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The Kraft Heinz Company : company profile

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The Kraft Heinz Company was formed in 2015 by the reverse takeover of iconic North American food group Kraft by privately controlled HJ Heinz. It had already been quite some time since Heinz had the 57 varieties championed by its long-running slogan. In fact there are now closer to 5,700 in all, even if the one most people think of is flagship brand Heinz Ketchup (backed up in the UK by its Baked Beans, of course or Salad Cream). Even before the Kraft deal around two-thirds of sales were generated by products that don't use the Heinz name. The portfolio also encompassed baby food, frozen potatoes and prepared meals, with brand names including Farley's, Wattie's, Weight Watchers, Ore-Ida and Honig. In 2013, the group accepted a private buyout (for $28bn) by investment group 3G Capital and billionaire Warren Buffett's Berkshire Hathaway. Two years later, those investors negotiated an even bolder deal to merge Heinz with rival Kraft, adding Kraft cheese, Oscar Mayer, Philadelphia and Jello-O to the existing portfolio.

Advertising

Who handles Kraft Heinz advertising? Click here for Agency Account Assignments for Kraft Heinz from Adbrands.The group declared advertising expenses for 2016 of $708m.

Competitors

See also Food Sector index for other companies

Brands & Activities

In March 2015, Heinz's owners negotiated a bold deal to acquire rival food company Kraft, and merge it with their existing business. The deal was agreed and cleared by regulators with exceptional speed, and was completed at the beginning of July 2015. The Kraft Heinz Company combines the portfolios of two of North America's most iconic food brands. Control of Kraft Heinz Company is split between investment group 3G Capital, controlled by Brazilian businessmen Jorge Paulo Lemann, Marcel Herrmann Telles and Carlos Sicupira; and Warren Buffett's Berkshire Hathaway vehicle. By Sept 2018, Berkshire Hathaway owned around 27% of stock; 3G reduced its holding that month from 24% to 20%.

Heinz dominates its core market of ketchup, and also has a leading position in other sauces and condiments. In most cases, any foods marketed under the Heinz brandname are among the leaders in their particular sector in most global markets. However performance by the numerous other brands in the portfolio is far patchier, and considerably less consistent from region to region, and the group has felt the need to offload several of these under-performing businesses in order to maintain growth and profit margins. The takeover by 3G and Berkshire Hathaway led to further pruning of costs.

Condiments & sauces

Prior to its purchase of Kraft, Heinz' portfolio was still principally divided into two areas. The best-known was Ketchups & Sauces. Heinz is the worldwide leader in this market in 140 countries worldwide. The iconic Heinz Ketchup brand almost effortlessly controls almost 62% share of the US ketchup market, 77% in Canada and the UK, 70% in Belgium, and 66% in the Netherlands. The company redesigned the long-established ketchup bottle in 2003, introducing an top-down variant for easier pouring. A steady stream of other packaging innovations have followed, including for 2010, "dip or squeeze" single-serve packets that can be opened in two different ways. In 2006, the group launched a promotion allowing customers to order ketchup with a custom-designed label over the internet at MyHeinz.com.

An organic version of the traditional ketchup was launched in 2004, and this was followed in 2007 by Heinz Ketchup With A Twist, different varieties with extra chili or garlic or sweet onion, and other variants have followed with mixed levels of success. However, much of the brand's continuing success in recent years has come from the company's emphasis on the care and attention it devotes to every stage of the production process, including management of the original seeds from which the tomatoes used are grown. The company is the world's biggest processor of tomatoes, which are themselves developed and grown by the group's Heinz Seed agricultural research division. That was summed up in the marketing slogan "Grown, not made". It also owns the trademark "The world's favourite ketchup". In total the company sells around 650m bottles of ketchup every year. In what was more of a symbolic than a financial blow to the ketchup's image, it was dropped altogether by McDonald's in 2013 following the buyout, because of the company's new links to arch-rival Burger King.

Classico is the #3 pasta sauce in the US behind what is now Ragu/Bertolli (now owned by Mizkan, formerly Unilever) and Campbell's Prego, with almost 11.0% share according to IRI (52 weeks to Jan 2014, all channels, Grocery HQ). Sister brands include Orlando (in Spain), Guloso (in Portugal), Pudliszki (in Poland), and Banquete in Central America. The group established a significant presence in Brazil in 2011 with the purchase of a controlling stake in Quero, a sizeable local producer of tomato-based sauces. Other sauces include UK favourite Heinz Salad Cream, Heinz 57 Steak Sauce, Jack Daniel's Grilling Sauce, Diana's Marinades in Canada, Mr Yoshida's Asian sauces, the world's #2 soy sauce ABC, based in Indonesia, and Philippine banana ketchups and sauces UFC and Jufran.

More recent additions to the sauces portfolio include the Comexo range of high-quality catering service sauces in France, leading Singaporean chili sauce maker Sinsin, and Russia's foremost manufacturer of mayonnaise, ketchup and margarine, Petrosoyuz, whose brands include Picador, Derevenskoe, Mechta Hoziayki and Moya Semya. In 2005, Heinz agreed to acquire another UK favourite, HP Brown Sauce, as well as ketchup rival Daddies, Lea & Perrins Worcestershire sauce and the European license for Amoy soy sauce, from Danone for around €700m. Other recent acquisitions have included Benedicta sauces in France and Wyko in the Netherlands. In 2010, the group acquired Chinese manufacturer Foodstar, makers of Master brand soy sauce and bean curd, for $165m.

The Kraft purchase added a small collection of other condiments and sauces to the combined portolio, including Kraft-branded ketchup and mayonnaise, A1 Steak Sauce, Grey Poupon mustards, and Good Seasons and Miracle Whip salad dressings. As a result of intense competition from rivals Unilever and - bizarrely - Clorox, Kraft slipped to the overall US #2 in pourable salad dressings in 2012. For 2013, it was still stuck behind leader Clorox with 19% share to the leader's near 23%. (IRI, 52 weeks to Jan 2014, all channels, Grocery HQ). Combined sales from condiments & sauces for Kraft Heinz in 2016 were $6.78bn. It is the group's single biggest segment by sales.

Cheese & Dairy

Not far behind sauces is cheese & dairy, almost entirely in North America. Kraft was already the #1 manufacturer of branded cheese in the US & Canada, marketing a wide variety of different types of cheese under the Kraft and Kraft Deli Deluxe brands, as well as Philadelphia cream cheese, Breakstone's and Knudsen cottage cheese and sour cream, Athenos feta, Cracker Barrel, Polly-O, Velveeta and Cheez Whiz processed cheese sauces. (The group's main branded rival in the US is Sargento; but the largest share of cheese sold in the US is private label). Cheese & dairy contributed sales of $5.66bn in 2016.

Meals & Side-dishes

Kraft and Heinz each already had a substantial collection of meals and snacks. Heinz's Ore-Ida is the leading US consumer brand of processed hash browns and other potato products with a retail market share of 47%. (Ore-Ida's food service products are owned by McCain). The group has the license to use the Weight Watchers brand for prepared foods in several markets including the US and Europe. The main US line is WeightWatchers Smart Ones frozen meals and desserts. It is the #3 in the US single-serve frozen dinners market behind Nestle and ConAgra with around 11% share and sales of $476m (IRI 52 weeks to Jan 2014, all retail channels, Grocery HQ). Other US brands include Boston Market HomeStyle meals, Tater Tots, Rosetto and Domani pastas, Delimex Mexican foods, TGI Fridays skillet meals, Bagel Bites and Poppers snacks. Heinz acquired Nancy's frozen quiche and pastry meals and Kabob's hors d'oeuvres in 2006.

The convenience meals segment embraces a huge range of foods including Heinz and Wyler bouillons and soups; tinned pasta and microwave Big Eats meal-pots; Wattie's food products in New Zealand; and Pudliszki ready meals in Poland. The company also markets a range of tinned pastas and long-established UK favourite Heinz Beanz. In 2001 the group paid €425m for Dutch foods group CSM, whose brands include Honig soups, sauces and pasta meals; and KDR sport drinks, spreads and breakfast toppings.

Kraft's meal portfolio was led by Oscar Mayer meats. It is America's leading brand of cold deli meats, ahead even of private label, with total market share of almost 39% in 2012. (SymphonyIRI ye Jan 13 ex Walmart). It is also the leading brand in ready-to-cook bacon (19% share, ahead of Hormel), and a close #2 in ready-to-cook frankfurters. Its main rival is Hillshire Brands. Other meal products include Stove Top Oven Classics dinner kits, Taco Bell meal kits (under license from Yum Brands), Kraft Easy Mac macaroni cheese and Boca vegetarian meals. Other items include packaged food combinations Handi-Snacks and Lunchables, which contain different mixtures of cheese, crackers, cold meats and other items from the group's collection; Deli Creations ready-made sandwiches, and Claussen pickles.

For several years, Heinz also had a large collection of tinned seafood products under its umbrella, including the famous John West brand in the UK, as well as Petit Navire and Parmentier canned fish in France; Marie Elisabeth seafood in Portugal and Mareblu seafood in Italy. Those businesses were sold in 2006 to Lehman Brothers Merchant Banking for €425m. Heinz still owns Greenseas, the market leading tinned seafood brand in Australia, and that business expanded its range into prepared tuna-based meals in 2006.

Kraft Heinz now divides its meal products into three headings. Ambient Meals contributed sales of $2.28bn in 2016, supported by $2.25bn from frozen & chilled meals; and another $2.71bn from meats seafood.

Beverages

Two other businesses contributed by Kraft to the joint portfolio were refreshment beverages and coffee. Kraft's soft drinks portfolio includes CapriSun individual juices, Tang, Kool-Aid and Crystal Light powdered and ready-to-drink beverages, and Country Time. Latest launch is MiO (for Make It Your Own), a pocket syrup dispenser for adding colour and flavour to water. All of these are sold only in North America. Tang is marketed outside that region under license by Mondelez; Kraft in return has a license from Mondelez to market the Tassimo coffee system in North America. Other products include ABC ready-to-drink juices, syrups and concentrates in Asia, Golden Circle fruit juices and snacks in Australia, and Arthur's fruit juice and smoothies in Canada. Combined sales of refreshment beverages were $1.53bn in 2016.

Another North America-only business is coffee. Kraft Heinz is now the #2 marketer of ground coffee in the US (behind Smuckers with best-selling brand Folgers), with combined market share of just under 20% (IRI in Grocery HQ ye Jan 2015). The Kraft portfolio includes Maxwell House (the #2 brand behind Folgers, with around 16% market share), Gevalia, Yuban, Sanka and General Foods International flavoured coffees. For several years, the group also marketed Starbucks branded coffee for sale through grocery channels until that partnership was abruptly terminated by the coffee chain in 2010. After a three-year court battle, Starbucks was ordered to pay Kraft $2.7bn in compensation and damages. In 2014, the company teamed up with McDonald's to introduce packaged retail coffee in supermarkets from 2015 under the fast-feeder's McCafe brand. Combined sales of coffee were $1.50bn in 2016.

Other foods

Desserts, toppings & baking is a separate segment built around two North American favourites Cool Whip and Jell-O. Combined sales were $980m in 2016. Another standalone product line is Planters, the top-selling snack nuts brand in the US with over 26% share. Sales from nits & salty snacks were $1.05bn in 2016.

Infant nutrition

Outside the US the company is also renowned for its Infant Feeding range. Heinz Baby is a major player in Canada, Australia, China and the UK, where the company also owns the Farley's brand. In Italy, as Plasmon, it has about 90% of the jarred baby food market in Italy. Other brands include Glaxo, Complan, Glucon and Farex baby foods in India. The group has also introduced a range of fruit-puree products for kids in Australia and other markets under the Wattie's and Heinz Fruit Splats banners. In 2007 it acquired Cadbury Schweppes' jams, jellies and toppings business in Australia, which includes licenses to market products under the Cottee's and Rose's brands. Kraft also has rights in Canada only to market tinned fruit and vegetables, and juice based beverages under the Del Monte brand name, which was acquired as part of the Nabisco portfolio. Infant foods & nutrition contributed sales of $762m in 2016.

Heinz moved out of US infant foods in 2002. That business, represented by the Nature's Goodness brand, was one of three spun off in 2002 and merged into fellow food company Del Monte. Similarly, the company transferred its US tinned food operations, including the best-selling tinned tuna brand StarKist as well as College Inn soups; and Heinz Petfoods, a leading US petfoods manufacturer with brands including the #1 tinned catfood 9 Lives, along with a large range of other foods and snacks. Total sales for the various businesses spun off were $1.8bn. The group announced another strategic review in 2005 designed to further streamline its portfolio. In 2006, it sold its HAK line of prepared frozen vegetables in Northern Europe (acquired as part of CSM), the Tegel poultry business in New Zealand, and its European seafood and frozen food operations and other marginal UK brands.

Heinz also operates a substantial food-service operation, which supplies around 11bn single-serve portions of ketchup and dressing annually, as well as a variety of prepared vegetables, pasta, sauces, soups and condiments to restaurants and cafeterias around the globe. The group acquired frozen soups manufacturer Truesoups during 2006.

The UK is Kraft Heinz's biggest market outside North America. It top-selling brand in the UK is Heinz Beanz, with sales of £216m in the year to Jul 2015 (IRI, The Grocer), followed by Heinz Soup (£189m), Heinz Tomato Ketchup (£128m), Salad Cream (£42m), HP Sauce (£37m), Lea & Perrins (£12m) and Amoy soy sauce (£11m). Other sauces contributed an additional £14m. Other important products in the UK include Heinz Pasta tins and microwave pouches and the Heinz WeightWatchers range (sales in excess of £50m in 2013 according to Nielsen).

Financials

Group revenues broke the $10bn barrier for the first time in 2008, rising steadily to $11.53bn for year ending April 2013. Net attributable income was $1.09bn. Publicly traded for many years, HJ Heinz was taken private in June 2013 in one of the biggest ever acquisitions of a food company. Private equity firm 3G Capital led the acquisition of the business for $28.75bn including debt, and ownership will be split with billionaire investor Warren Buffett, who is providing much of the cash for the deal. Buyer 3G also controls Burger King, and is run by the group of Brazilian investors who engineered the acquisition of Anheuser-Busch by InBev. Even before its acquisition in 2013, Heinz was carrying debt of around $6bn, with interest expenses in ye 2013 of over $280m. By October 2013 that debt burden had rocketed to almost $15bn.

After being taken private, the group disclosed only selected financial information, partly also the result of a change of year-end to calendar reporting. However, the subsequent merger with publicly quoted Kraft returned the group to public share ownership, mand the release of more detailed information.

Revenues for calendar 2014 slipped 5% to $10.92bn, but net income soared to $657m, from just $18m a year earlier as a result of restructuring charges. North America accounted for 39% of revenues, Europe for 27% and Asia Pacific for 19%. The company's biggest market is the US, with sales of $3.62bn in 2014. That was followed by the UK, with $1.55bn. HJ Heinz Foods UK Ltd reported turnover of £904m and pretax profits of £159m.

For 2015, the newly combined Kraft Heinz Company reported revenues of $18.34bn, including around six months' contribution from Kraft. Attributable net income for the enlarged group was actually lower than standalone Heinz the year before at $634m as a result of significantly higher financial expenses and tax charges. Operating income before finance expenses, tax and other items was up by two-thirds to $2.6bn.

Proforma revenues, including a whole year of Kraft, would have been $27.45bn, compared to $29.12bn for 2014. Proforma net income for 2015 was $1.76bn, compared to $2.32bn the year before.

For 2016, its first full-year as a merged group, Kraft Heinz reported revenues of $26.49bn. On a comparable organic basis, excluding currency changes, that was effectively unchanged on the year before. However, net income rocketed to $3.63bn. The US contributed 70% of revenues, or $18.64bn, and Canada another 9%, or $2.31bn. Europe added $2.37bn (of which $1.06bn came from the UK) and other markets $3.17bn. The Kraft acquisition added significantly to the group's substantial debt burden, which was almost $32bn by the end of 2016.

Topline results for 2017 were disappointing, especially in North America and international except Europe. On an organic basis, group revenues declined 0.6% in the final quarter, with the US down over 1% and Canada by a shock 8.6%. Revenues for the year slipped 1% to $26.2bn. However, yet another round of cost-cutting - the particular skill of Kraft Heinz' controlling shareholder 3G Capital - prompted a solid improvement in operating profit. There was an even bigger one-off gain from a $5bn positive tax adjustment, causing net income to more than treble to just under $11.0bn.

Results for 2018 were significantly worse. Kraft Heinz shocked investors with lower than expected sales for the final quarter, a massive loss and also the announcement that the company is under investigation by the SEC over procurement policies. The revenues miss wasn't too significant, but analysts were alarmed by a $15.4bn impairment against several core brands including Kraft and Oscar Mayer. That resulted in a net loss for the year of $10.3bn. Topline edged up less than 1% to $26.3bn. Even without those impairment charges operating income was down 6% year-on-year. North America was again the weakest region, offsetting modest growth internationally.

Management

William Johnson resigned as chairman, president & CEO of Heinz following completion of the 3G takeover, and was succeeded by 3G insider Bernardo Hees, previously CEO of Burger King. A complete overhaul of the senior management team followed, with few of the group's remaining officers remaining in place. Following the merger with Kraft, virtually all senior positions were retained by Heinz managers, reporting to CEO Hees. A shock profit warning in early 2019 led to the abrupt departure of Hees a couple of months later. He is replaced by another 3G Capital stalwart, former AB InBev CMO Miguel Patricio. 3G partner Alexandre Behring is non-executive chairman.

Background

Despite its biggest brand today, Heinz started not with tomatoes, but with horseradish. In 1869 Henry John Heinz teamed up with a friend to form Heinz & Noble, selling his mother's recipe for grated horseradish. The business thrived for six years until an overabundance of the crop flooded the market and forced Heinz & Noble into bankruptcy. Henry Heinz returned the following year, backed by his brother Frederick, selling pickles, jellies and condiments. Heinz's particular skill was marketing. He invented the Heinz "pickle pin" badge for the 1893 Chicago World's Fair, and it soon became one of the most popular promotional pieces in the history of American business. (A symbolic pickle still features on many Heinz product labels in honour of the company's early successes). Three years later Heinz coined the slogan "57 Varieties" although his company actually sold more than 60 different products, because he thought 57 sounded a more interesting number. He also championed the international market, setting up a UK business in 1886, and sending salesmen to every inhabited continent by 1900. One of the company's smaller lines, at first at least, was a bottled sauce made from tomatoes. Heinz called this a "ketchup", borrowing a word which had actually originated in Asia for a sauce made from pickled fish. The term had been adopted in Britain in the early 18th century for anchovy or oyster sauce, was later used for mushroom sauces, as well as pickled tomato sauces in the US from the early 19th century. Gradually the ketchup grew to become the company's best-selling product by around 1914.

By the 1920s the company was under the control of Henry's son Howard. He built the company's first British factory in 1925, producing pickles and sauces, and from 1928, canned baked beans in tomato sauce. During the Great Depression, Heinz cut costs and introduced low-priced soups and foods. Business doubled despite the economy. After the Second War, the founder's grandson, Jack, took the company public and moved Heinz into television advertising. During the 1960s, under its first non-family CEO, Burt Gookin, the company began to build its portfolio through acquisitions - Star-Kist in 1963, Ore-Ida two years later. In 1969, Gookin appointed Tony O'Reilly, an Irish rugby star, to run the UK business. O'Reilly bought Weight Watchers in 1978, and went on to become worldwide CEO the following year. More acquisitions came in the 1990s, including New Zealand food company Wattie's in 1992, Borden's food service in 1994, Quaker Oats' pet food business in 1995 and Earth's Best baby food in 1996. In 1997 the company became the world's biggest tuna manufacturer with the purchase of Unilever's John West Foods. The ketchup portfolio was swelled by the addition of Polish brand Pudliszki the same year.

Also in 1996, Weight Watchers secured the services of Sarah, the Duchess of York, to promote its slimming club. "If I can do it, anyone can," claimed the Duchess of York, and US membership soared by 50% in response. In 1998 the group acquired German convenience meals business Sonnen Bassermann from Danone (later sold on again to Struik Foods) and sold its bakery products division to Diageo's Pillsbury for $178m. The company also launched Heinz Direct online, selling its products direct to consumers via the internet. Meanwhile, as Weight Watchers gained in popularity, the fit with the rest of the portfolio became increasingly uncomfortable. In 1999, the Weight Watchers slimming clubs business was sold for $735m to Invus, the US arm of private investment company Artal Luxembourg. Heinz retained the license for Weight Watchers frozen prepared meals, and reacquired a 6% stake in the classes for $14m. Also that year, the group made a number of small acquisitions, including a 20% stake in organic specialist Hain Foods for $100m (later sold), and a range of frozen foods from dwindling British cookie company United Biscuits, including Linda McCartney vegetarian meals, Jane Asher desserts and San Marco pizzas.

In 2000 introduced a kids' version of its cornerstone Tomato Ketchup, under the brandname EZ Squirt. The product was green instead red, with the addition of food colourings. The group pointed to research which suggested children would prefer their ketchup that colour instead of boring old tomato-coloured. The new brand enjoyed some success - additional colours (orange and purple) were introduced in 2001, while the green variant was launched in selected other territories (including the UK). It was eventually phased out in 2006. Also in 2000 Heinz attempted to increase its presence in the US baby food market by acquiring Milnot Holdings, whose subsidiaries include Beech-Nut Nutrition foods. The purchase was blocked by anti-trust regulators in 2001. Other acquisitions in 2001 included the Bordens Soups portfolio (including leading US pasta sauce Classico), Delimex frozen Mexican meals, and Anchor's Poppers frozen appetisers. At the end of the year the group sold a 51% stake in its Japanese operations to local company Kagome, the country's leading manufacturer of ketchup and vegetable juices under the Kagome and Yasai-Seikatsu brands.

Facing pressure from shareholders over the lack of growth, Heinz announced a major overhaul of its portfolio in 2001. Its North American pet food and pet snacks, US tuna, US private label and College Inn soups and infant feeding businesses were all transferred into Del Monte Foods, in a deal worth around $1.8bn. The enlarged Del Monte business was then spun off to shareholders. Instead Heinz focused its attention on "meal enhancers" (its ketchup, sauces and condiments), meals and snacks, including frozen food. See also Kraft Foods Group, Nabisco and Cadbury for history.

Last full revision 21st November 2017

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