H. J. Heinz Company

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H. J. Heinz Company

U.S. Steel Building
P.O. Box 57
600 Grant Street
Pittsburgh, Pennsylvania 15230-0057
U.S.A.
(412) 456-5700
Fax: (412) 456-6128

Public Company
Incorporated: 1900
Employees: 35,700
Sales: $7.05 billion
Stock Exchanges: New York Pacific Boston Philadelphia
SICs: 2033 Canned Fruits and Vegetables; 2091 Canned and
Cured Fish and Seafoods; 2047 Dog and Cat Food; 2032
Canned Specialties; 2037 Frozen Fruits and Vegetables;
2099 Food Preparations, Not Elsewhere Classified; 2046
Wet Corn Milling; 2035 Pickles, Sauces and Salad
Dressings; 2038 Frozen Specialties, Not Elsewhere
Classified

Perhaps best known for its ketchup, the H. J. Heinz Company manufactures thousands of food products in plants on six continents and markets these products in over 200 countries and territories. In the United States in the 1990s, Heinz ranked first in ketchup, vinegar, relish. Moreover, the company’s StarKist brand tuna led its market with a 40 percent share, and its Ore-Ida label held a segment-leading 48 percent share of frozen-potato sales. The company was also a major presence in the baby food, canned-bean, and pet food markets.

The origins of this vast food empire may be traced to Pennsylvania, where eight-year-old Henry John Heinz began selling produce from his family’s plot to nearby neighbors. At ten he used a wheelbarrow, and, by the time he was 16, Heinz had several employees and was making three deliveries a week to Pittsburgh grocers. Born in 1844 to German immigrant parents, Heinz was the oldest of nine children. He grew up in Sharps-burg, Pennsylvania, near Pittsburgh, and, after graduating from Duff’s Business College, he became the bookkeeper at his father’s brickyard. At age 21, he became a partner. (Heinz retained an interest in bricks all his life—he personally supervised the buying and laying of brick for his company’s buildings, and his office desk was often piled with brick samples acquired on his travels.) In 1869, Heinz and L. C. Noble formed a partnership called Heinz, Noble & Company in Sharpsburg to sell bottled horseradish. Their product line soon expanded to include sauerkraut, vinegar, and pickles.

Following the panic of 1873 and subsequent economic chaos, the business failed in 1875, but Heinz quickly regrouped, and the following year started afresh with the determination to repay his creditors. With his brother John and cousin Frederick as partners and himself as manager, Heinz formed the partnership of F&J Heinz to manufacture condiments, pickles, and other prepared food. The business prospered, and Heinz made good on his obligations. In 1888, the partnership was reorganized as the H.J. Heinz Company. Soon Heinz was known throughout the country as the “pickle king.”

Small, energetic, and ambitious, Heinz was a cheerful man with courtly, old-fashioned manners. He exuded enthusiasm, whether for work, family, travel, religious activities, or good horses, and had a passion for involving others in his interests. According to his biographer, Robert C. Alberts, Heinz once installed an 800-pound, 14!/2-foot, 150-year-old live alligator in a glass tank atop one of his factory buildings so that his employees might enjoy the sight as much as he had in Florida.

In the late 1800s, the typical American diet was bland and monotonous, and the Heinz Company set out to spice it up with a multitude of products. The phrase “57 Varieties” was coined in 1892. Tomato soup and beans in tomato sauce were quickly added to the product line. Even as “57 Varieties” became a household slogan, the company already had more than 60 products. At the World’s Columbian Exposition in Chicago in 1893, Heinz had the largest exhibit of any American food company.

By 1900, the H.J. Heinz Company occupied a major niche in American business. It was first in the production of ketchup, pickles, mustard, and vinegar and fourth in the packing of olives. Overall the company made more than 200 products. Still, Heinz liked the lilt of his original slogan and in 1900 put it up in lights in New York City’s first large electric sign, at Fifth Avenue and 23rd Street. Twelve hundred lights illuminated a 40-foot-long green pickle and its advertising message.

Heinz’s clever merchandising won him a reputation as an advertising genius, but he did not allow his ambitions to overshadow his religious convictions; during his lifetime, in deference to the Sabbath, Heinz’s advertisements never ran on Sundays. Heinz Company factories were considered models in the industry, both in their facilities and their treatment of workers. The company received many awards, and Harry W. Sherman, grand secretary of the National Brotherhood of Electrical Workers of America, remarked after visiting a Heinz plant that it was “a utopia for working men.”

In 1886, Henry Heinz went to England carrying a sample case, and came home with orders for seven products. By 1905, the company had opened its first factory in England. The following year, the Pure Food and Drug Act was vigorously opposed by most food manufacturers, but Heinz, who understood the importance of consumer confidence in the purity of processed foods, was all for it, and even sent his son to Washington, D.C. to campaign for its passage.

Henry Heinz died at age 75 in 1919. At that time, the company had a work force of 6,500 employees and maintained 25 branch factories. Heinz was succeeded as president of the company by his son, Howard, who began his career with H.J. Heinz as advertising manager in 1905 and became sales manager in 1907. Howard Heinz remained president until his death in 1941. In 1939, Fortune estimated total sales for the still privately owned company at $105 million.

By the time Howard’s son H. J. Heinz II (known as Jack) became president of the company at his father’s death, he had worked in all the company’s divisions, from the canning factories to the administrative offices. He chose to launch his career as a pickle-salter for $1 a day in the Plymouth, Indiana, plant. Later he became part of the cleanup staff, then a salesperson for H.J. Heinz Company, Ltd. in England. In 1935, fresh out of Cambridge University, Jack Heinz was sent by his father to establish a plant in Australia. Heinz-Australia later became that country’s biggest food processing plant.

From 1941, when Jack took over, to 1946, H. J. Heinz’s sales nearly doubled. That year, Heinz made its first public stock offering and revealed that its net profit was over $4 million. Foreign sales of baked beans and ketchup, particularly in England, contributed substantially to the company’s success. During World War II, Jack Heinz was active in food relief and personally made four wartime trips to England to examine food problems there. The company insignia went to war too; the 57th Squadron of the 446th Army Air Force chose for its emblem a winged pickle marked “57.”

Jack Heinz’s tenure was marked by expansion of the company, both internationally and at home. Subsidiaries were launched in the Netherlands, Venezuela, Japan, Italy, and Portugal. In 1960 and 1961, the H.J. Heinz Company acquired the assets of Reymer & Bros., Inc. and Hachmeister, Inc. StarKist Foods was acquired in 1963 and Ore-Ida Foods, Inc. in 1965.

During the 25 years that H. J. Heinz II was chief executive, the food industry changed greatly. The era was marked by the rise of supermarket chains and the development of new distribution and marketing systems. In 1966, H. J. Heinz II stepped down as president and CEO, though he retained his position as chairperson until his death in February 1987.

In 1969, R. Burt Gookin, then CEO of Heinz, made Anthony (Tony) J. F. O’Reilly president of the company’s profitable British subsidiary. O’Reilly, who was managing director of the Irish Sugar Company at the time, shook up the company by working 14-hour days and stressing a policy of winning through effort. O’Reilly was an uncommon executive; he was, among other things, a world-class rugby player. In 1973, O’Reilly was named president of the parent company, and in 1976 he became CEO. Shortly after the death of H. J. Heinz II, he was also made chairperson. From the beginning, O’Reilly stressed the importance of strong financial results. Some critics claimed that this emphasis created too stressful an atmosphere; in 1979, it was learned that managers of several subsidiaries had for years been misstating quarterly earnings in order to meet their target goals and impress top management.

Overall, O’Reilly’s achievements were impressive, however. The timely acquisition of Hubinger Company in 1975 put Heinz in a position to cash in on the demand for high-fructose corn syrup when the price of sugar soared. In 1978, O’Reilly acquired Weight Watchers International, just ahead of the fitness craze that swept America.

At the same time that the company was branching out into new products, O’Reilly was cutting back on traditional businesses. By 1980, Heinz had increased volume, while cutting its number of plants from 14 to seven and reducing employment by 18 percent. O’Reilly also gave up the battle with Campbell Soup Company for the retail soup market. And when generic products hit the supermarket shelves, Heinz countered not by producing for the generics industry but by “nickel and diming it,” as he said. For example, Heinz switched to thinner glass bottles that cut the cost not only of packaging but also of transportation. When imports began to undersell StarKist tuna, StarKist decreased the size of the tuna can, just as Hershey had downsized its chocolate bar when cocoa prices soared. This ploy netted StarKist $7 million in savings. Other nickel-and-dime cost savings came from eliminating back labels from bottles, reclaiming heat, and reusing water.

O’Reilly’s strategy in the 1980s was to pare costs to the bone and to use the savings to beef up marketing, primarily advertising, in an effort to increase market share. At the same time, Heinz pursued a cautious acquisition policy. By the mid-1980s, the company had spent $416 million to acquire more than 20 companies. Return on equity increased from nine percent in 1972 to 23.3 percent in 1986.

O’Reilly’s cost-cutting war included a threat to go to contract manufacturers rather than his own plants if the same products could be purchased elsewhere for less. Such tough talk elicited substantial concessions from labor unions in 1986. O’Reilly’s hard-nosed, bottom-line strategies won Heinz recognition as one of the country’s five best-managed companies in 1986. When H.J. Heinz died the following year, O’Reilly became the first non-family member to advance to Heinz’s chair.

In 1988, Heinz bid $200 million for Bumble Bee Seafoods, the third largest tuna company in the country. The purchase would have given Heinz, whose StarKist brand already ranked number one, more than 50 percent of the domestic tuna market. Accordingly, the Justice Department prevented the purchase on antitrust grounds. Also in 1988, Heinz reorganized StarKist Foods into StarKist Seafood and Heinz Pet Products in order to strengthen seafood operations for a push abroad. In pet foods, Heinz, already a leading canned cat food producer, strengthened its dog food position through the acquisition of several regional brands.

In overseas markets, Heinz has also begun to expand into the Third World. It became the first foreign investor in Zimbabwe when it acquired a controlling interest in Olivine Industries, Inc. in 1982. Heinz also has joint ventures in Korea and China, and in 1987 the company bought a controlling interest in Win-Chance Foods of Thailand. Win-Chance produced baby food and milk products, and, of course, Heinz planned to add ketchup to the line.

O’Reilly’s strategies succeeded in the 1980s. Heinz’s sales doubled from $2.9 billion in 1980 to $6.1 billion in 1990, and net profits quadrupled to $504 million during the period. The CEO had hoped to increase Heinz’s annual revenues to $10 billion by 1994, then retire at the close of his contract in 1995. However, recession and competition from private-label products in the early 1990s thwarted that plan and held the company’s sales to $7 billion in 1993 and 1994. As Heinz’s growth slowed from its double-digit pace of the previous decade, the company’s stock declined as well—30 percent from 1992 to 1994—in spite of continuously rising dividends. As a result, O’Reilly postponed his retirement and embarked on a reorganization.

Divestments (most significantly, of the Hubinger subsidiary) in 1993 totaled $700 million. Internal cost-cutting measures included work force and management staff reductions as well as achievement of manufacturing efficiencies. In America, O’Reilly cut brand advertising by 40 percent from 1990 levels and resorted to discounting to reverse 1991’s market share losses to private labels. He shifted the company’s domestic sales focus to the high-margin food service sector, acquiring J.L. Foods from Borden Inc. in 1994 for $500 million.

But domestic operations were little more than half of Heinz’s operations in the 1990s. O’Reilly pinned his expectations for future growth on overseas markets, targeting baby food, in particular, for expansion. Heinz controlled 29 percent of the global infant food market in 1994 and completed the acquisition of Farley’s baby food of Great Britain and Glaxo Holdings plc’s baby food interests in India that year. Previously unchallenged in international baby food sales, Heinz faced a serious threat from the U. S. leader, Gerber, which was acquired by Swiss pharmaceutical giant Sandoz Ltd. and groomed for international expansion that year as well. Heinz also buttressed its interests in the Asia/Pacific region with the purchase of New Zealand’s Wattie’s Limited. O’Reilly characterized the new addition as a “mini-Heinz” in a 1994 address to the New York Society of Securities Analysts. Heinz marked its 125th year in business with flat sales that O’Reilly himself characterized as disappointing.

O’Reilly’s employment contract expired in 1995, when he would likely be replaced by one of four Heinz executives: William R. Johnson of Pet Products; David W. Sculley of Weight Watchers; William C. Springer of Heinz U.S.A.; or CFO David R. Williams. Gene G. Marcial of Business Week speculated that Heinz’s relatively low stock price might prompt a takeover bid. Despite the company’s difficulties, however, there was no denying its strong stable of brands. And in his 1994 letter to shareholders, O’Reilly asserted that Heinz remained “one of the world’s most profitable food companies in terms of operating and net profit margins.”

Principal Subsidiaries

Heinz U.S.A.; Ore-Ida Foods, Inc.; Star-Kist Foods, Inc.; Weight Watchers International, Inc.; Weight Watchers Food Company; Crestar Food Products, Inc.; H.J. Heinz Company of Canada Ltd.; Heinz Bakery Products; Heinz Service Company; Alimentos Heinz C.A. (Venezuela); H.J. Heinz Company, Limited (England); Heinz Italia S.p.A. (Italy); H.J. Heinz Central Europe S.A. (Belgium); Star-Kist Europe, Inc. (France); Heinz Iberica, S.A. (Spain); IDAL (Industrias de Alimentaçao, Lda.) (Portugal); Copaix Canning Industry S.A. (Greece); Magyar Foods Limited (England); H.J. Heinz Company (Ireland) Limited; Custom Foods Limited (Ireland); H.J. Heinz Company C.I.S. (Russia); H.J. Heinz (Botswana) Proprietary Ltd.; Olivine Industries (Private) Limited (Zimbabwe); Cairo Foods Industries SAE (Egypt); H.J. Heinz Australia Ltd.; Wattie’s Limited (New Zealand); Heinz Japan Ltd.; Heinz-UFE Ltd. (China); Seoul-Heinz Ltd. (South Korea); Heinz Win Chance Ltd. (Thailand).