Heinz's surprising agreement to buy the All American Gourmet Co. from Kraft General Foods last week also buttresses Heinz's commitment to the $3.4 billion frozen dinner and entree category, where its Weight Watchers brand has been staggering for the past two years.
KGF and parent Philip Morris Cos. have been divesting non-strategic businesses, including such frozen-food brands as Birdseye and Sealtest.
Though KGF clearly had been primping Budget Gourmet for a possible sale, Heinz was a welcome surprise buyer to Wall Street. The sale price was estimated by analysts at around $200 million. Steven M. Galbraith, an analyst with Sanford C. Bernstein & Co., New York, called the Heinz buy "a terrific acquisition. It puts Heinz in a much better position to compete with Nestle and Con-Agra.
"Just like with Alpo going to Nestle, you're seeing categories where there have been several years of negative pricing ... to the point where some of the profits in these categories were completely destroyed," Mr. Galbraith said.
The buy "gives Heinz a broader product line and will give them marketing and manufacturing synergies, not dissimilar to Con-Agra's move" to buy the Marie Callendar's line of frozen entrees and potpies last month, said William Leach, an analyst with Donaldson, Lufkin & Jenrette.
Budget Gourmet, after undergoing a revamping under former president Larry Benjamin (AA, Nov. 29, 1993), has regained market share.
The line had sales of $280 million, up 9.9% for the year ended Sept. 25, according to Information Resources Inc. That gave it an 8.2% share of the category, up from 7.6%.
Weight Watchers' frozen entree sales fell 7.9%, to $173.9 million and a 5.1% share over the same period. Weight Watchers President Mike McGrath was recruited from All American Gourmet just last year.
Young & Rubicam has had the Budget Gourmet account at KGF; Ally & Gargano is Weight Watchers' agency of record.
Among their top brands-Nestle's Stouffer's and Lean Cuisine; ConAgra's Healthy Choice and Banquet; and the Heinz brands-the trio will control more than 50% of frozen dinner and entree sales when the Budget Gourmet acquisition is completed.
The only other significant brands are Campbell Soup Co.'s Swanson, with about a 10% share, and Luigino Inc.'s Michelina's brand, with a 3.2% share of dollar sales.
But both of those price-oriented brands have been only minor advertising forces.