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June 2, 2008

In The Spotlight – Bill Johnson, Heinz

Rising costs and weak consumer spending is hitting much of the US food industry but one company weathering the storm is Heinz. Two years after a boardroom battle engulfed the ketchup maker, CEO Bill Johnson has steered the company into calmer waters and has targeted sustained growth in the years ahead. Dean Best reports on how Heinz rediscovered the ingredients for success.

Rising costs and weak consumer spending is hitting much of the US food industry but one company weathering the storm is Heinz. Two years after a boardroom battle engulfed the ketchup maker, CEO Bill Johnson has steered the company into calmer waters and has targeted sustained growth in the years ahead. Dean Best reports on how Heinz rediscovered the ingredients for success.

Two years after Heinz, the US food giant, hit the headlines for all the wrong reasons, the company is back and – in the words of one executive – is “firing on all cylinders”.

In that balmy summer of 2006, Heinz, and its management team led by CEO Bill Johnson, became embroiled in a heated and acrimonious boardroom battle with a group of activist investors.

Those investors, led by the scourge of boardrooms around the world, Nelson Peltz, had grown dissatisfied with the company’s performance. Peltz, tired of what he described as a “clubby caretaker board” at Heinz, outlined where he thought the company was going wrong – and sought to change company strategy.

Peltz and his supporters won two seats on the Heinz board but the ketchup maker had already outlined its own plans to rejuvenate the company. Two years on, and with a set of robust results in the bank, Johnson must have been tempted to refer back to 2006 and reflect on the row that threatened to split the company’s board in two when he addressed analysts on Thursday (29 May).

However, after unveiling an 8.5% rise in annual profits and a 12% jump in sales, Johnson said he preferred to look forward. “It’s always fun to look back when you’re doing well, but you don’t care and we don’t care,” Johnson told the investor forum in New York. “We’re obviously very encouraged by our success but we still see abundant opportunities for growth.”

A bullish Johnson then unveiled a plan to drive earnings over the next two years. More products will be launched, more money will go on marketing and more attention will be given to emerging markets as Heinz looks to build further growth.

Johnson wants the company to focus more on health and wellness. Healthier products are already proving lucrative for Heinz – Weight Watchers sales jumped by over a quarter last year – and Johnson sees the category as an “essential cog” in the company’s strategy.

Heinz CEO Bill Johnson

Johnson acknowledged that the food industry is facing “a time of significant challenge” and he compared US economic trends to those seen in the late 1970s and early 1980s. However, he quickly pointed to “several countervailing trends”, including growth in emerging markets and growing consumer demand for healthier food, as areas of opportunity for Heinz.

The company is well placed to benefit from the growth seen in markets like India and China and its presence overseas will help offset more stagnant growth at home. Heinz has also hinted that acquisitions could be on the horizon and has hinted that it could pounce again in Australia and New Zealand. Nevertheless, Johnson has some tough decisions to make, with plans to close a number of distribution centres being considered to lower costs and improve efficiency.

Johnson also has plans up his sleeves to build Heinz’s presence in the health and wellness category. The company is looking to launch 400 products between now and 2010 and it would be safe to assume that the innovation teams at Heinz will be asked to focus on healthier products. Understandably, Johnson is keeping his cards close to his chest but his commitment to health and wellness is certain. “It’s clear that more consumers are making conscious efforts to live healthier lives and are looking to food to help them achieve that goal,” he said.

Heinz has achieved its goals since the boardroom battle of 2006. The investor community was full of praise for the business last week, with one analyst telling a US newspaper that “from a food stock perspective, Heinz is the place to be”.

Two years ago, such a statement would have seemed outlandish. For some, Peltz should take the credit for the rejuvenation at Heinz. Just as he has since attempted at Cadbury, Peltz wanted to shake up a business he thought was under-performing.

For others, Johnson and his team have executed the company’s strategy skillfully and created a business that is well-placed to weather any economic storm in the US and capitalise on growth overseas.

What is certain, however, is that Heinz, unlike some of its domestic rivals, currently has the right ingredients for success.

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