Heinz CEO to Boost Ad Spend; Proxy Fight Forces Hand

Marketing Issues Pivotal in Renegade Shareholder's Effort to Win Five Board Seats

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NEW YORK (AdAge.com) -- It's a running joke on Wall Street that Heinz swears to up advertising every year and never does. But the ketchup king might have the last laugh: Maybe it doesn't need to.
Heinz CEO William Johnson said he will raise ad spending by $50 million.
Heinz CEO William Johnson said he will raise ad spending by $50 million.

Proxy fight
With the wolf -- aka shareholder Nelson Peltz -- at his door fighting for control, H.J. Heinz Co. CEO William Johnson is being pushed yet again into promises of increased media spending that pass these days for beacons of hope for investors. He's pledging to raise the Pittsburgh pickle purveyor's media ante nearly $50 million this fiscal year for Heinz, Ore-Ida and Smart Ones (which received a cumulative $14 million in measured media last year). But he argues it's unnecessary.

"It's not the amount of money you spend; it's the efficiency and effectiveness of what that money produces," Mr. Johnson said. He cited the success the $8.9 billion food marketer has had turning around its North American business over the last four years, a period marked by extremely limited, or what he calls "impactful and efficacious" spending. "Interestingly enough, where we've suffered the least top-line growth is where we've spent the most [advertising] money, which is in Europe," he said.

Volume up 6.7%
Neuberger Berman analyst Bill Leach is among those who guffaw at the notion that Heinz is, yet again, vowing to spend more on advertising. "For the 30 years I've been doing this, every year they were 'raising ad spending,' and every year they didn't. They always cut it to make the numbers." Then he paused, pulling out recent 12-week domestic results for Heinz that show volume up 6.7%. "Maybe they have it right."

Others agree it's hard to argue with what one analyst called "the only half-facetious theory of Mr. Johnson's that every time the company cuts advertising, its market share improves."

Though Mr. Johnson talked, almost begrudgingly, of a plan to put most of the 20% increase in its $320 million marketing budget toward media this year, he tried to justify the added expense as a means of supporting a slew of new items made possible "because of the efficacy of what we have spent in the past."

Push for five new directors
What he didn't mention is that he's under the gun in the proxy fight Mr. Peltz is leading to get five new directors on the Heinz board. The bruising battle over marketing spending -- Mr. Peltz has proposed what Mr. Leach calls a "draconian" plan to slash trade outlays and pour the extra money into advertising -- is now being waged in the business pages as both sides flex PR power to get their views across. The final showdown comes at Heinz's Aug. 16 shareholder meeting.

Given the upcoming vote, "it comes as no surprise that [Heinz] has embraced a more advertising-oriented mantra, as that is perceived as the way to build long-term shareholder value," said Prudential Securities analyst Rob Campagnino.

Will Heinz follow through? "Historically the answer has been no," Mr. Campagnino said. But Heinz management has been saying-and doing-some of the right things lately.

Heinz's iconic brands
Aside from Mr. Peltz's quickly dispensed-of idea to change the Ore-Ida name to Heinz and "sell more ketchup," Mr. Johnson brushes off any marketing plan the investor has offered. "We have a plan; he doesn't," Mr. Johnson said. (A spokeswoman for Mr. Peltz said Trian Group, in fact, does have a plan, and it's to "reinvest in Heinz's iconic brands" and re-establish the company as a leader.)

As for Mr. Johnson's own plan, he's pleased analysts by reducing trade spending $150 million over the last four years. Some of the savings will go toward measured media, but Mr. Johnson's real enthusiasm shines through when he talks of nontraditional marketing efforts. And by that he means not the sexy text-messaging or branded-entertainment efforts pursued by some rivals, but brass-tacks tie-ins such as the coming "Meatloaf Madness" promotion for Lea & Perrins and Heinz Ketchup, or cross-promoting the company's new Fridge Door Fit ketchup bottle on the backs of single-serve pouches of ketchup in foodservice outlets.

Ketchup sales slip
A six-point-plan has been put in place for Heinz ketchup, which has seen sales slip nearly 4% over the latest four weeks despite a share increase to 60% over the last decade and top-line compound growth in the U.S. of 7% annually over the last three years.

To get back on track, Heinz's plan is to "upsize" the category (based on research that shows consumers who shift from a 24-ounce bottle to a 46-ounce bottle use 78% more ketchup.) That upsizing means innovation -- such as the Fridge Door Fit -- as well as bigger shelves, new pricing and promotional strategies to reward consumers for trading up.

And (no snickering, please) a Fridge Door Fit TV campaign from Cramer-Krasselt, New York.
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