How Heinz Won Over Wall Street

With Trade Spend Down, Product Pipeline Full, Vow to Up Ad Outlay Rings True

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NEW YORK (AdAge.com) -- Could this really be H.J. Heinz?

Sales are up, discounting is down and maybe, just maybe, advertising spending will actually rise at the ketchup king for the first time in decades.
While Heinz Ketchup was one of the few brands to see a sales decline recently, the company will spend heavier on TV, print and radio beginning in April and through the summer to promote it and other products.
While Heinz Ketchup was one of the few brands to see a sales decline recently, the company will spend heavier on TV, print and radio beginning in April and through the summer to promote it and other products.

Wall Street is heaping praise on Heinz, as Credit Suisse analyst Robert Moskow deems the marketer's business platform "healthier than it has ever been," and Lehman Bros.' Andrew Lazar cites "little evidence ... to lend credence to lingering skepticism" about the previously hapless Heinz.

According to Mr. Lazar, "Heinz has been loath to spend ad dollars before they had the right price-value equation and the right innovation." Now, with spending on the grocery trade down and a supposed pipeline of 200 products ready to be unleashed in 2008, once-dubious analysts are buying Heinz's promise to pour an additional $100 million-plus into marketing for its top brands.

Towle revamps, increases marketing
Behind its change of heart is Andrew Towle, a 15-year Procter & Gamble veteran, who joined Heinz in late 2003 as VP-marketing for ketchup, condiments and sauces. In January, he was tapped as global marketing officer. Mr. Towle said Heinz's global marketing spending is up 20% this year, and efforts are under way for a much-improved website and other internet initiatives to reach Heinz's moms target.

But measured-media spending will also see a big boost. Heinz has said it would increase marketing spending this fiscal year ending April 30 by $60 million and heap an additional $50 million into marketing in fiscal 2008 -- and media is at the top of its list.

"The surge of new [product] ideas we have gives us the confidence to take the risk on advertising," Mr. Towle said.

Aversion to ads
Heinz CEO William Johnson has been vocal about his feelings that advertising -- vs. in-store trade tactics -- is indeed risky, and the company's media-spending track record clearly shows that aversion to ads. In 2006, Heinz spent only $16 million, according to TNS Media Intelligence, barely a blip compared to Kraft Foods' $940 million layout. Even if the supposed influx of advertising comes, Neuberger Berman analyst Bill Leach thinks Heinz's media support will still be minimal compared to its package-goods counterparts.

Source: TNS Media Intelligence


Despite the paltry spending, Heinz has certainly been doing something right. Nielsen scanner data for the four weeks ended Feb. 24 show Heinz's average dollar sales up 9.1%, with its Smart Ones frozen-dinners business up 16.4% and Ore-Ida potatoes up 6.9%.

Mr. Towle is shouting from the rooftops about share gains Heinz has made recently for four of its top brands: Ore-Ida, Smart Ones, Classico and T.G.I Friday's are all up nearly one share point over the last year. "We've been winning by focusing on fundamentals," Mr. Towle said, specifically citing efforts in the health-and-wellness arena such as new Ore-Ida Roasted Potatoes and various taste and packaging improvements.

Increase in media spending
While declining to name the new products (Heinz said "announcements" will be coming in May), Mr. Towle said the company will spend heavier on TV, print and radio beginning in April and through the summer to promote Heinz Ketchup, Ore-Ida potatoes, Delimex Mexican snacks, Smart Ones frozen entrees, Lea & Perrins Worcestershire Sauce and Heinz condiments. (Ketchup was one of the few brands to see a decline, down 2%.) All its brands are handled by Cramer-Krasselt, Chicago.

Based on Heinz' vow, analysts like Credit Suisse's Mr. Moskow are upgrading Heinz. He cited the company's incremental spending and innovation as the reason "we feel confident in our 5% sales-growth forecasts for fiscal 2008."

Do years of broken promises give analysts pause? Yes, but as Lehman's Mr. Lazar said, "They finally have some flexibility in their earnings stream to pay [for advertising.] I think they're in a pretty good place, and it's been years since I've said that."
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