HJ Heinz CFO Art Winkleblack today (20 August) admitted that the US food giant is under “no delusions” that trading will remain “tough” in Europe, where the company’s volumes fell 4% in the first quarter.
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The beans and ketchup maker saw volumes in Europe fall by 4% during the three months to 29 July and analysts questioned the company’s performance on the continent.
Winkleblack said Heinz was up against its performance in Europe in the first quarter of last year, when volumes rose 6% and insisted it had “strong results” in certain markets.
“We did have pretty good volume performance there, given the very very strong Q1 of last year that we had,” Winkleblack said.
“The European continent is stronger the further you go north and east. We had good, strong results in places like Germany, Poland and particularly strong in Russia. In the UK, [we had]some pretty good strong performance in some of the categories, particularly from a value stand-point but volume continues to be challenged.”
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By GlobalDataWinkleblack added: “We will see how the year progresses. We’re off to a good start but we don’t have any delusions that the European continent will continue to be a tough place to operate. We’re trying to do the right thing from an innovation stand-point, continuing to invest in marketing and also making sure that we’re bringing the right kind of value and price points to consumers.”
On an organic basis, Heinz saw its revenue in Europe inch up by 0.8%, although, due to foreign exchange, sales were down 14.1%. The company said its net pricing on the continent was up over 5% thanks to the impact of price increases in the previous fiscal year and reduced promotions activity in the UK.
However, Winkleblack said Heinz was stepping up plans to reach certain price points, particularly in the UK, where value remains key to consumers. He added, however, that Heinz is keen to make sure there is not an over-abundance of promotions in its categories.
“In places like the UK … hitting certain price points is more critical than ever, so we’re looking hard at pack sizes and things that could allow us to hit certain price points. We’re trying to bring value to the consumer,” he said.
“We’re also doing the right thing for the category. I think Bill [Johnson, Heinz chairman, president and CEO] would use the term ‘profitless prosperity’, which puts some of the categories in a lose-lose position, where a lot of promotional spending in a category [drives] the category down.”
Heinz has cut back the number of promotions it is running in selected markets and Winkleblack hinted that brand-owners should look more to innovation to boost brand perception among consumers.
“In most categories, the base business is pretty strong. What you’re seeing, in many cases, is a drop off – and sometimes significant – in incremental or promoted volume, as people choose not to play on the deep discounting given where commodities have gone,” Winkleblack said.
“The other thing is that private label is a factor. The good news is that we’re seeing that modertae but it’s stil quite a bit higher than where it was. It’s incumbent upon the manufacturers to keep innovating and keep doing the right thing to justify the brands.” he said.
Earlier today, Heinz published falling quarterly sales and earnings due mainly to foreign exchange.
Winkleblack said the weakness of sterling against the euro and US dollar had hit Heinz’s imports of raw materials into the UK.
The company’s reported earnings and sales – once currency fluctuation was removed from the numbers – rose.
Shares in Heinz were up almost 1.6% at $38.51 at 11:09 EST
