H.J.

Heinz Company

Company Profile

Publication Date: 28 Feb 2011

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t: +44 20 7551 9000 t: +1 212 686 7400 t: +61 2 8705 6900

f: +44 20 7551 9090 f: +1 212 686 2626 f: +61 2 8088 7405
e: [email protected] e: [email protected] e: [email protected]
H.J. Heinz Company

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TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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H.J. Heinz Company
Company Overview

COMPANY OVERVIEW

H.J. Heinz Company (Heinz or ‘the company’) is a producer and marketer of branded processed
food products like ketchup, condiments, sauces, meals, soups, snacks and infant foods. The
company's key brands include Heinz, Ore-Ida, Boston Market and Plasmon. Heinz operates in North
America, Europe, the Middle East and Asia Pacific. It is headquartered in Pittsburgh, Pennsylvania
and employs about 29,600 people.

The company recorded revenues of $10,495 million during the financial year ended April 2010
(FY2010), an increase of 4.8% over FY2009. The revenue increase was primarily driven by the net
price hike; implemented by the company in fiscal 2009 to offset increased commodity costs. The
operating profit of the company was $1,559.2 million in FY2010, an increase of 3.8% over FY2009.
The net profit was $864.9 million in FY2010, a decrease of 6.3% compared to FY2009.

KEY FACTS

Head Office H.J. Heinz Company

One PPG Place
Pittsburgh
Pennsylvania 15222
USA
Phone 1 412 456 5700
Fax
Web Address http://www.heinz.com
Revenue / turnover 10,495.0
(USD Mn)
Financial Year End April
Employees 29,600
New York Ticker HNZ

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SWOT Analysis

SWOT ANALYSIS

H.J. Heinz Company (Heinz or ‘the company’) is a producer and marketer of branded processed
food products like ketchup, condiments, sauces, meals, soups, snacks and infant foods.The company
manufactures and markets a wide range of products through diversified business channels, which
improve Heinz's revenue generating capacity. However, intense price as well as product competition
could adversely affect Heinz's business operations and erode its market share.

Strengths Weaknesses

Wide product portfolio and diverse High reliance on Wal-Mart

distribution network enhances the Product recalls damage brand image
company’s global reach
Leading market position built on strong
brand portfolio
Focus on environmental sustainability

Opportunities Threats

Presence in emerging markets Intense competition

Improving restaurant industry in the US Stringent regulations
Increasing labor costs

Strengths

Wide product portfolio and diverse distribution network enhances the company’s global reach

Heinz manufactures and markets a wide range of processed food products which are distributed
across the globe through diversified distribution channels. The company's product offerings includes
ketchup, condiments, sauces, frozen foods, soups, beans, pasta meals, infant nutrition, and other
processed food products. In addition, the company also offers branded and customized products to
commercial and non-commercial food outlets and distributors in the US including a range of ketchup,
condiments, sauces, frozen soups and desserts.

Heinz employs diverse distribution channels to supply its numerous product lines across 200 countries.
The company distributes its products through retail channel, foodservice channel, and governmental
agency channels. The company sells its products through its own sales organizations and also
through independent brokers, agents and distributors to chain, wholesale, cooperative and
independent grocery accounts, convenience stores, and bakeries. Besides, Heinz also offers its
products to pharmacies, club stores, foodservice distributors and institutions including hotels,
restaurants, hospitals, health-care facilities, and certain government agencies.

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SWOT Analysis

Broad product portfolio as well as diverse distribution network enables Heinz to stabilize its earnings
and consistently strengthen its market position through wider customer reach. Additionally, it allows
the company to address multiple customer segments, apart from insulating it from any significant
fall in demand from any specific distribution channel.

Leading market position built on strong brand portfolio

Heinz is one of the leading companies in the packaged food industry. The company is well-recognized
globally for its ketchups. The popularity of the company’s ketchup products could be estimated from
the fact that the company sells around 650 million bottles and 11,000 million packets of Heinz ketchup
annually. In addition, the company holds leading market positions in almost 50 of the 200 countries
in which it operates.

Heinz’s market position in these regions has been built on a strong brand portfolio comprising of
both international and local brands. Apart from Heinz brand, the company also nurtures other strong
brands across diverse product categories. Each of its top 15 brands contributed approximately 70%
of the company’s total sales. Interbrand (a brand management company) ranked Heinz as 46th
amongst top 100 best global brands in 2010 valued at $7,534 million (an increase of 4% over 2009).
Further, Heinz was selected as the ‘Best Food Company for Consumer Satisfaction’ in American
Customer Satisfaction Index for the 11th consecutive year, in 2010.

Strong brand image associated with the company’s products facilitates customer recall and allows
Heinz to penetrate new markets as well as consolidate its presence in the existing ones.

Focus on environmental sustainability

Heinz’s focus on environmental related issues has been one of the distinguishing features of the
company. The strong focus on sustainability helped it to maintain its inclusion in the three high-profile
indexes – the Dow Jones Sustainability Indexes, the Calvert Social Index and the Domini 400 Social
Index. The company has been striving to reduce the environmental impact of its own factories. For
instance, the company announced its global initiative to achieve a 20% reduction in the greenhouse
gas emissions, water and energy consumption, and solid waste across all its facilities, by 2015.
Further, Heinz addresses social and environmental issues on a broader scale through working
relationships with industry groups such as: Grocery Manufacturers of America; National Association
of Manufacturers; and the US Department of Agriculture’s MyPyramid. The strong focus on
environmental issues enables the company to foster strong relationships with suppliers and also
improves its brand image which, in turn, facilitates brand recall and purchases.

Weaknesses

High reliance on Wal-Mart

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H.J. Heinz Company
SWOT Analysis

A huge portion of Heinz’s revenue comes from sales to Wal-Mart stores. This is evident from the
fact that, in FY2010, Wal-Mart contributed 11% of its total revenue. For retailers like Wal-Mart,
private-label sales generate a higher profit margin than national brands. With this view, Wal-Mart
reintroduced its Great Value line of food products to capitalize on the general shift in consumer
preference towards value products. The move intensifies pressure on packaged food manufacturers
like Heinz to offer products at competitive prices in order to combat retailers’ margin pressure as
well as increasing demand for private label products. Additionally, switching cost for Wal-Mart is not
high, which further increases Wal-Mart's buying power. Therefore, any significant change in Heinz's
relationship with Wal-Mart, including changes in product prices, sales volume, or contractual terms
may impact Heinz's financial results.

Product recalls damage brand image

Heinz has had several instances of product recalls in recent years. For instance, in FY2010, Heinz
Canada recalled several lots of Mixed Baby Cereal due to the presence of high levels of toxins
produced by a fungus called ‘Ochratoxin A’. Heinz also recalled some lots of Heinz Fruity Custard
Fruit Medley baby food in 2010 due to the presence of small plastic pieces. Previously, in 2009,
Menu Inspirations, a division of Heinz US Foodservice, recalled thousands of cases of products,
which were made using peanut butter manufactured by Peanut Corporation of America (PCA). Heinz
distributed these products nationwide through Menu Inspirations customers including restaurants,
hotels and other foodservice venues. The company took this action, as it was notified by one of its
peanut butter suppliers, that it received peanut butter included in the recall announced by PCA due
to potential salmonella contamination. Prior to that, Heinz had recalled baby food in Hong Kong that
had trace amounts of melamine, an industrial chemical.

Product recalls like these indicate inadequate quality assurance and quality control systems. Also,
recurrent product recalls not only negatively affects the brand image of the company but also impacts
its financial performance.

Opportunities

Presence in emerging markets

The company is focusing on other developing markets to capitalize on the growth opportunities
emerging in these markets. Factors like robust population base, expanding GDP, and rising
middle-income group in countries like China, Brazil, and India; has created immense opportunities
for the packaged food companies. These three markets combined are expected to account for 20%
of global food sales growth over the past five years.

Emerging markets have become one of the largest growth engines for Heinz. These markets
generated about 15% of Heinz’s total sales and more than one-third of its organic sales growth in
FY2010. The company expects the net sales from these markets to reach 25% by 2016 and as much
as 35% to 40% in the long term.The company plans to support this growth with continued investments

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SWOT Analysis

in R&D, marketing initiatives, and capacity enhancement. The company also possesses significant
advantages in many of these markets due to its well-established domestic brands, in addition to a
growing popularity id the Heinz brand in ketchup, sauces, and infant/nutrition.

Significant market position and brand equity in these regions would enable the company to further
consolidate its position in the global market.

Improving restaurant industry in the US

According to the National Restaurant Association, the US restaurant industry sales reached $604
billion in 2011, up 3.6% over 2010, with the industry employing 12.8 million individuals in 960,000
restaurant-and-foodservice outlets nationwide. Further, the Quick-service restaurant sales are
projected to post sales of $167.7 billion in 2011, a gain of 3.3% over 2010.

Heinz offers a variety of consumer foods, and foods ingredients to restaurant industry. The growth
in restaurant industry augurs well for the company’s foodservice division as the increased consumer
demand would lead to better revenues for Heinz.

Threats

Intense competition

Heinz faces significant competition across all its product categories and geographies. Some of its
competitors like Nestle, Unilever, and Kraft Foods have substantial financial resources and brand
recognition. Kraft is one of the leading producers of food products in North America, one of the key
markets for Heinz. On the other hand, Nestle and Unilever are formidable competitors in several of
the emerging markets. Besides, the company also faces competition from private label brands sold
by retailers.

Such a competitive landscape may require the company to increase its spending on advertising and
promotions or reduce prices that may lead to reduced profits and could adversely affect growth. The
reduced profitability and revenue growth could then limit the company’s growth opportunities.

Stringent regulations

The food products industry is highly regulated. As a manufacturer and distributor of food products,
the company is subject to a number of food-related regulations, including the Federal Food, Drug
and Cosmetic Act and the regulations promulgated by the US Food and Drug Administration (FDA).
This comprehensive regulatory framework governs the manufacture (including composition and
ingredients), labeling, packaging and safety of food in the US. The FDA regulations specify the
standards of quality for certain foods, including many of the products the company sells, and
prescribes the format and content of certain information required to appear on food product labels.
Any change in these regulations may impact the company's compliance cost structure.

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SWOT Analysis

Increasing labor costs

The company faces significant threat from the increase labor costs in the US and Europe. For
instance, the federal minimum wage provisions are contained in the Fair Labor Standards Act. The
federal minimum wage rate in the US, which remained at $5.15 per hour since 1997 reached $6.55
per hour in July 2008, and further increased to $7.25 per hour in July 2009. The minimum wage in
the US is expected to further increase in the future. Similarly, In the UK, the national minimum wage
was increased to £5.8 (approximately $9.4) in October 2009. In the UK, the minimum wage had
gone up by 60% since the government introduced the minimum wage policy in 1999. The company
employs around 29,600 employees worldwide, with a majority of them in the US and Europe. The
increased labor costs increase the company's operational costs and affect its profit margins.

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