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H.J. Heinz Co. is preparing a major restructuring that will pare its product line while boosting the company's anemic ad budget.

The plan Heinz will present to analysts March 14 in San Francisco is expected to result in asset sales, plant closures and downsizing of the $9.1 billion marketer's work force. Wall Street expects Heinz, like other similar food companies that restructured in recent months, to plow back the savings into marketing.


"Most companies [that have restructured] have reinvested in higher marketing spending," said DLJ Securities analyst William Leach, adding that he hopes "if there's a gain of 5% in earnings, Heinz will put 95% of it back into the business" through marketing spending.

While declining to comment on specifics of the plan, D. Edward Smyth, Heinz VP-corporate affairs, said, "It's fair to say there will be more advertising behind Heinz's big brands as a result."

The Heinz plan is similar to other recent moves at food companies realigning to meet business challenges in a competitive environment that makes profit-boosting price increases nearly impossible.


But there the comparison with Campbell Soup Co. and Nabisco Foods-two companies that announced similar programs last year-ends. That's because promotion-prone Heinz has long been the advertising cellar-dweller among food company advertisers.

"Wrigley and Kellogg spend about 12cents to 13cents of every [sales] dollar on marketing," said Sanford C. Bernstein & Co. analyst Steve Galbraith. "Heinz spends only about 4 cents of every dollar."

Added Mr. Leach, "Heinz spent less [on marketing] last year than it did 10 years ago."


Trade and consumer promotion has in the past decade played a much bigger role than advertising at Heinz. The company said it spent $1.7 billion on worldwide marketing, but only a fraction of that showed up in U.S. ad spending.

According to Competitive Media Reporting, the company spent only $69.4 million on U.S. measured media for the first 11 months of '96.

Excluding the $16.6 million devoted to Weight Watchers weight loss centers, that leaves only $52.8 million for all its other lines, including Heinz ketchup, StarKist tuna, pet foods, Budget Gourmet and Weight Watchers' frozen entrees-all of which took price cuts last year.

The company's advertising stinginess, in fact, led Leo Burnett USA, Chicago, to resign the Heinz account in November 1994.

The business, along with gravies and vinegars, subsequently went to Ketchum Advertising, Pittsburgh. But in a move ad industry insiders read to mean a new commitment to ad spending, Heinz again shuffled those accounts last month, moving them to DDB Needham Worldwide, Chicago.

As for divesting product lines and divisions, analysts don't expect major shifts.

"You won't see a sea change in their business mix," said Mr. Leach.


Heinz said anything divested will come from outside Heinz's six core business categories-foodservice, pet food, tuna, infant foods, ketchup/condiments and weight control. Spending hikes will go to those core categories.

Executives close to Heinz confirmed the company's restructuring will be similar in scale to the one Campbell embarked on last September (AA, Sept. 9). Under the $200 million Campbell restructuring, the company eliminated 650 jobs, announced plans to divest non-strategic businesses with $500 million in sales and used the proceeds to pump up its ad budget by 30%.

Even with an infusion of ad spending, no one expects Heinz to go to the head of the ad class in the food industry. It is heavily reliant on the foodservice category, which Chairman-CEO Anthony J. O'Reilly crowed in the annual report is "free of media expenditures and debilitating slotting allowances."


Moreover, the company appears to have held or grown share minimally in many categories through promotional outlays rather than advertising. For the year ended Dec. 29, Heinz ketchup sales were up 1.3% to $244.5 million, Information Resources Inc. reported, with its gravy brands up 1.4% to $74.8 million. Canned tuna sales were essentially flat at $1.1 billion, while baby food sales fell 7.6% to $78.7 million.

Budget Gourmet entrees were down 7.4% to $251.8 million. Weight Watchers entrees, despite a repositioning, gained only 3.5% in sales during that time, to $208 million.

While Heinz's problems are compounded by low ad spending, analysts said the company is basically in the same boat as other competitors who have restructured.

"The biggest dilemma in the food industry is how to grow earnings 10% to 15%," said Mr. Leach. "In the '80s, they raised prices. In the '90s, the way they grow

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