Heinz H J (NYSE:HNZ)
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5 Years : From Apr 2012 to Apr 2017
Iconic U.S. brands have been peddling their products overseas for decades, but the flow of ideas may reverse as consumers in developed markets start to take on the buying habits of those in emerging markets.
H.J. Heinz Co. (HNZ) is fully embracing that concept. Facing muted growth in developed markets, the ketchup maker is looking to developing economies in Asia and Latin America for ideas that suit the new consumer dynamics in U.S. and Western European markets. Among the lessons Heinz is picking up pointers on is how to sell products that appeal to consumers still acting frugal with their food purchases and who may stay that way.
"Most of you are under the frame of reference that the emerging markets benefit from things brought from the developed world," Heinz Chief Executive William Johnson told investors at a recent conference. "I got news for you. It's going to work in reverse much better going forward."
The clearest example from Heinz is its new 10-ounce plastic pouches of ketchup that began shipping to U.S. retailers this week. Heinz is selling the pouch for 99 cents, a low-enough price that even penny-pinching shoppers may not think twice when buying it, and that will help Heinz fend off competition from lower-priced private-label ketchups. Heinz's 20-ounce bottles of ketchup, by comparison, tends to sell for $1.99.
The pouches are hitting U.S. shelves as the economy shows some signs of improvement. On Friday, the Labor Department reported another strong month of job creation, while the unemployment rate stayed at 8.3%, the lowest in three years.
But Heinz sees clouds lingering, especially on lower- and middle-income shoppers, pointing to high usage of food stamps and coupons as shoppers continue to look for ways to save money. While the upper-income consumers are spending freely at grocery stores, Heinz sees a struggling shoppers below them.
The stratification means shoppers look at value in different ways. For some, it's a low price per ounce, which is where larger sizes fit in. But for others, it's the lowest absolute price. That's a dynamic that Heinz Executive Vice President Michael Milone said some emerging economies have been dealing with for years, requiring consumer-product companies practice "tiering" among its offerings.
"What we're seeing is some of the purchase dynamics and considerations are more applicable to developed markets like the U.S.," said Milone, who heads Heinz's international business excluding Canada, Europe and Asia Pacific.
Heinz has been spreading ketchup outside the U.S. since 1886, but its new package is an import. Heinz debuted the plastic ketchup pouch in Costa Rica in 2008, after observing success a competitor in Columbia with pouched ketchup, Heinz Executive Vice President Mike Milone said in a recent interview. Since then, Heinz has the packaged to China, Indonesia, Australia, Mexico, Russia and elsewhere.
Heinz hopes the U.S. reception for the pouch is more like it was in Mexico than in Dubai or Venezuela, where the product didn't take a strong hold initially. The pouch helped Heinz's share of the Mexican ketchup market grow to over 20% from 3%.
In other countries that have had pouches longer, Heinz sells up to 40% of its ketchup in pouches, Milone said.
Heinz isn't the first consumer goods companies to borrow ideas from overseas. Coca-Cola Co. (KO) looked toward Mexico when in recent years it began to broaden the number of drink sizes it offered in the U.S. And Kraft Foods Inc.'s (KFT) Triple Double Oreo--vanilla and chocolate creme layered between three cookies--came to the U.S. last year from Argentina.
Heinz's pouch has "roughly the same cost and margin" as glass and squeezable-plastic bottles, Milone said, even though it sells at a lower absolute price. That's key to making the new product palatable for investors.
"If you can create a product that offers that attractive opening price point without hurting your margins, then it might be the right thing," said Jefferies analyst Thilo Wrede.
Heinz's pouch, perhaps just as importantly, also offers a product well-suited for dollar stores, a growing channel for U.S. food sales.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; email@example.com