Heinz 2002

Henry Beam: Western Michigan University

Forest David: Mississippi State University
A. Case Abstract
Heinz (4124!""###$!%##& '''(heinz(com) is a comprehensive *+siness po,icy or
strategic management case designed -or +se at *oth the +ndergrad+ate and grad+ate ,eve,s(
With case setting year 2##2. Heinz is a -+n case to -oc+s on in c,ass since so many o- its
prod+cts are ho+seho,d names( Head/+artered in 0itts*+rgh. 0ennsy,vania. Heinz1s
-inancia, statements. mar2eting po,icies. strategies. vision statement and direction are
provided in the case( Heinz mar2ets over !.%## -ood prod+cts in more than 2## co+ntries
and has man+-act+ring -aci,ities in 21 co+ntries( 3n addition to 2etch+p. its origina, and
*est2no'n prod+ct. Heinz1s prod+ct ,ine inc,+des stea2 sa+ces. pet -oods. in-ant -oods.
snac2s. pasta. t+na. so+p and condiments( St+dents typica,,y are as2ed to prepare a three
year strategic p,an -or Heinz to so,ve pro*,ems presented in the case( For e4amp,e.
Heinz1s sa,es and earnings have *een -,at -or the past -ive years. 'hi,e ,ongterm de*t is 56
*i,,ion compared to shareho,ders1 e/+ity o- 7+st 51(6 *i,,ion(
Ma7or competitors o- Heinz inc,+de 8amp*e,, So+p (9#: o- *rand name U(S(
so+p mar2et). ;enera, Mi,,s. <a,ston 0+rina. 8on=gra and >+a2er ?ats (ac/+ired *y
0epsi8o in 2##1)(
Heinz is the ,argest prepared -ood s+pp,ier to the U(S( -ood service mar2et. 'hich
consists o- resta+rants. diners. ca-eterias. and other a'ay-romhome eating p,aces( U(S(
-ami,ies spend a*o+t ha,- o- every -ood do,,ar on mea,s o+tside the home( Heinz has a
1%: mar2et share in in-ant -oods in the U(S( Heinz se,,s @Aives cat -ood (the ind+stry
,eader) as 'e,, as Bi**,es Cn Bits. ;ravy train. 8yc,e. and BenA ration dog -oods( Heinz1s
StarBist is the 'or,d1s ,eading *rand o- canned t+na( Heinz in the ,argest se,,er o- canned
*eans in the United Bingdom. and the ,argest ma2er o- private ,a*e, so+p in the United
States( =*o+t 9#: o- Heinz1s sa,es come -rom 4# 'e,,2no'n *rands(
Wi,,iam Dohnson. 'ho *ecame 8E? in 2##1. is 7+st the -i-th 8E? in the company1s
16#F year history(
B. Vision Statement (proposed)
Go *e the *est -ood prod+cts company in the 'or,d(
C. Mission Statement (proposed)(corresponding to components ,isted *e,o')
94
H( D( Heinz1s -irst responsi*i,ity is e4tended to ,oya, c+stomers (1) in more than 2##
co+ntries and territories (")( ?+r phi,osophy is to prod+ce a /+a,ity prod+ct at a -air price
(")( Ghe company is a 'or,d'ide provider o- processed -ood prod+cts and n+tritiona,
services (2)( Ghe company1s strongest g,o*a, *rand is Heinz Betch+p (%). 'hich is 7oined
in the U(S( *y mar2et,eading *rands s+ch as ?re3da. StarBist. and Boston Mar2et
HomeSty,e Mea,s( We are dedicated to the tota, s+ccess o- Heinz as a 'or,d'ide
competitor in the =mericas. E+rope and =-rica. the 0aci-ic <im and So+th'est =sia (6)(
Heinz1s +se o- advanced techno,ogy (4) a,,o's it to tap a ,arger c+stomer *ase and to *e
e4ce,,ent citizens in the comm+nities 'here 'e operate( ?- great concern -or Heinz is to
increase shareho,ders1 'ea,th (!) 'hi,e operating ethica,,y (") and providing meaning-+,.
sec+re 7o*s -or o+r emp,oyees (@)(
1( 8+stomers
2( 0rod+cts or services
6( Mar2ets
4( Gechno,ogy
!( 8oncern -or s+rviva,. gro'th. pro-ita*i,ity
"( 0hi,osophy
%( Se,-concept
9( 8oncern -or p+*,ic image
@( 8oncern -or emp,oyees
D. Class Discussion Questions and Issues
1( What socia,. demographic and economic trends are impacting companies in the -ood
*+sinessH
2( Ho' can Heinz red+ce its ,arge amo+nt o- ,ongterm de*tH
6( Ho' can Heinz go a*o+t more e--ective,y advertising its prod+ctsH
4( Why has Heinz had so ,itt,e s+ccess 'ith its attempts to mar2et its prod+cts *eyond
Eng,ishspea2ing co+ntries (the U(S(. 8anada. United Bingdom. So+th =-rica. =+stra,ia.
Ie' Jea,and)H
!( Ho' can Heinz increase per capita Betch+p cons+mption 'or,d'ideH
"( Sho+,d Heinz attempt to enter the *randname so+p *+siness in the United StatesH
%( Wo+,d a merger 'ith 8amp*e,, So+p 8ompany *e in the *est interests o- *oth
companiesH
E. Eternal Audit
!""ortunities
1( ?ne E+ropean c+rrency. the E+ro(
9!
2( <ising hea,th conscio+sness in se,ection o- -oods(
6( Enter *rand name so+p mar2et in the U(S(
4( 3ncrease 2etch+p cons+mption 'or,d'ide(
!( More innovations in pac2aging(
"( 8ontin+e to red+ce costs(
%( 0romotion o- prod+cts +sing ne' comm+nication techno,ogy(
#$reats
1( Food reven+es increasing *y sma,, amo+nts ann+a,,y(
2( Unsta*,e economy in =sia and =-rica(
6( Gin cans not *iodegrada*,e(
4( 8amp*e,, So+p has 9#: o- U(S( *rand name so+p mar2et(
!( 8ompetitors have a higherrated Board o- Directors(
Com"etiti%e &ro'ile Matri
Heinz Cam"bell Sou" Hers$e(
Critical Success
)actors
*ei+$t ,atin+ *ei+$ted
Score
,atin+ *ei+$ted
Score
,atin+ *ei+$ted
Score
Mar2et Share
0rice
Financia, 0osition
0rod+ct >+a,ity
8ons+mer Aoya,ty
#otal
#(6#
#(2#
#(1#
#(2#
#(2#
-.00
6
2
2
4
6
#(@#
#(4#
#(2#
#(9#
#("#
2..0
6
2
6
4
6
#(@#
#(4#
#(6#
#(9#
#("#
/.00
6
6
4
2
2
#("#
#("#
#(6#
#(9#
#(4#
2.00
E)E Matri
1e( Eternal )actors *ei+$t ,atin+ *ei+$ted Score
!""ortunities
?ne E+ropean c+rrencyKthe E+ro #(1! 6 #(6#
<ising hea,th conscio+sness in se,ection o- -oods #(2# 4 #(9#
Brand name so+ps doing 'e,, in the U(S( #(1# 2 #(2#
3ncreasing 2etch+p cons+mption 'or,d'ide #(1! 6 #(4!
Ie' techno,ogies avai,a*,e #(1# 1 #(1#
#$reats
Food reven+es increasing *y sma,, amo+nts ann+a,,y #(1# 2 #(2#
Unsta*,e economy in =sia and =-rica #(#6 2 #(#"
Gin cans not *iodegrada*,e #(#2 1 #(#2
8amp*e,, So+p has 9#: o- U(S( *rand name so+p #(1# 2 #(2#
9"
mar2et
8ompetitors have a higher rated Board o- Directors #(#! 2 #(1#
#otal -.00 2.2/
). Internal Audit
Stren+t$s
1( Di--erentiated prod+cts(
2( Use 'e,,2no' spo2espersons and advertising icons(
6( ;ood rep+tation -or /+a,ity prod+cts -or 1##F years(
4( 8+,t+ra, prod+cts(
!( High,y a+tomated man+-act+ring(
"( Energetic yo+ng management team(
%( Many prod+cts are segment ,eaders(
*ea3nesses
1( Aimited +se o- in-ormation systems(
2( High de*t(
6( Dependent on commodity prices(
4( Io mission statement(
!( Aimited s+ccess se,,ing prod+cts o+tside the United States and United Bingdom(
Financial ,atio Anal(sis (D+,y 2##2)
3nd+stry: Food 0rocessing
Sector: 8ons+mer$Ion8yc,ica,
Com"an( Industr( Sector S4& 500
Valuation ,atios
0$E <atio (GGM) 14(@# 2#(@9 26(!# 24(2"
0$E High Aast ! Lrs !%(4! 4#(19 !6(12 4@(9!
0$E Ao' Aast ! Lrs 1!(#% 1!("" 1@(62 1%(69
Beta #(2" #(62 #(41 1(##
0rice to Sa,es (GGM) 1(2" 1(6% 2(62 2(""
0rice to Boo2 (M<>) %(@@ 4(9# "("9 6(@!
0rice to Gangi*,e Boo2 (M<>) I$= 9(19 12(%1 "(41
0rice to 8ash F,o' (GGM) 29(11 1!(@4 1%(1% 1"(@4
0rice to Free 8ash F,o' (GGM) IM 19(@1 69(#9 62(@!
: ?'ned 3nstit+tions "6(6! 44(@# !4(21 "#(4@
Di%idends
Dividend Lie,d 4("# 2(64 2(4" 2(6%
Dividend Lie,d ! Lr =vg 6(1# 2(#2 1(@% 1(62
Dividend ! Lr ;ro'th <ate 9(64 "(!% 9(12 %(99
0ayo+t <atio (GGM) "%("6 6@(@% 44(42 29(@!
9%
6ro7t$ ,ates 8
Sa,es (M<>) vs >tr 1 Lr =go 4(4# %("! "(22 #(91
Sa,es (GGM) vs GGM 1 Lr =go 4(%6 1@(49 @("2 1(""
Sa,es ! Lr ;ro'th <ate #("@ !(49 4("! 11(9@
E0S (M<>) vs >tr 1 Lr =go I$= 2"(#6 1@(41 1#(!#
E0S (GGM) vs GGM 1 Lr =go "%(99 1@("" 1#("@ #(!1
E0S ! Lr ;ro'th <ate 4(19 "(22 %(4! 9(4"
8apita, Spending ! Lr ;ro'th <ate 4(2# 1(!4 #(4# @(@"
)inancial Stren+t$
>+ic2 <atio (M<>) #("" #(!9 #(!6 1(14
8+rrent <atio (M<>) 1(49 1(6" 1(19 1("9
AG De*t to E/+ity (M<>) 6(1! 1(62 1(## #("%
Gota, De*t to E/+ity (M<>) 6("6 1(!@ 1(2" 1(#6
3nterest 8overage (GGM) 6(4" "(6% 16(24 @(12
&ro'itabilit( ,atios 8
;ross Margin (GGM) 6%(6% 6@(2@ 49(1% 4"(99
;ross Margin ! Lr =vg 6"(69 69(64 4%(!1 49(6#
EB3GD Margin (GGM) 1#(!6 16(9# 19("1 2#(4#
EB3GD ! Lr =vg 1"(42 14(#% 19(2@ 21(@4
?perating Margin (GGM) 1#(!6 11(#@ 1!(6" 1%(24
?perating Margin ! Lr =vg 16(#% 11(## 14(96 19(2#
0reGa4 Margin (GGM) %(6" @(44 14(4! 14(!9
0reGa4 Margin ! Lr =vg 1#(#9 @("6 16(@4 1%(14
Iet 0ro-it Margin (GGM) 9(44 "(21 @("2 @(49
Iet 0ro-it Margin ! Lr =vg "(6! "(#6 9(@" 11(2!
E--ective Ga4 <ate (GGM) 4#(1# 6!(4# 64("2 66(2@
E--ective Ga4 <ate ! Lr =vg 6"(6@ 6%(%# 6"(92 6!(%4
Mana+ement E''ecti%eness 8
<et+rn on =ssets (GGM) 9(!% "(@@ 1#(19 !(96
<et+rn on =ssets ! Lr =vg %(#! 9(@6 1#(9@ %(@1
<et+rn on 3nvestment (GGM) 11(%@ @(@6 14(%@ @(!1
<et+rn on 3nvestment ! Lr =vg 1#(1% 16(96 1"(%# 12(%1
<et+rn on E/+ity (GGM) !"("9 22(2# 2@(4% 1"(@!
<et+rn on E/+ity ! Lr =vg 61(1# 2@(61 66(49 21(4%
E''icienc(
<even+e$Emp,oyee (GGM) 21!."4# 6!".26! 4#4.1"2 !!#.92"
Iet 3ncome$Emp,oyee (GGM) 19.2#% 1@.%%@ 41.66@ %9.9#!
<eceiva*,e G+rnover (GGM) %(2@ 12(6@ 16(6" @(!"
3nventory G+rnover (GGM) 6(@6 %(22 %(#6 1#(1@
=sset G+rnover (GGM) 1(#1 1(6" 1(19 #(@%
777.in%estor.stoc3"oint.com
9ul( 2002
Cas$ Value o' Heinz in :millions at -2;/-;0-
1( Stoc2ho,ders1 E/+ity F ;ood'i,, 51.6%4 F 2.%## 5 4.#%4
2( Iet income 4 ! M 54%9 4 ! 5 2.6@#
6( Share price M 54# $E0S M 51(41 4 Iet 3ncome 54%9 5 16.!"#
4( I+m*er o- Shares ?+tstanding N Share 0rice M 6!# 4 54# 5 14.###
Met$od A%era+e : <=50>
99
I)E Matri
1e( Internal )actors *ei+$t ,atin+ *ei+$ted Score
Stren+t$s
Di--erentiated prod+cts #(1# 4 #(4#
Use 'e,,2no' spo2espersons and advertising icons #(#! 4 #(2#
;ood rep+tation -or /+a,ity prod+cts -or 1##F years #(1! 6 #(4!
8+,t+ra, prod+cts #(#2 6 #(#"
High,y a+tomated man+-act+ring #(#! 6 #(1!
Energetic yo+ng management team #(#! 6 #(1!
Many prod+cts are segment ,eaders #(1# 4 #(4#
*ea3nesses
Aimited +se o- in-ormation systems #(#9 1 #(#9
High de*t #(1# 2 #(2#
Dependent on commodity prices #(1# 2 #(2#
Io mission statement #(#! 2 #(1#
Aimited s+ccess se,,ing prod+cts o+tside the United States and
United Bingdom
#(1! 1 #(1!
#otal -.00 2.52
9@
6. #!*S Anal(sis
Stren+t$s *ea3nesses
1( Di--erentiated prod+cts
2( Use 'e,,2no' spo2espersons
and advertising icons
6( ;ood rep+tation -or /+a,ity
prod+cts -or 1##F years
4( 8+,t+ra, prod+cts
!( High,y a+tomated
man+-act+ring
"( Energetic yo+ng management
team
%( Many prod+cts are segment
,eaders
1( Aimited +se o- in-ormation
systems
2( High de*t
6( Dependent on commodity
prices
4( Io mission statement
!( Aimited s+ccess se,,ing
prod+cts o+tside the
United States and United
Bingdom
!""ortunities S;! Strate+ies *;! Strate+ies
1( ?ne E+ropean c+rrency.
the E+ro
2( <ising hea,th conscio+s
ness in se,ection o- -oods
6( Brand name so+ps
doing 'e,, in the U(S(
4( 3ncrease 2etch+p
cons+mption 'or,d'ide
!( More innovation in
pac2aging
"( Ie' techno,ogies avai,a*,e
1( More emphasis on mar2eting
prod+cts in E+rope
2( 3ncrease advertising
6( Enter *rand name so+p *+siness
in the U(S( (S6. ?6)
1( 3ncrease 'or,d'ide sa,es o-
2etch+p (W!. ?4)

#$reats S;# Strate+ies *;# Strate+ies
1( Food reven+es increasing
*y sma,, amo+nts ann+a,,y
2( Unsta*,e economy in =sia
and =-rica
6( Gin cans not *iodegrada*,e
4( 8amp*e,, So+p has 9#:
o- U(S( *rand name so+p
mar2et
!( 8ompetitors have a higher
rated Board o- Directors
1( 0+rs+e merger 'ith another -ood
company. possi*,y 8amp*e,,
So+p

2( 0rod+ce more +ser-riend,y and
*iodegrada*,e containers -or
prod+cts
1( <ed+ce man+-act+ring costs

@#
H. S&ACE Matri
Y axis
Financia, strength F! F1 'orst to F " *est L a4is: ! F (6) M 2
Environmenta, sta*i,ity 6 1 *est to K" 'orst
X axis
3nd+stry strength 6 1 'orst to " *est N a4is: 6 F (2) M 1
8ompetitive advantage 2 1 *est to " 'orst
8onservative FS =ggressive
8= 3S
De-ensive ES 8ompetitive
@1
I. 6rand Strate+( Matri
<=03D M=<BEG
;<?WGH
>+adrant 33 >+adrant 3
Heinz
WE=B SG<?I;
8?M0EG3G3OE 8?M0EG3G3OE
0?S3G3?I 0?S3G3?I

>+adrant 333 >+adrant 3O
SA?W M=<BEG
;<?WGH
1( Mar2et deve,opment
2( Mar2et penetration
6( 0rod+ct deve,opment
4( For'ard integration
!( Bac2'ard integration
"( Horizonta, integration
%( 8oncentric diversi-ication
@2
9. #$e Internal;Eternal ?IE@ Matri
#$e I)E #otal *ei+$ted Score
Strong =verage Wea2
6(# to 4(# 2(# to 2(@@ 1(# to 1(@@
High 3 33 333
6(# to 6(@@


Medi+m 3O O O3
#$e E)E #otal
*ei+$ted Score
2(# to 2(@@
Heinz

Ao' O33 O333 3N
1(# to 1(@@
Hold and Maintain
@6
1. E&S;EBI# Anal(sis (in 5mi,,ions at 1261#1)
5=mo+nt Ieeded: 5!##
Stoc2 0rice 54#
EB3G <ange 51### to 52###
Ga4 <ate 1%!$"%6 M(2" M 2":
3nterest <ate !:
PShares ?+tstanding 6!#
Common Stoc3 )inancin+ Debt )inancin+
Hi+$ Ao7 Hi+$ Ao7
EB3G (5@92(4 in 2##1)
3nterest (!:)
EBG
Ga4es 2":
E=G
P o- Shares ?+tstanding
E0S
52###
#
2###
!2#
149#
6"2(!
4(#9
51###
#
1###
2"#
%4#
6"2(!
2(#4
52###
2!
1@%!
!14
14"1
6!#
4(1%
51###
2!
@%!
2!4
%21
6!#
2(#"
8onc,+sion: Heinz sho+,d +se de*t to raise the 5!## mi,,ion(
A. E"ilo+ue
?n D+ne 2#. 2##2. Heinz anno+nced it 'i,, *egin se,,ing in s+permar2ets and organic -ood
stores nation'ide a greattasting organic 2etch+p -rom the ma2ers o- the 'or,dQs ,eading
2etch+p *rand( Heinz ?rganic Betch+p is certi-ied as organic according to the United
States Department o- =gric+,t+re standards and is made -rom vineripened tomatoes that
are 1# : certi-ied organic. as 'e,, as other certi-ied organic and nat+ra, ingredients s+ch
as organic s+gar. spices and onion po'der(
Ghe decision to ,a+nch organic 2etch+p 'as sp+rred *y increasing cons+mer
demand -or organic prod+cts. 'ith sa,es o- organic condiments a,one rising 1!: in the
past year( =vai,a*,e in a 1!o+nce. p,astic s/+eeze *ott,e. Heinz ?rganic Betch+p has a
green cap and -eat+res a green version o- HeinzQs c,assic 2eystone ,a*e,( 8ons+mers
,oo2ing -or Heinz ?rganic Betch+p 'i,, -ind it in the condiment ais,e. and$or the
s+permar2et organic section 'here avai,a*,e( 3t 'i,, a,so *e avai,a*,e in organic and
specia,ty -ood stores( Ghe ,a+nch o- Heinz ?rganic Betch+p in the United States comes
on the hee,s o- recent ,a+nches in 8anada and E+rope. 'here the prod+ct has *een 'e,,
received( Heinz ?rganic Betch+p is prod+ced at HeinzQs Aeamington. 8anada -aci,ity.
+sing redripened tomatoes -rom the companyQs organic tomato -ie,ds in Esca,on.
8a,i-ornia(
3n mid2##2. Heinz anno+nced it 'i,, spin o-- *+sinesses that acco+nt -or 51(9
@4
*i,,ion( Heinz is p+tting the divisions into a s+*sidiary that 'i,,. in t+rn. *e merged 'ith
De, Monte( Go pay -or the ac/+isition. De, Monte 'i,, give 4! o- its shares -or each 1##
shares that Heinz shareho,ders o'n. and Heinz 'i,, get to name si4 o- the res+,ting
companyQs nine *oard mem*ers( Ghese *+sinesses. 'hich together generate appro4imate,y
51(9 *i,,ion in ann+a, sa,es (or 2# o- Heinz1s ann+a, reven+es). are: Iorth =merican pet
-ood and pet snac2s& U(S( t+na& U(S( private ,a*e, so+p and 8o,,ege 3nn(<) *roth& and
U(S( in-ant -eeding( =s a res+,t o- the transaction. Heinz 'i,, have a -astergro'ing U(S(
port-o,io that compares 'ith the *est in the -ood ind+stry(
@!