Struggling with mature brands in a stagnant economy, Heinz has seen some losses. Most recently, weak sales of StarKist tuna and Weight Watchers foods and diet classes cost the company a 29% drop in fourth-quarter profit for the fiscal year ended April 27. Sales were down 1% for the year, to $7.05 billion, even though profits were up 52%, to $602.9 million.
Heinz executives are bullish about the future, in- sisting there will be double-digit sales increases for fiscal 1995. But market observers are not so sure.
"Their situation is like a lot of companies," said Bill Leach, analyst with Donaldson, Lufkin & Jenrette, New York. "The whole food industry seems to have given up the ghost. General Mills, Sara Lee, etc. are all struggling and all mysteriously expecting to return to double-digit growth."
Heinz may have a better chance than some, but its strategy won't warm the hearts of the U.S. ad community.
Foodservice-the company's No. 1 segment with 19% of Heinz's business-is a key part of the growth plan. Already the premier single-serve foodservice provider in the U.S., Heinz expanded its presence with the May purchase of Borden Foodservice. Previously, the company acquired Arimpex, one of Italy's leading foodservice suppliers.
"It's not a sexy category, but it's a growing one," said Ted Smyth, VP-corporate affairs. "And I do think you'll see more advertising from hotels and other users talking about the brand names in their foodservice to distinguish themselves from the competition."
Foodservice is also attractive because of the absence of slotting allowances and other retailer demands that many U.S. package-goods companies claim are draining their resources.
Heinz has been working hard to cut its spending on trade allowances and coupons to fund more direct-to-consumer outreach. But don't think that means more ad spending; executives said advertising dollars will stay flat this year at about $80 million.
Instead, the savings will go to direct marketing-particularly for Weight Watchers and pet foods, where company research has shown the potential for 50% sales gains, said David Sculley, senior VP.
"Heinz has a relatively low level of ad spending, and I'd expect that to continue," said Mr. Leach. "I haven't seen any Charlie the tuna or Morris the cat ads for a while. They've come down from a high of $150 million in 1988, although there have been slight increases since 1991, when spending hit $57 million."
Heinz's claim that it won't increase ad spending this year is a relief; for months, the company promised rises that never materialized. Plans for a major increase in ketchup ads, for example, promised by Chairman, President and CEO Anthony J.F. O'Reilly last year, were abandoned.
International markets in general and Asia in particular are part of Heinz's growth strategy; baby food is a special focus.
Nearly 45% of company sales now come from overseas, with $90 million of operating profit in fiscal '94 from Asia. Fueled by the acquisition of New Zealand's Watties, Heinz expects to grow its Asian business to $1 billion by the end of fiscal 1995.
"The prospects for growth abroad are better than in the U.S. I consider Heinz's international approach a big plus," said Nomi Ghez, Goldman, Sachs & Co. analyst.
Absent from much of Heinz executives' strategies for growth is talk of Weight Watchers.
The diet center business was hurt by poor weather in the key January post-holiday season this year and the food business has experienced a domino loss. On top of that, Weight Watchers International, the diet center arm, invested heavily in a new ad campaign starring TV newswoman Kathleen Sullivan. Though the spots, done by Doig Elliott Schur, New York, were well-received, it didn't expand business.
Heinz is addressing the problem.
For January, the company plans "the biggest program change in 20 years," Mr. Sculley said. The shift is said to include a new focus on cutting fat from the diet. Heinz will introduce a special dietary fat counter and is testing a body fat analyzer for use in Weight Watchers centers.
Ms. Sullivan will be featured in new ads breaking in September. A major public relations effort with the American Dietetic Association and cereal marketers will also support.
"America is the fattest country in the world, and it's getting fatter with a growing number of obese teens," Mr. Sculley said. "There is no other Heinz business that has the profit leverage for increased volume because it doesn't require building a new factory."
Heinz also plans changes in its Weight Watchers food lines, now under the direction of new President Mike McGrath. Less successful products have been pared, and prices on frozen entrees will drop 10% to 15% by Aug. 1. Product taste improvements and new packaging are promised by early fall.
Mr. O'Reilly's leadership in all of Heinz's efforts seems assured for the next few years, at least.
Despite retirement rumors and involvement in politics and the newspaper business, the flamboyant 57-year-old Mr. O'Reilly has promised to stay the course.
Echoing other analysts, Timothy Ramey of C.J. Lawrence Inc. noted, "He wants to go on the record books as a winner at Heinz, despite the plethora of negative press recently."
Julie Liesse contributed to this story.