Replies to post #80 on The Global Demographic Tailwind

[DewDiligence]

More on the same story…

http://online.wsj.com/article/SB10001424052748703819904574554053444716322.html

›Heinz Taps Mexico's Taste for Ketchup

NOVEMBER 24, 2009
By ILAN BRAT And PAUL KIERNAN

Mexicans eat more ketchup by sales value than consumers in all but eight other countries. Many of them slather the thick red sauce on chicken, pasta and eggs—even pizza.

At the start of 2007, U.S. ketchup giant H.J. Heinz Co. held less than 1% of the Mexican ketchup market. In fact, Mexico was such a low priority that Heinz had fewer than 10 salespeople in the country, which is nearly three times as large as Texas.

Tuesday, when Heinz releases quarterly earnings, its executives plan to boast that Heinz now accounts for 12% of the ketchup poured in Mexico, where a spokesman says the company now has 150 ketchup sales and marketing employees.

The shift illustrates how Heinz is positioning itself for growth in emerging markets. The Pittsburgh-based company sells most of its baby food, baked beans, namesake ketchup and other products in the U.S. and Europe, where sales growth is sluggish and usually comes from higher prices or one food company snatching market share from another.

In some developing countries, however, packaged-food sales are surging, as fewer consumers prepare their meals from scratch. Since 2004, retail sales of packaged food, measured in metric tons, have risen 32% in the Asian-Pacific region and 27% in the Middle East and Africa. That compares with an increase of 4% in Western Europe and decline of 1% in North America, according to market researcher Euromonitor International.

The future of "the industry is still very much predicated on growing in emerging markets," said Heinz Chief Executive William Johnson, in an interview. "We're going to generate disproportionate growth in" those markets.

Though Heinz doesn't break out its ketchup sales in Mexico, the entire Mexican market for ketchup is a tiny fraction of the company's total annual sales of around $10 billion. Still, Heinz is excited about Mexico because the company's combined retail and food-service sales of ketchup there are growing at an annual rate of 25%, and Mr. Johnson said he expects that growth rate to continue for the next five years. By contrast, Heinz's overall sales, excluding the impact of currency translation, grew 5.5% during the fiscal year ended April 29, 2009.

Heinz's management, which Mr. Johnson said overlooked Mexico while chasing sales in China, Russia, Indonesia and other emerging markets, didn't begin eyeing the country until the mid-2000s. Few restaurants in Mexico carried Heinz ketchup and, at retail, it was mostly sold in the imported-goods sections of grocery stores. Even so, Mexico's overall retail sales of ketchup had climbed more than 70% since 2000, according to Euromonitor.

In April 2005, Heinz's Latin American management bought a small manufacturer in Guadalajara that supplied its own ketchup, mustard and hot sauces to restaurant chains. Among its clients were Mexican outlets of Domino's Pizza Inc., Burger King Holdings Inc. and Yum Brands Inc.'s KFC brand.

Soon, Heinz began to see how popular ketchup was with Mexicans. Janet Aceves, a 28-year-old office worker is a case in point. At a Domino's one day last week, Ms. Aceves poured Heinz ketchup all over her cheese pizza before taking a big bite. The pizza sauce didn't provide enough zing for her taste buds, she said, adding, "It needs more."

Ms. Aceves isn't alone in her preferences. Domino's routinely includes packets of ketchup with its pizza deliveries in Mexico.

Heinz also learned that Mexicans "wanted better ketchup and were willing to pay for better ketchup," Mr. Johnson said.

Fernando Pocaterra, who directs Heinz's Latin American and Caribbean business, and his team started studying rival products to see how Heinz could set its ketchup apart in Mexico. They soon found that almost all other ketchups on the market there contained starch to thicken the tomato paste, food colorings to deepen the red color or synthetic preservatives, Mr. Pocaterra said.

Heinz went first to potential fast-food customers, and later to retailers, and told them that its ketchup contained none of those additives. To prove the point, the Heinz team often conducted demonstrations when meeting with customers, said Jesús García, Heinz's quality and research and development director in Mexico.

Mr. García said he would bring an iodine dropper, paper plates and bottles of Heinz and whichever rival ketchup the customer was using. He would drip iodine onto dollops of Heinz and the rival next to each other on a paper plate. The competitor's ketchup would turn black—indicating the presence of starch—while Heinz's stayed the same color, he said.

Customers "get a surprised look on their face because they think they're buying a quality product," Mr. García said. He tells customers that Heinz's competitors are giving them "less tomato and replacing it with food colorings and starch."

The company's local competitors couldn't be reached for comment [LOL].

Heinz's Mexico team scored a coup in mid-2006 by winning the contract to supply Domino's. Although the ketchup would be distributed in Domino's-branded packets, Mr. Pocaterra said the contract introduced millions of Mexican consumers to the taste of Heinz, which is a bit sweeter in Mexico than the company's U.S. ketchup formulation.

Soon Heinz had the contract to supply all Burger King restaurants in Mexico, as well as another large pizza chain there.

In early 2007, Heinz opened a ketchup-production plant in Guadalajara to supply distributors and restaurant chains. Mr. Johnson, the Heinz CEO, made Mexico a strategic priority for the company and set a goal of increasing sales 25% annually. At the time, Heinz still had about a 1% share of Mexico's $118 million in retail ketchup sales, according to Euromonitor.

In late 2007, Heinz launched its first consumer marketing campaign in Mexico. In one TV ad, a boy held two paper plates containing Heinz and a generic ketchup at an angle; the generic ketchup slid down the plate, leaving a red smear, while the Heinz stayed put.

In early 2008, Wal-Mart Stores Inc. and other large grocery-store chains in Mexico began stocking bottles of Heinz ketchup alongside several other brands. By the end of 2008, the company's share of the retail ketchup market had grown to about 9%, according to Nielsen data provided by Heinz.

Mr. Pocaterra says that while its ketchup sales have been mostly confined to large retailers, such as Wal-Mart, the company recently began linking up with distributors to sell its ketchup in the mom-and-pop stores that still dominate Mexico's grocery market.

The market leader in the country, Del Monte Foods Co., claims about 30% of the market, with Sabormex SA de CV second at about 20%, according to Euromonitor.

"We are still far behind where we want to be," Heinz's Mr. Pocaterra said. "We want to become the market leaders."‹

[DewDiligence]

HNZ strong earnings for FY3Q10 are attributable to (among other things)
The Global Demographic Tailwind! Reading this PR, one can’t miss the
degree to which TGDT has become the company’s raison d’etre. (The
actual FY3Q10 earnings release is on 2/25/10.)

http://finance.yahoo.com/news/Heinz-Expects-to-Report-bw-1819279674.html?x=0&.v=1

›Heinz Expects to Report Third-Quarter EPS of Around 82 Cents from Continuing Operations; Company Raises Fiscal 2010 EPS Outlook to a Range of $2.82 to $2.85

Wednesday February 17, 2010, 4:06 pm EST

PITTSBURGH--(BUSINESS WIRE)--H.J. Heinz Company (NYSE: HNZ) expects to report strong third-quarter earnings per share of around 82 cents from continuing operations and is raising its Fiscal 2010 outlook for EPS from continuing operations to a range of $2.82 to $2.85, Heinz Chairman, President and CEO William R. Johnson announced today at the annual conference of the Consumer Analyst Group of New York (CAGNY).

…In a presentation today at the CAGNY conference in Boca Raton, Florida, Mr. Johnson said:

“On a continuing operations basis, Heinz expects to report approximately 3% growth in organic sales, almost 14% growth in operating income and very strong earnings per share of around 82 cents for the third quarter ended January 27, despite a higher tax rate. Importantly, the third quarter is expected to mark our 19th consecutive quarter of organic sales growth.”

Mr. Johnson said: “Our expected third-quarter results reflect dynamic growth in Emerging Markets and volume growth of around 4% in our U.S. Retail business and around 9% in the U.K. business, driven by robust marketing initiatives.”

He noted that “the third quarter is expected to show substantial improvement in margins, a more than 40% increase in marketing investments and exceptionally strong operating free cash flow of around $425 million, up more than 80% from a year ago.”

Mr. Johnson’s presentation focused on the state of the Packaged Foods industry and how “Heinz is more nimble, focused, and stronger than ever, and why it is, therefore, well-positioned for the long term in this changing and challenging environment.”

Here are other highlights of Mr. Johnson’s presentation today.

The State of the Packaged Foods Industry

Mr. Johnson said there are “four reasons why I believe the industry has a strong upside:

• First, the growth potential of Emerging Markets, where the ranks of new middle-class, brand-conscious consumers are increasing at a rapid rate;

• Second, the industry’s renewed focus on innovation and marketing in response to the challenge of store brands;

• Third, the opportunity to improve margins; and

• Finally, the ‘consolidation mood’ among manufacturers and customers.”

Heinz Dividend

Mr. Johnson said Heinz is “delivering very strong cash flow and, to that end, we expect to deliver a dividend increase for Fiscal 2011 [the FY ending Apr 2011] commensurate with our strong profit growth.”

Emerging Markets

Mr. Johnson said, “Emerging Markets represent a target-rich base of consumers who are likely to spend more and more of their income on branded packaged foods as they prosper.”

He said, “Emerging Markets are on track to deliver at least 20% of Heinz’s total sales by 2013, more than double their contribution five years ago and that is just the beginning. Heinz is well-positioned in Emerging Markets, with strong brands, talented local management, and localized manufacturing, supported by the advantage of global scale.”

Heinz Marketing Initiatives

Mr. Johnson discussed the Company’s increased marketing investments and new marketing initiatives that helped drive volume growth in the third-quarter, led by the U.S. Retail and U.K. businesses.

“We now anticipate that marketing spending will grow at least 20% this year (Fiscal 2010),” versus the Company's original projections of 7-10%, Mr. Johnson said.

A new marketing campaign in the U.K. called It has to be Heinz is “driving significant volume and market share growth while enhancing our iconic consumer equity,” Mr. Johnson said.

In the U.S., Heinz has launched a Consumer Value Program, initially focused on Heinz Ketchup and now expanding to Weight Watchers® Smart Ones®, Ore-Ida® and brands like Classico® and TGI Fridays®. Supported by increased marketing and innovation, “the early results for the program are encouraging with improving shares and volume trends,” Mr. Johnson said.

Heinz Ketchup

Referring to Heinz Ketchup, Mr. Johnson said, “Globally, Ketchup remains a significant growth opportunity.” He added, “We are turning our focus to markets where the penetration of Heinz® Ketchup has substantial room for growth like Germany, France and Sweden. Driving penetration in Europe is a big opportunity for Heinz.”

Infant/Nutrition

“I believe the greatest long-term opportunity for Heinz resides at the intersection of our highest-growth category, Infant/Nutrition, and our fast-growing Emerging Markets,” Mr. Johnson said. “Growing from a base of jarred foods and cereals, our Infant/Nutrition business has been expanding into the white space of Emerging Markets while extending our reach through up-aging into toddler foods, and down-aging into formula.”

Mr. Johnson said the Company plans to “launch Heinz infant formula in Russia and China, where we have great expectations.”

Private Label / Store Brands

“Let me say right here that the Private Label battle is far from over, but it is equally true that well-managed brands can still win as our recent U.K. results show,” Mr. Johnson said.

He added, “I continue to believe that the biggest casualties of the weakened economy will ultimately be tertiary brands with poor consumer equities. Strong brands or category leaders like Heinz that leverage consumer insights to drive innovative and successful new product development should win.”

Productivity Improvements

Mr. Johnson said, “We have established a goal of delivering better than $1 billion in incremental cost savings over the next five years through our global supply chain initiatives,” including the continued rollout of the Company’s Global Performance System and Project Keystone.

These global initiatives are “aimed at realizing economies of scale and reducing costs by leveraging people, process and technology across the global supply chain,” he added.

Industry Consolidation

Mr. Johnson said, “On the subject of industry consolidation, the industrial logic has never been more compelling. Ultimately, however, the goal is to win by creating value in the most efficient and effective manner possible, whether it be by organic growth, M&A, or transformative initiatives and for that reason, I don’t see consolidation as a necessity.”

Q3 Earnings Release

Heinz will host a conference call and Webcast for Securities Analysts and Media (listen only) to discuss the Company’s Third-Quarter Fiscal 2010 results and its Fiscal 2010 outlook at 8:30 a.m. Eastern time on Thursday, February 25, 2010.

The meeting will be hosted by:

• Art Winkleblack, Executive Vice President and Chief Financial Officer
• Ed McMenamin, Senior Vice President, Finance and Corporate Controller
• Margaret Nollen, Vice President, Investor Relations

The call and presentation slides also will be available to the general public in real-time on www.heinz.com.‹