Heinz looks to China and other emerging markets for growth

Heinz looks to China and other emerging markets for growth

HJ Heinz has raised its medium-term target to grow revenues from emerging markets to 30% of the company's total sales over the next five years.

The company, which had aimed to generate 20% of total sales in emerging markets by 2015, said that the opportunity presented by developing economies "clearly stands above the rest". Previously, Heinz has signalled its ambition for 35-40% of total sales to come from emerging markets in the longer term.

Addressing analysts at the CAGNY conference in Florida today (24 February), Heinz president, chairman and CEO William Johnson said that demographic drivers, rapid economic development and an increasing demand for western brands, flavours and tastes would all fuel growth in developing economies for years to come.

"Emerging markets' combined revenues will eclipse North American revenues – our largest single market - by 2015," Johnson predicted.

Heinz is especially bullish on the growth potential presented by its infant nutrition business in markets such as China, Johnson indicated. "Infant nutrition in emerging markets represents the intersection of our most profitable category and our fastest growing geographies," he said. Heinz is "aggressively pursuing" this opportunity and booked 35% organic sales growth at its infant nutrition business in China during the first nine months of the year, Johnson added.

Growth in emerging markets will come through a combination of organic expansion and M&A activity, Johnson said. He emphasised that there are a "substantial number" of acquisition opportunities to fuel Heinz's "build and buy" strategy in developing markets. While he noted that the rising price of potential M&A targets was deterring some competitors from acquisitive growth, he insisted that Heinz's difficulty was "prioritising" which takeovers to pursue first.

Meanwhile, in developed markets, Johnson suggested that Heinz's biggest challenge was to offset rising input costs through better price realisation and productivity gains.

Indicating that Heinz is willing to push price rises through, Johnson commented: "Our pricing actions are cost based... I have never regretted raising prices in the face of cost pressure.

"We make our decisions independent of anyone else based on our elasticity and our ability to offset higher costs with pricing and productivity. We have priced according to those elasticities."

However, he added: "There is not enough elasticity in anyone's brands to offset commodity spikes. The question is how long will it last.”

In order to drive growth in developed markets, Heinz is increasing its investment in marketing and product launches. For example, in the US, the company is expanding its TGI Fridays line with the introduction of single-serve entrees.

Previewing Heinz's third-quarter results, which will be released at the beginning of March, Johnson revealed that the group will post organic sales growth of around 2%, with organic sales from emerging markets jumping approximately 14%.

Heinz raised its outlook for the full-year to end-Arpril, upping its reported EPS range to $3.04-3.10 from its previous range of $2.95-3.05, Johnson announced.