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Heinz Business Strategy

Paper Type: Free Essay Subject: Marketing
Wordcount: 3544 words Published: 13th Jul 2017

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Heinz Company is a marketer and manufacturer of branded foods in the industry of global food. The company is recognized for its ketchup with a comprehensive presence in condiments, tuna, baby foods, soup and ready meals. Heinz is the US-based global food company, with a world-class portfolio of powerful brands holding no-1 and no-2 market positions in more than 50 countries. The Heinz brand has an estimated value of $20 billion with Heinz’s top-15 power brands accounting for two-thirds of annual sales.The company has no-1 or no-2 brands in 200 countries around the world, showcased by Heinz Ketchup. Other brands in the company’s portfolio include Classico pasta sauce, Ore-Ida frozen potato products, Heinz weight watchers, Plasmon baby food, and John West tuna. Heinz also uses the famous names Weight Watchers, Boston Market, T.G.I. Friday’s, Jack Daniel’s, and Linda McCartney under license. Due to potential loss in manufacturer’s brand equity, large public food manufacturers face the greatest threat from the expansion of private retailer brands and the increased power of the retail sector. The H.J. Heinz Company has a long tradition in the US market of being a number one brand, retaining a dominant position in the US and the world market. Ketchup is a case in point. However, as with many large food manufacturers, the growing share of private labels is creating a challenge . In response, rather than relying solely on its long held brand image, Heinz has made a strategic decision to invest heavily in differentiating itself further from private label offerings by improving the quality of its product to attract more quality-conscious consumers, Heinz might easily be viewed as a company with a dominate product-orientation based on its Chairman’s statement “I am convinced that quality and innovation are the way forward for Heinz.” Traill and Grunert (1997)

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Much of the innovation has been focus on what is considered core products where it has strong existing competencies and expertise. New product development constitutes an vital part of Heinz’s growth strategy. Product introductions are focus on meeting consumer’s demand for convenience, health, improved taste, and lifestyle changes. The company has made attractive consumer products by offering packaging innovations and the promotion of the health benefits of its existing products. The health dimension is critical factor in its product differentiation strategy for Heinz.There are no of examples of recent product innovations. The company introduced a new range of soups, offering nutritious contents with alternative ingredients with less salt, sugar, and fat particles. Various “specialty” soups were introduced in the UK, such as “Spicy Butternut Squash” and “Mediterranean Tomato and Bacon.” Other examples are the first microwaveable French fries tasting like restaurant fries. This product is a strong complement to its ketchup. The most successful package innovation in the US was the Heinz Easy Squeeze ketchup designed in an upside down ketchup bottle for faster and less messy dispensing. This packaging was successfully launched in 19 European countries as well as in the US and the Canadian food service. In recent years, the company has also made substantial packaging innovations in other food products with a conversion from traditional cans to more convenient solutions in single-serve microwavable packaging. Traill and Grunert (1997)


Heinz created four imperatives to gain better performance, drive profitable growth, remove the clutter, squeeze out costs, and measure and recognized performance. By “removing the clutter,” Heinz seeks to remove inefficiencies and reduce complexities of product portfolio and supply chain. The company execute a major restructuring initiative named “Streamline” aimed at reducing overhead costs. Heinz has also made a series of divestitures in an effort to refocus its business more closely on its core products. The company is focusing on its top 15 “power brands,” which account for 60 percent of total sales. The “squeeze out the cost” initiative has mainly concentrate on promotional expenditure as new systems have been execute to better track promotional spending. Through a new global procurement initiative led from World headquarters in Pittsburgh, Heinz is aiming to cut costs in both direct and indirect sourcing activities. Traill and Grunert (1997)


The company launch its first national foodservice advertising campaign, using the slogan “Insist on Heinz.” The objective of this advertisement is to attract consumers to insist on Heinz Ketchup, when it is not available in fast food restaurants or other food service establishments. Furthermore, to take full advantage of its strong position in the foodservice market, the company has created “Group 57”, a culinary expert team that supplies customers with new ideas and support. Heinz invests in consumer education by promoting the health benefits of lycopene in tomatoes. Heinz’s advertising expenses have also increased in recent years, mainly due to the launching of a new product, Ore-Ida extra crispy fries in the US. In response to increasing competition, especially from private labels, Heinz introduced a every day low pricing initiative across many product groups. The aim of this initiative is to fight off competition by creating a positive value impression among consumers. Traill and Grunert (1997)



The Fonterra Cooperative Group was formed by the merger of New Zealand Dairy Group, Kiwi Co-operative Dairies and the New Zealand Dairy Board in late 2001. It is owned by its nearly 12,000 dairy farming shareholders. Fonterra has sales of $2.15 billion and is organized in three divisions; New Zealand Milk Products (NZMP), New Zealand Milk, and Fonterra Enterprises. NZMP is the world’s largest dairy ingredients company which focuses on separating milk to its various components and then marketing these components. New Zealand Milk is the business unit manufacturing dairy based consumer and branded food products, while Fonterra Enterprises comprises an innovative venture and growth businesses supporting Fonterra’s core business activities. Since the merger there have been a number of acquisitions. Fonterra has a 50 percent stake in Australian dairy producer, Bonlac Foods Ltd, and has undertaken the formal merger of both companies’ consumer products operations in Australia and New Zealand. Other acquisitions and strategic alliances include joint ventures with Nestlé through Dairy Partners Americas in South and Central America, Dairy Farmers of America with DairiConcepts in the US, Britannia Industries Ltd in India, and Arla Foods in the UK. A handicap of traditional cooperatives is their orientation toward producers and lack of consumer awareness. However, this is changing as cooperatives discover more suitable market-oriented strategies and increasingly operate in global markets. Although capital constraints have been a primary barrier to internationalization, risk aversion is one of the most important factors discouraging the extent of internationalization (Buccola et al., 2001). The Fonterra Cooperative Group has successfully internationalized, breaking away from most models of traditional cooperatives. Its two distinct businesses structure, specialty ingredients and consumer milk products provides a hedge against fluctuating international dairy prices. Fonterra is a supplier of both consumer product and dairy ingredients. The consumer business, New Zealand Milk, was renamed in 2005 becoming Fonterra Brands. The name change was made to better reflect the company’s core brand business. Fonterra is now pursuing a strategy called ‘Winning Through Brands’ where the Fonterra name and product brand will appear on packaging as an endorsement and its worldwide reputation as a leader in dairy. Fonterra uses its expertise in dairy technology for creating value from milk as both ingredients and consumer dairy products. It is a leader in several country markets for branded consumer products such as milk, cheese, powder milk, butter and yogurt. Fonterra is ranked as the sixth largest dairy company in the world with more than two-thirds of its sales in dairy ingredients, and accounts for more than a third of international trade in dairy (Rabobank International, 2008; Fonterra, 2007). In addition, Fonterra supplements its New Zealand products with milk supplies from foreign affiliates to assure a stable supply of products for its customers.


Fonterra views milk with sophistication, seeking to lead the race to develop its nutritional potential by meeting the needs of an increasingly health-conscious world. Science and biology underpins the dairy industry both in on-farm production and in dairy product manufacturing. Biotechnology is the technology that allows Fonterra to modify biological systems, either using natural means or more advanced tools.To develop specialized products, Fonterra uses a health and nutrition team that focus on the unique health benefits of milk-derived bioactives. This team targets specific areas in response to global consumer health concerns namely: immune health, gastrointestinal health, infant nutrition, dermatology, sports health, therapeutics, bone health and animal health. Fonterra’s concentration on the development of new products to drive growth is evident in both the consumer products and the ingredient business. It established new research and development facilities in 2004 to expand its potential of new products. Fonterra also established a number of joint research projects with pioneering German vitamin producer BASF. This agreement includes developing dairy-based products for the health ingredients market, and a collaboration to develop customized, instantly-vended convenience foods for a variety of dietary needs, which will be marketed as or “point-of-sale individualized foods”.


Fonterra’s management states that “operational excellence has to be embedded in our culture”[3]. An important part of Fonterra’s global business operations is procurement of raw milk and gaining access to product markets. Fresh milk products, by their perishable and bulky nature, cannot be economically transported across long distances. Furthermore, high trade barriers on dairy products restrain global product movements. Fonterra established several strategic alliances and partners to increase efficiency and flexibility in its global supply chain. Fonterra and Dairy Farmers of America (DFA), the largest milk-collecting cooperative in the US, formed a joint venture company called DairiConcepts which combines DFA’s manufacturing sites with Fonterra’s technological expertise and innovations. DairiConcepts both strengthened Fonterra’s position in the US market and offered the cooperative the ability to better exploit its new opportunities.In addition to improving efficiencies in its South American operations, Fonterra established a joint venture with Nestlé to form Dairy Partners Americas. Comprising over 13 plants in Brazil, Argentina, Venezuela, Colombia, Ecuador, and the Americas, with more than two thirds of them ex-Nestlé staff, Dairy Partners Americas has been successfully implemented in Argentina, Brazil, and Venezuela (Datamonitor, 2008). These and other partnerships provide alternative sources of raw milk for its ingredients business, enable optimization of Fonterra’s production plan and inventory levels, and ultimately facilitate meeting customer demand in all regional markets


Fonterra focuses on conveying the message that it has high quality products stemming from research and development activity, which use healthy, natural and ecologically responsible products that are consistent with Fonterra’s rural roots. The company takes a science-based approach to developing and promoting these products by employing scientific results found in research studies and commissioning research papers and clinical studies to support its claims. In 2004, a report was published illustrating the positive benefit of feeding fortified milk powders to children. Fonterra aims to establish the image of its products in the minds of young consumers, viewing them as potential life-long consumers. For example, its website for children, (www.milkzone.com), offers interactive games, fun information, contests and links to other milk-related sites.


According to SLACK,N.CHAMBERS,S.JOHNSTON,R.2007 it refers to the listening to customers, indentifying what they want and striving to meet their requirement ‘get it right first time-every time, with zero defects’. Peter Drucker writes that ‘The purpose of business lies outside itself-that is creating and satisfying customer. The decision process is central, and structure has to follow strategy and management has to be management by objectives and self control’.

The search for the genuine keys to success in TQM implementation has become a matter of deep concern to management of companies in the world. Organizational lack of information and data on the critical factors is an obstacle to implementing TQM effectively. So, research studies on the critical factors of TQM implementation are needed. In other words, more data are required so that industries can avoid and prevent the same problems from occurring (companies which adopted TQM ended up failing or dropping the system initiative before it could really take hold), (Lau and Idris, 2001). Idris and Zairi (2006) also stated that there is a need for more empirical research to clarify how the TQM evolutionary path is related to critical success conditions within an economic sector, industry, and era. With more empirical proof, an approach to a sustainable quality strategy could be established. More research in the form of a longitudinal approach is also needed since a “snapshot design” alone would not be sufficient to capture success conditions holistically (Idris and Zairi, 2006). However, the success of the TQM research depends on the development of valid and reliable measures which replicate actual TQM practices companies adopt in the real world. Not only should the measurement be consistent within a certain study, but also across many studies (Jitpaiboon and Rao, 2007)

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 TQM can be studied from three different approaches, contributions from quality leaders, formal evaluation models and empirical research. Deming (1982, 1986). The use of statistical techniques for quality control, and proposed his 14 principles to improve quality in organizations, based on the following idea- leadership an improvement philosophy, the right production from the beginning, training for managers and employees, internal communication aimed at the elimination of obstacles for cooperation and the suppression of quantitative objectives. Juran (1986) pointed out the importance of both technical and managerial aspects, and identified the three basic functions of the quality management process: planning, organization and control, as the stages for quality improvement; he indicated that the aim of the management is to reduce the cost of mistakes, reaching a point where the total costs of quality are minimal improvement. Crosby (1979) defined 14 steps for quality improvement, including top and intermediate management commitment, quality measurement, evaluation of quality costs, corrective action, training, a zero-defect philosophy, objective setting and employee recognition.

The research by all these authors shows both strengths and weaknesses, for none of them offers the solutions to all the problems encountered by firms (Dale, 1999), although some common issues can be observed, such as management leadership, training, employees’ participation, process management, planning and quality measures for continuous improvement.

These ideas have exerted an influence upon later studies, in such a way that the literature on TQM has progressively developed from these initial contributions, identifying various elements for effective quality management. Taking the initial research as a basis, the critical factors of TQM found in the literature vary from one author to another, although there is a common core, formed by the following requirements (Claver et al., 2003),customer focus, leadership, quality planning, management based on facts, continuous improvement, human resource management (involvement of all members, training, work teams and communication systems), learning, process management, cooperation with suppliers and organizational awareness and concern for the social and environmental context.

Alongside these factors, identified both in theoretical and empirical studies, there are standardized quality models used by firms in practice as a guide for their implementation, or in order to carry out self-evaluations of their quality practices. The main models are the Malcolm Baldrige National Quality Award model in the USA, the European Foundation for Quality Management (EFQM) model in Europe and the Deming Application Prize model in Japan.

The USA model lists in seven categories the main concepts and values in quality management: leadership, strategic planning, human resources orientation, process management, information and analysis, customer and market focus and business results. The EFQM model consists of the following principles: leadership, employee management, policy and strategy, alliances and resources, process management, people results, customer results, society results and key results (EFQM, 2000). The Japanese model is grouped into ten chapters, which are in turn divided, as in the two previous models, into a number of subcriteria, in the following way- policies, organization, information, standardization, development and usage of human resources, activities ensuring quality, activities for maintenance and control, activities for improvement, results and future plans. These principles, in general, summarize the aspects defined in the literature. Thus, issues related to the participation of employees, staff, work teams and communication, amongst others, may be included within the factor of human resource management.


Impact of supply chain management

The maximization of firm value is an accepted goal of all publicly held firms. “Value” however is not a term well understood by all managers. In his book The Power of Now, the CEO of Tibco Software, Vivek Ranadive (1999) explains that many business executives confuse “value” with “profit.” Ranadive makes the distinction by saying “profit is a consequence of creating value”. Ranadive emphasizes that creating customer value is one of the few existing differentiators that can create competitive advantage while the other classic differentiators outlined by Michael Porter and others – cost leadership, quality, focus and speed – have themselves become commodities. They are simply the price of market entry (Ranadive, 1999). Thus, firms must seek other avenues to build value for their customers. Many firms have turned to supply chain management (SCM) to give them a competitive advantage in the twenty-first century.

A supply chain includes all the activities, functions and facilities involved (either directly or indirectly) in the flow and transformation of goods and services from the material stage to the end-user (Russell and Taylor, 2000, p. 373; Handfield and Nichols, 1999, p. 2). SCM aims to integrate the various structures and processes of the supply chain, facilitating and coordinating the flow of goods and services and the flow of information necessary to provide the value that customers demand. The need for such coordination grows out of several trends in the marketplace. Globalization has led to the availability of a vast set of alternative sources of materials and other inputs as well as a wider array of potential customers. Customers’ changing expectations regarding value of goods and services, combined with advances in technology and the availability of information, have driven the formation of “new forms of inter-organizational relationships” (Handfield and Nichols, 1999, p. 5). Such factors have stimulated changes in the nature of organizations’ supply chains and have led to an emphasis on coordination and integration of supply chain activities.


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