Case Study Summary: Heinz Ketchup

Submitted to
Dr. D. D. Swain
Associate Professor
Sales & Marketing
IMI-Bhubaneswar











Submitted By:
Anant Ashesh
12PGDM-BHU005


Index of Contents
1. Declaration
2. Introduction
3. Problem Identification
4. Scanning the Environment
5. Alternate Solutions and Their Selection













DECLARATION

I, Anant Ashesh of PGDM BATCH 2012-2014 of International
Management Institute, Bhubaneswar, do sincerely declare that none
of the content in this document is copied from any other source and
a match is purely coincidental.
I make this declaration conscientiously believing the same to be true.
Made and declared at International Management Institute,
Bhubaneswar this 10
th
Day of Novemeber, 2012














Anant Ashesh

Introduction
Produced by H. J. Heinz Company, Heinz Tomato Ketchup is the largest product
under the companys portfolio. The ketchup was first introduced in 1876 and by 1907 it
was selling 13million bottles per year and exporting it to numerous countries around
the world. The biggest reason for Heinzs success is the complimentary nature of
ketchup with American food such as hotdogs, hamburgers, French fries, etc. And due
to this reason the company was selling 650million bottles of ketchup around the world
in 2012.
The company produces majority of its product in its U.S plant located at Fremont, Ohio
and the second biggest plant is located at Lamington, Ontario in Canada. The
company went in for a redesign of its logo in 2009 and the gherkin that had been
sitting atop the Heinz logo for over 100 years was replaced by a vine-ripened tomato.
The slogan that is now used is Grown not made and it implies that the Heinz ketchup
is made out of real tomatoes that are grown naturally. The result of such measures
can be seen in the companies scores in surveys as in a recent American Customer
Satisfaction Index poll, Heinz beat out Kraft, Coca-Cola, and Nestle to secure the
highest score.
Other than the variation in bottle sizes the company also offers two varieties of
ketchup known as Organic and Simply Heinz. Also with this it also offers Hot
Ketchup and Sweet Onion Tomato Ketchup as different flavor options.

Problem Identification
Heinz has enjoyed the market leader position since the 1970s and with its well thought
out, as well as well executed, expansion plans it has grown at an astonishing pace.
But now the company is facing issues from various aspects, such as
High oil and natural gas prices have increased the COGS by 20% in 2 years.
Frequent trade dealings has led to undercutting of Heinzs margins and eroded
its profitability.
To increase its sales volume the company offered the Red Rocket at special
99cent prices and that has led to the bottle being assosicated with promotions
and not selling during the period the promotion is off.
The private label brands of retailers have created tension between the retailers,
competition and Heinz.
All these factors have affected Heinz and its position in the market. The
management has sat down to formulate plans that will help increase the
profitability, release the built up tension with the retailers and tackle the issue of the
increasing cost of packaging and production.

Analysis of Environment



Competitive Rivalry (High) The rivalry in the ketchup market is very high and this is
not only due to the branded ketchup brands in the market like Hunts and Del Monte.
The private label brands of the supermarkets and retailers are providing stiff
competition to Heinz as well.
Threat of New Entrants (High) The ketchup industry has no barriers to entry and
the technology required to start a ketchup business is also not expensive. Therefore
the threat of new entrants is high as seen by the emergence of private label ketchup
brands around the world.
Powers of Suppliers (Low) The raw materials required for producing ketchup are
available easily and from a variety of sources. Heinz therefore, can change suppliers if
he faces problem from any particular one.
Threat of Substitutes (Low) The consumption of ketchup with certain food items
has become routine for the consumers and this relates specially to fast food. But apart
from ketchup there is no other sauce that goes well with everything. The consumer
Competetive
Rivalry:
HIGH
Threat Of
New
Entrants:
HIGH
Power of
Suppliers:
LOW
Threat of
Substitutes:
LOW
Power of
Buyers:
HIGH

has option of mustard and many other sauces but none can be used to substitute
ketchup.
Power of Buyers (High) Ketchup is a widely used product around the world and the
companies supplying the product in the market are also very high. This makes the
power in the hands of the buyer very high. They can switch over to other brands and
that too without any barriers.

Internal Analysis:-
Using exhibit 1 we see that the Heinzs sale has not been a constant increase. Their
sales rose from 12946255 units in 99 to 13228458 units in 00 and it declined to
12626177 units in 01. Coming to the latest figures we see that the sales have fallen
from 13,091,720 units to 12,064,861units and that is a fall of 7.84%.
The revenue has fallen from $264,707,477 to $261,360,428 which is around 1.26% fall
in revenue. Which means that the per case revenue must have gone up and on closer
analysis we see that in 2005 per case revenue was $20.21 but in 2006 it had
increased to $21.66. Registering an increase of 7.189% the company actually
managed to increase its per case revenue even though its total units have gone down.

S.W.OT Analysis
Strengths:
Brand Name Heinz is over a 100 year old brand and that legacy has helped
the company in cementing its name in the market.
Customer Satisfaction The Company scored the highest points in a recent
customer satisfaction survey. This translates into loyal and happy customers
who will not leave Heinz in the blink of an eye.

Weakness:
To maintain its quality and use the best raw material, Heinz manufactures
majority of its products in US and Canada. This increases the transportation
cost and also prevents the company was localizing in the countries it exports.
Red Rocket has become associated with promotions and consumers are now
ignoring it during the non-promotion period. The Red Rocket is one of the
biggest sellers for the company but that is now becoming restricted to the
promotion periods.

Opportunity:
Growing and Untapped markets like Asia and Africa where the culture of
ketchup has not fully developed can be a good opportunity for Heinz.

Consumers were willing to be persuaded to purchase bigger bottles and this
would mean an increase in the consumption volume of ketchup, albeit a small
one.

Threat:
Private label brands were proving to be a lot of trouble for Heinz. They offered
higher margins to the retailers and therefore were pushed ahead of Heinz. To
counter this Heinz has had to cut its margin and pass it on to the retailers.
Rising input prices has been pushing the COGS of the company higher and
higher. This has reduced the profitability of the company and resulted in smaller
overall margins.



Alternate Solutions and Their Selection

Alternative 1
The production of Heinz is highly centralized and almost all the ketchup is
manufactured and shipped from either USA or Canada. This has resulted in higher in
higher production cost due to
High gas prices
High wages
Strength:
* Brand
*Customer Satisfaction
Weakness:
* Centralization
* Promotion Sales
Threat:
* Private labels
* Rising input costs
Opportunity:
* Developing Markets
* Increase in consumption

High input costs
The production costs can be brought down by decentralizing the production process.
By shifting to developing economies the costs of inputs and wages can be brought
down. By going out of USA the benefits that can be had by Heinz are
Lower tax rates in developing countries
Setting up in rural areas of developing countries will attract the Government and
will result in benefits as tax free periods
The sustainability principle that has become a part of Heinzs policy will also
help them in the long run
A detailed cost benefit analysis was not possible because details about Heinzs
production process and its ingredients are not available.

Alternative 2
The highest gross margin for Heinz is in the 14 oz. 20 oz. 32 oz. and 64 oz. bottles.
And the highest sales for Heinz come from the 36 oz. 46 oz. 64 oz. 20 oz. and 32 oz.
bottles. As we can see that the 20 oz. and 32 oz. bottles are one of the highest selling
and also offer higher margins. Therefore Heinz should look at increasing the sales of
the other two bottle sizes i.e. 14 and 64 oz.
By doing so Heinz will also be able to increase the consumption of ketchup in the
market and gather the profits while doing so as well. The other aspect of doing so
would be remove the promotional buying phenomenon that has become associated
with Red Rocket. By promoting other variants and not just the Red Rocket the
company can look to remove that pattern and sell it the whole year round.