stalls, it also gives the company access to ideas that it can apply in its other markets. ”The doypack or pouch is the most significant example of reverse innovation flowing from our emerging markets to developed markets,” says Mr Johnson, referring to the sealed plastic bags that are popular in Russia as sauce packaging.
”The doypack helped Heinz ketchup achieve the number one share in Russia, the world’s third largest ketchup market, and we continue to expand our use of pouch packaging for products ranging from ketchup in the US to baby food in Australia,” says Mr Johnson.
The company also changed its approach to pricing in developing countries with a bigger income gap. Instead of selling cheap, poor quality products to cater to less-affluent customers, the company expanded its portfolio by shrinking its packaging. In Indonesia, for example, a small packet of soy sauce can be bought for as little as 3 cents. A similar approach has been introduced in the US with smaller bottles of ketchup selling for 99 cents.
Although the company sells products from California to Calcutta, Heinz has retained its founder’s hometown of Pittsburgh for its headquarters. ”Heinz still has strong ties to Pittsburgh. The founder’s family still maintains a home in the area, and a local football stadium, major museum and theatre bear the Heinz family name,” says Mr Skrabec.
But Heinz’s commitment to Pittsburgh is more than just sentimental. “Pittsburgh has resources for international headquarters and is often rated as one of the US's best cities to live in,” says Mr Skrabec.
Yet, while the company employs more than 1000 local residents in Pittsburgh, it no longer keeps its manufacturing unit there. "Our Pittsburgh factory was divested in 2002 as part of a transformative transaction that spun off to Del Monte, our North American pet food business, and our US tuna, baby food and private-label soups businesses,” says Mr Johnson.
In addition to seeking growth in developing countries, Heinz is expanding away from its core segment of ketchups, condiments and sauces. While these offer "globally the biggest growth opportunity over the next five years”, the company is investing in baby food and nutrition products, says Mr Johnson. “Beyond ketchup, condiments and sauces, our profitable infant/nutrition business grew to more than $1.2bn in fiscal 2012, led by good results in China, India and Latin America,” he says. Here, again, emerging markets are seen as core growth markets, not just because of their increasing GDP, but also growing populations.
Heinz has found the key to succeed in the challenging BRIC markets of Brazil, Russia, India and China. No wonder, then, that the company’s profit projections are closely tied to further expansion in developing countries.
Editor's note: this article was written before it was announced that Heinz was to be bought by Warren Buffett's Berkshire Hathaway company and private equity firm 3G for $28bn.