HEINZ COMPANY

Introduction

H.J. Heinz Company is a producer and seller of processed food products (such as ketchup, mayonnaise, soups and infant nutrition) created in 1869 by Henry John Heinz in Pittsburgh, Pennsylvania and arrived in the UK in 1886. This company is widely present all around the world: it operates in North America, Europe, Asia Pacific, Latin America, the Middle East and Africa. The company recorded revenue of $10,922.3 million in 2014, its operating profit was $1,568.4 million and its net profit was $657.1 million (MarketLine, 2015).

In March 2015, the company announced a merger between Kraft Food Group and H.J. Heinz Holding Corporation. It was planned that the current shareholders would hold 51% of the future company. Warren Buffet and his company, Berkshire Buffet, as well as the Brazilian investment fund 3G Capital would reinvest 10 billion dollars in their company in order to offer the Kraft shareholders a bonus of 16.50$ per action and 49% of the capital’s future group (Time, 2015). In July 2015, the Kraft Heinz Company announced successful completion of the merger (Heinz News, 2015).

1. External environment

1. Processed food market: competitive landscape

Heinz is one of the world’s largest processed food manufacturer. In 2013, the company held 19% of market share for the condiments and sauces sector, behind the market’s leader Conagra Foods Inc. (CSI Market, 2014). In Europe, Heinz has been owning the leadership for many years.

Since the merger, the Kraft Heinz Group has been becoming a real processed food empire; the company is number three in the American processed-food industry and number five in the world. The reasons of this merger are multiple and the main of them is the numerous strong competitors of the companies. The merger of the two European leaders empowers them to dominate the market. The second main reason is to be able to get used to the customers’ changeable demands. Indeed, the collaboration between the two processed food giants is a way to increase their target and attain more people.

1. PESTEL analysis [cf appendix n°1]

Political

The Political and Legal conditions that could have an impact on the Business Heinz Company are the laws to fight against obesity. Currently, the laws don’t prohibit Heinz products. But Heinz has to be attentive because the vision of the dangers of obesity is changing.

They also need to show the quantity of fat on the label. This new regulation could plainly interfere in Heinz sales (Mintel Academic, 2010).

Another factors in the political environment is the regulation of the business, however, the European Union are open for this type of business. Heinz doesn’t have problems with regards to regulation.

Economical 

Nowadays in the UK, foods that are high in fat support taxes. This is a way to incite people to eat healthy foods and thereby to avoid over-intake of energy dense foods high in fat and sugar (Cornelson and Carreido, 2015).

The final price of the product depends on the UK production, for example cereal and tomatoes have fluctuated in 2001, 2007, 2012 and 2013 because of the adverse weather conditions during those years. We can also notice that the prices of fuel have fallen in 2014 and 2015. These create opportunities for agriculture and road transport.

Social

Kind of fat food could be seen negatively and give a bad image of the brand. However, in the UK Heinz try to reduce the level of added salt in its products. For example, the salt content of Heinz Tomato Ketchup has been reduced by almost 40%, in Heinz Beans almost 50% and in Heinz Cream/Tomato Soup almost 45% (Heinz, 2014).

In the UK, the population is aging this could be a problem for companies if they find nobody to take their place.

Technological

We know that product innovation remains central for company to maintain customer’s interest in the food market. « Most people enjoy trying new food products and 40% prefer brands that are constantly offering these » (Soininen, 2015).

That’s why; brands need to spend a lot in research and development to find new products or to bring novelty. As a result, Heinz Company had a high technology level to respond to this demand but also to be more efficiency and competitiveness.

Environmental

For several years, the government has been pursuing its effort in regulation environment pollution by controlling Companies air emissions.  If this pollution is very important, the company need to pay for the pollution that it produces (UK Government website, 2015).

About attitudes toward “green” or ecological products, we know that the minds are changing for consumers and with social networks it’s easier for people to communicate on it.  

That's why Heinz is trying to reduce the environmental footprint, e.g., by reducing solid waste, renewable energy and energy consumption (Heinz, 2014).

Legal

Since June 2013, the government has been unveiling a voluntary system of uniform front-of-pack nutrition labelling in order to improve transparency in food market (Mintel, 2014).

Most of the regulations on UK food came from the European Union on food standards called the Food Standards Act 1999.

1. Porter’s ‘Five Forces’ analysis

Threat of new entrants

The processed food industry has a low threat of new entrance. There are a large number of aged firms and the advantages go to the first companies present on the market, e.g., negotiations with sellers. It’s hard for entering firm to be competitive with companies which have already experience, suppliers, buyers, reputation, positive income, channels distributions (e.g, transportations) and high level of innovation. There can be no equality between these two types of companies. In addition, legal barriers ask some responsibilities (e.g. a strong capital, strict health code) because people will be consuming their products.

Threat of Substitute products

In the processed food market, there are lots of substitute products. As we said above, competitors are present in large numbers. Consumers can choose another product according to the price or packaging. It’s therefore important to maintain loyal base costumers. Buyers can also choose to make products themselves, e.g. Ketchup or Mayonnaise.

In addition, there is discount supermarkets, which not propose brands’ items and offer cheaper products. When these supermarkets have lire market shares (e.g. ALDI), they are a real threat for brands’ companies.

Bargaining power of suppliers

On the processed food market, the suppliers have to adapt their offers to the demands of the large companies. In fact, it will be detrimental to supplier to lose a strong firm as a customer. However, many facts influence the costs of supplier’s products, e.g. weather conditions and crop failures. Thus, the supplier’s power is moderate on the processed food market.

Bargaining Power of customers

Buyers’ power is high. In fact, there are lots of competitors and thus many substitutes’ products are available on the same shelf. In addition, customers can create some products themselves and go shopping on discount supermarkets, where Heinz’s products are not available. The buyers switching cost (the cost of switching from one product to another seller’s product) is low and customers purchase large volume of standardized product.

Rivalry Among Existing Firms

The processed food market is a big and highly competitive market. There are a large number of companies. Some of the companies offer similar products and try to distinguish itself from its competitors by modifying price, packaging and product quality. Brands firms want to gain market share and try to reduce costs and liabilities. There are plenty of ways that could be taken, e.g., changing product lines, creating new products or reducing the prices.

1. Internal environment

1. The Resource-Based View

« The resource-based view emphasizes the internal capabilities of the organization in formulating strategy to achieve a sustainable competitive advantage » (A.E. HENRY, 2011).

1. Resources [cf appendix n°2]

First of all, in order to identify competencies of the company, we have to determine its resources. They are classified in two categories: tangible or intangible. Tangible resources are the physical assets that an organization owns e.g: plant, finance and human resources. The intangibles resources are the non-physical assets including the brand’s reputation and its ability to innovate.

So, Heinz holds different tangible resources, such as physical or financial. Indeed, the company has a strong manufacturing facilities and it is present in over 200 countries worldwide. It has also a strong financial performance with the sales of 10, 7 billion dollars in 2011. Moreover, 1.5 million cans of Heinz beans are sold every day in the UK and now possess five factories.