US ketchup giant Heinz has expects to increase its investment in promotional spending, innovation and marketing over the next three months to boost volumes from its US and European business.
The company said today (25 February) that net pricing was up 1.8% in its fiscal third quarter, contributing to a jump in reported sales of almost 13%.
However, management revealed that Heinz is becoming increasingly focused on “targeted promotions”, particularly in the US and UK.
Speaking during an analyst conference call, EVP and CFO Art Winkleblack also revealed that the company’s focus on offering consumer value would continue in the final quarter of the fiscal.
“Net pricing was favourable for the [third] quarter, even with increased SG&A promotional spending. Net pricing will be harder to gain as we go forward – really the key drivers will be volume and margins,” Winkleblack said.
While higher SG&A trade spending did lower the group’s year-on-year price mix, management insisted that it was also benefiting from “mix enhancing innovation” such as Heinz Steamer Mash, which, Margaret Nollen, VP of investor relations said, was “taking premium to the potato category”.
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By GlobalDataIn the final quarter, Heinz said that it is preparing to roll out a series of new products and line extensions, including expanding its Smart Ones, TGI Fridays and Boston Market frozen entrées.
The frozen entrée category has seen a high degree of promotional activity in the US, with both Nestle and ConAgra launching discounting initiatives. Heinz, which last year stepped down its level of promotions, indicated today that it is now “back out there and playing the game”.
“You’re going to see the level of Smart Ones promotions pick up relative to last year… we are restoring our promotion levels, re-engaging with the consumer, particularly behind new innovations coming out – the 24/7 line,” Nollen revealed.
However, Winkleblack emphasised that the company is “trying to be disciplined about it”.
Rather than chasing unprofitable volume, Winkleblack insisted Heinz is investing in “long term future” of the company through increased innovation and marketing in combination with cost savings.
“We expect to continue investing for the long-term health of business,” he said. “The reality is we have a very focused portfolio in North America, so our ability to invest efficiently behind those brands is high. If you combine the focus behind key brands and the focus to drive productivity in the supply chain… the gross margins are sustainable.”
During the third quarter, Heinz increased its marketing spend by 41% in order to communicate the value of its brand to consumers.
The company indicated that the investment behind its brand would continue to increase in the fourth quarter, with marketing spending likely to rise by over 50% year-on-year.