Heinz to dump European frozen foods, focus on R&D

By Ahmed ElAmin

- Last updated on GMT

Related tags: Heinz, H. j. heinz company, Ketchup

Heinz is pulling out of its frozen food business in Europe, will
boost its presence in China and Russia, and spend more on
developing new processing and packaging methods targeted at growing
marketcategories such as "natural" and chilled.

The company is attempting to follow its changing market, citing new product launches and recent packaging changes as growth boosters. Heinz's growth plans include increased innovation in newproducts, recipes and packaging as a key contributor to sales and profit margin growth. Heinz's announcement yesterday follows hard on the heels of Unilever's decision last week to look into "strategic options" for its frozen food operations in Europe, which might probably include asale. Both companies European financial results been pulled down by poorly performing frozen foods sales. Both have said they will focus on their core market categories. Consumers have generally been turning toward natural, organic and chilled fresh foods rather than to the convenience that frozen foods offer, according to analysts. Consumers want healthier andsafer foods according to recent studies on buying habits. Stagnant consumer spending in western Europe, increasing retailers consolidation and buying power, along with price competition and higher input costs have also depressed food sales in the region.Discount supermarkets such as Aldi have also eaten into market shares by carrying own-label products at relatively cheap prices. When the effects of currency exchange rates are excluded, the company's European sales fell by about three per cent in the first fiscal quarter ended 27 July, compared to the same period last year.Heinz's European results were pulled down by the same problems the company had in the region during the last financial year - poorly performing seafood and frozen foods sales. Heinz strategy will focus on three market categories: ketchup, condiments and sauces, meals and snacks, and infant nutrition. Heinz will refocus its European operations to replicate thecompany's model used to boost growth in North America and Australasia. The company said it is in discussion with investment banks regarding the potential divestitures of what it describes as non-core businesses, representing about $1.4bn in annual sales. The potential sales would include seafood, vegetable and frozen businesses in Europe, including the Petit Navire, John West and HAK brands, along with the Tegel poultry business in NewZealand. Following the potential divestitures, Heinz Europe would generate annual revenue of $2.5bn, representing about 30 per cent of Heinz's global sales. The sale announcement also throws down the gauntlet to other processors to do more research and development in a competitive market, where consumer preferences are changing. Earlier this week Heinz also announced it has consolidated its research and development operations at a new centre based in Pittsburgh. The company plans to spend $100 million on productdevelopment and improving food quality over the next five years. The 100,000-square-foot facility is Heinz's global hub for research and development and will house 100 chefs, food technologists, researchers and package designers, plus experts in nutrition andquality assurance. The centre provides technical direction, assistance and advice to Heinz business units worldwide. "Our global innovation teams are energized, like never before, with a strong focus on delivering new products, new packages, better nutrition, better taste and consumer value,"Heinz's chairman, president and chief executive William Johnson stated. Heinz cited recent product and packaging developments as driving growth for the company. A team of packaging and food technologists created its Extra Crispy line of fries. They then developed aprocess, package and a custom recipe that, when combined, made possible microwaveable fries. The company is also created a detailed data base on tomato research. A multi-national team is operates out of key growing and processing regions worldwide to understand the anti-oxidant effects oflycopene. The company wants to produce tomato based products marketed on the basis of health and well-being qualities. The company's botanists and agronomists are developing proprietary tomato hybrids to bolster field yields, enhance colour and flavour and to better withstand cooking and packing operations, thecompany stated. "Heinz technologists are reviewing every production phase from paste to packaging," the company stated. Additionally, Heinz said will target the rapidly growing chilled market. It's new Ore-Ida mashed potatoes product is one example. Heinz also said its products have benefited from the development of new packaging technology. This is borne out by the increase of global market shares for Heinz tomato ketchup, which grew with thelaunch of an upside-down bottle, known as "top-down" After launching the package in 18 European countries, Heinz boosted ketchup sales by 10 per cent. In the US, Heinz ketchup market shares rose above the 60 per cent market and in Canada, to 80 per cent. Ketchup accounts for $3bn in Heinz's sales and represents one-third of the company's globalrevenue. The company also cited the use of an easy-to-open pouch for a concentrated puree soup in Australia. New products launched within the past two years now account for more than 14 per cent of HeinzAustralia revenues, with similar results in New Zealand. As another part of the company's plan to increase its competitiveness the company will attempt to improve its business and distribution systems. Heinz is moving to an integrated rolling 24-monthplanning system in a bid to improve demand forecasting and help new product introduction and promotion planning. The company expects global net sales to grow at between four to six per cent. Johnson said growth would also be boosted by further penetration into the fast-growing emerging markets of China, India, Russia and Indonesia. "Our recent acquisitions of the iconic condiments and sauces brands Lea & Perrins and HP, together with Petrosoyuz in Russia, reinforce and strengthen this global strategy," hestated. Heinz sale offers potential buyers two choices as competitor Unilever is also considering a sale of its frozen foods division, which trades in 11 European countries, and includes brands such asBirds Eye, Findus and Iglo. The division generated sales of €2bn in the last financial year, but Unilever said at its second quarter results earlier this year that business had been disappointing. Ice creams and frozenfoods make up about 30 per cent of Unilever sales. The company is suffering in its main European market, in which sales fell by 0.6 per cent in the second quarter, compared to a two per cent decline in the first quarter this year. Analysts suggest that likely bidders for the European frozen foods operations include Hicks Muse Tate & Furst, Texas Pacific, Candover and Bridgepoint Capital. External links to companies or organisations mentioned in this story: Heinz

Related topics: Market Trends

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