Integrated Core Project: The H.J. Heinz Company Strategic Planning

Cody Blunt

Will Kittendorf

Sam Manolios

Joe Robinson

Fede Vallazza

MKT 304B, MGT 303B, FIN 302B

June 18th, 2015

Executive Summary......................................................................................................4

Situational AnalysisCompany.......................................................................................................................5Who is our company?...................................................................................................5Corporate Goals............................................................................................................5 SWOT Analysis............................................................................................................6 Organizational Structure...............................................................................................8 Capabilities and Processes............................................................................................8Industry Environment...................................................................................................8

Customers.....................................................................................................................9 Who are they?...............................................................................................................9 Recent Changes............................................................................................................10

Context.........................................................................................................................11 Industry.........................................................................................................................11 Economic......................................................................................................................12 Technology...................................................................................................................12 Societal.........................................................................................................................13 Legal.............................................................................................................................13

Collaborators................................................................................................................14

Competitors..................................................................................................................15Brief Description..........................................................................................................15 SWOT Analysis............................................................................................................17Competitive Advantage................................................................................................18 Financial Ratio Analysis of Company..........................................................................19

Growth strategy............................................................................................................20Detailed Description.....................................................................................................20 Goals and Objectives....................................................................................................22 Segmentation................................................................................................................22 Positioning....................................................................................................................24

Strategy Execution.......................................................................................................25 Product.........................................................................................................................25

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Goals............................................................................................................................25

Detailed Description....................................................................................................25 Processes.......................................................................................................................26 Outsourcing..................................................................................................................26Life Cycle Stages.......................................................................................................26 Repair Services..........................................................................................................27

Distribution................................................................................................................28 Goals..........................................................................................................................28 Level of Market Exposure.........................................................................................28 Detailed Description of the Channels Used...............................................................29Detailed Description of Supply Chain System..........................................................29

Promotion...................................................................................................................31 Goals...........................................................................................................................31 Implementation...........................................................................................................31

Price............................................................................................................................33 Goals...........................................................................................................................33 Value Proposition and Customer Price Sensitivity....................................................33 Pricing Strategy..........................................................................................................34 Breakeven Analysis....................................................................................................35

Implementation and control.......................................................................................36 Timing and implementation activities.......................................................................36Sales Estimates (Forecast).........................................................................................36 Forecasts/Estimates....................................................................................................37  Scenario Analysis and discussion..............................................................................38Base Case...................................................................................................................38Best Case....................................................................................................................40 Worst Case.................................................................................................................42Sensitivity Analysis and discussion...........................................................................44Comprehensive Financial Analysis............................................................................45 Conclusions................................................................................................................46 Works Cited...............................................................................................................47

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Executive Summary

The increasing popularity of Japanese steakhouses and oriental cuisine in the United

States has created a movement within the food industry; this movement has brought forth the

need for a new condiment. Our company, Heinz, looks to take advantage of this movement. Our

growth strategy is to manufacture and sell the highly popular Yum Yum sauce to consumers in

the retail market and to businesses in the food industry. Yum Yum sauce has yet to be bottled

and distributed on a global scale, by using our current channels of distribution we look to bring

the sauce to underserved markets here in the United States and around the world. With the

innovative manufacturing methods and a high standard of quality at Heinz, we aspire to make

Heinz’s Yum Yum sauce the most widely used condiment among consumers and businesses

alike.

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Situational Analysis

Company: H.J. Heinz

H.J. Heinz is a food processing company headquartered in Pittsburgh, Pennsylvania that

was founded in 1869 by Henry John Heinz. It employs over 32,000 people in more than 200

countries around the world. Heinz produces a variety of food products including infant and

frozen foods; they are most known, however, for their sauces and condiments. Ketchup is the

most commonly used condiment in the world and Heinz has the largest market share for that

product selling over 650 million bottles per year and generating over 11 billion in revenue for all

of its products combined. What separates Heinz from its competitors is its well-established

brand name which people have come to expect a high quality product from.

Corporate Goals

Our vision is “To be the best food company, growing a better world.” This vision is

supported by our company’s values, which include quality, integrity, consumer-driven,

ownership/meritocracy and innovation. (23)

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SWOT Analysis

Strengths: Our greatest strength is our brand name. We have had over 100 years to

develop our products and process to put the best possible product forward, as efficiently as

possible, at a reasonable price. Also included in our strengths is our diverse line of products that

meets the needs of hundreds of millions of people around the world.

Weaknesses: A weakness our company has is difficulty to increase market share due to

strong competition. Although we have the largest market share with a product as popular as

ketchup, there are still many other products, aside from sauces and condiments, which we are

searching for ways to increase our market share.

Opportunities: Opportunities for our company include developing strategies to increase

our market share in untapped markets. By having such a large amount of resources available at

our company, we have the opportunity to purchase smaller companies and use their expertise to

capitalize on those investments, ultimately increasing their revenue even more.

Threats: With the world becoming more health conscious, people may be less willing to

purchase processed foods due to their declining reputation. This could cause some instability in

the future for the food processing industry. Another threat is the increasing cost of raw materials

in areas like California, a top producer of tomatoes, which is currently enduring a historic

drought.

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Organizational Structure

Chief Executive OfficerBernardo Hees

Senior VPKristen Clark

Zone President-U.SBrendan Foley

Zone President-EuropeMatt Hill

Chief Quality OfficerAndy Keatings

Chief Financial OfficerPaul Basilio

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Industry Environment

The FDA is responsible for enforcing the Federal Food, Drug, and Cosmetic Act (FD&C

Act) and other laws, which are designed to protect consumers' health, safety, and money. These

laws apply equally to domestic and imported products. (1) The food industry is more or less,

stable. There will always be a demand for food because it is a basic necessity that all people

need. The industry is praised for its ability to deliver consistently positive returns to its investors.

Characteristics that the food industry possesses include production of food, agriculture, dealing

with outside suppliers, identifying customer wants and needs, branding and expansion. (2)

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Customers

Who are they?

Heinz has been a leader in the food manufacturing industry for nearly 150 years,

producing high-quality foods in 200 countries around the world. (23) With 60% of their market

in Europe and North America and 40% in Asia and Australia, our customers are quite diverse.

(22) Our target customers are ideally middle class, young adults who provide food and groceries

for his/her family. Consumers choose our company because of its well-established brand name,

company history, quality products and fair prices. Our customers are health conscious, budget-

oriented, and value-driven. To satisfy customer needs, we have focused on producing foods in a

healthy and sustainable way by creating all-natural products. Many of our products are budget

friendly and high in quality, which is sought after from our target market.

Japanese steakhouses and Hibachi restaurants have taken over the restaurant industry in

the past few years and are loved by young adults everywhere. This new trend has enabled our

company to take this opportunity to create a new product in its line of condiments called Yum

Yum sauce. Yum Yum sauce is used in these restaurants to accompany sushi and other Asian

cuisine; however, it is not available on the shelf at the grocery store. Continuing to create an all

natural, budget friendly product, the new bottled Yum Yum sauce will be the next big thing on

everyone’s grocery list. Consumers are going to love the idea of being able to create an Asian

inspired dinner in the comfort of their own home, they can also appreciate the budget friendly

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price of our condiment. This will create a better value for a consumer than paying for an

expensive meal at a restaurant.

Recent Changes

In the past few years, we have been paying special attention to developing and

implementing a universal Sustainability Process that has reduced energy consumption, water

consumption, and greenhouse gas emissions in our facilities all across the globe. Our mission is

to attain sustainability by continuing to reduce consumption and increase our use of renewable

energy resources. (3) By doing so, we have received a number of different awards. We were in

the top 500 for Newsweek’s Green Rankings and in the top ten for most transparent company as

well. We also received an award for the Best Incorporation of Ethical Sourcing/Certification in

2012. (4)

More recently, something huge has been taking place at Heinz. We have decided to

merge with Kraft Foods under the new ownership of Berkshire Hathaway and 3G Capital. This

new company, Kraft Heinz, will create the fifth-largest Food and Beverage Company in the

world. With sales of nearly $28 billion a year, their goal by the end of 2017 is to generate $1.5

billion in annual cost savings. Both companies have agreed upon the merger, but will still need

approval and the support of Kraft shareholders. The companies expect the deal to close in the

second half of 2015. Once the deal is complete, Heinz shareholders will own 51% of the

combined firm while Kraft shareholders will own 49%. (5)

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Context

Industry

We are involved in the food industry and our most famous product is our Heinz 57

ketchup. Heinz 57 ketchup sold to 59% of the 97% of Americans who buy ketchup for their

homes. Our customer base is very diverse; it includes retail stores, restaurants, and the military.

“The Direct competitors of Heinz are Nestle, Campbell Soup, and ConAgra. We have a net profit

margin of 8.79%, and unfortunately for the company its two direct competitors have a higher net

profit margin, which means their businesses are doing better than Heinz. Campbell Soup has a

net profit margin of 10.04%, and Nestle has a net profit margin of 11.41%.” (6)

We have merged with food giant Kraft earlier in 2015. This merger will create the 3rd

largest food and beverage company in North America and the 5th largest food and beverage

company in the world. The combined company will be called The Kraft Heinz Company and will

be headquartered in Chicago and Pittsburgh. The new company will have revenues of

approximately 28 billion with eight billion dollar brands and 5 brands between 500 million and 1

billion dollars. (7)

Economic

Economic trends can influence a fluctuation in sales drastically. For example, in the case

of a recession people tend to shy away from more expensive names brands, such as Heinz. This

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could affect sales for us in a negative way. On the other hand, if the economy were to be in a

state of incline, customers would have disposable income to spend on brands that they find have

a better taste and more quality. Current trends combined with aging populations are affecting

purchasing behavior, package sizes, price points, and innovation. We are responding to these

trends in a measured manner. In the United States, they have begun to introduce smaller

packages with more affordable prices, like their new 10 oz. ketchup pouches, which are priced

around $1.00. (7) Our brand often more expensive than store brands, but makes up for it in its

brand heritage and delicious taste.

Technology

When it comes to the technological environment, we have created new solutions in

manufacturing which will allow us to drive down cost of production and hold an advantage over

our competitors. Along with these innovations, We have recently set aside a significant amount

of money as R&D costs, as part of an initiative to continue to innovate technology to become

more sustainable and ‘green friendly’ while limiting the company’s environmental impact. In

order to do so, we have continued to decrease energy consumption by installing new

technologies and more efficient equipment and optimizing business and manufacturing

processes. (9) We have also installed a biomass boiler in our Brazilian factory that uses sugar

cane bagasse, eucalyptus chips and corn straw for fuel. This helped the factory reduce its annual

Greenhouse Gas Emissions per unit of production by approximately 60%. (8)

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Societal

Today’s society is highly educated as to what they are eating, which has sparked a high

demand for healthy, natural, and organic options. Our slogan “Grown, Not Made”, emphasizes

the purity of their products by only using the freshest ingredients and introducing a ‘Health &

Wellness’ platform which provides products with reduced sodium and trans fats. (10) As well as

being aware of what we eat, our society has also been raising questions about whether we are

aware of treating the environment fairly. In response to that, we have made an effort to become

greener by continuing to take action to reduce their environmental footprint and protect the

planet’s natural resources. In 2013, we have reduced greenhouse emissions, energy consumption,

landfill waste, and water consumption by 20% as part of our sustainability plan.

Legal

The company’s major concern with the legal/regulatory environment would be health

inspections, FDA approval, and creating a safe working environment. Our company follows a

Global Code of Conduct, which sets high standards for conducting business in a legal and ethical

manner. It is our policy to provide a safe and healthy workplace for all of our employees.

Employees are expected to comply with the Global Code of Conduct and other Company

policies in an effort to prevent harassment, discrimination, conflicts of interest and other

unacceptable behaviors. (11) All of our facilities are required to comply with the laws regulating

workplace safety and also must implement the Heinz Safety Process. Our goal is to provide

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customers with safe, nutritious, and wholesome foods. We have a highly positive reputation that

has been established by maintaining high product quality and safety. (12)

Collaborators

Kraft Foods Group, Inc.

Kraft Foods is an American grocery manufacturing and processing company that was

originally established in 1903 and reestablished in 2012. Being one of the largest consumer

packaged goods companies in North America, Kraft employs over 22,500 people across the U.S.

and Canada and $18 billion in annual sales. (13) Their market includes products in the beverage,

cheese, refrigerated meals, and grocery categories. Kraft owns many well-known brands such as,

Kool-Aid, Oscar Mayer, Cracker Barrel, Maxwell House, and JELL-O. Kraft’s mission is to

make their company the best investment in its industry and their four ingredients for success

include investing in the creativity of their people, strategically allocating resources, delivering

the right products at the right prices and freeing up cash by becoming the lowest cost producer in

its category. (14)

Kraft and Heinz, two of the biggest names in packaged foods, have recently collaborated

with each other, creating one of the world’s largest food and beverage companies. The combined

company will be called The Kraft Heinz Co., and will continue to produce their famous brands

such as Kraft Macaroni and Cheese as well as Heinz ketchup. Although this merger is still

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underway, this change will open many doors for Heinz, generating about $28 billion in annual

sales. (15)

Competitors

Brief description

The main competitor in the food manufacturing industry is ConAgra Foods. ConAgra is

one of North America’s largest food manufacturers that produce popular brands such as Orville

Redenbacher’s, Healthy Choice, and Hunt’s. ConAgra also services companies in the food

industry by providing restaurants with frozen potato products, spices, and bakery products.

Committed to providing customers with retail brands as well as privately branded items that can

be sold as retailer’s store brands, ConAgra produces the leading competitor to Heinz in the

ketchup market with its own Hunt’s Ketchup. (19)

Another company we view as a competitor is Nestle. Nestle is a Swiss multinational

company that produces items that include frozen foods, baby foods, bottled water, and breakfast

cereal. Nestle was established in 1866 and since has transformed itself into the largest consumer

goods company in the world. Nestle strives to bring consumers healthy foods that promote

wellness. The success of Nestle is largely contributed to successful joint ventures with iconic

brands such as Coca-Cola, General Mills, and L’Oreal. Nestle operates in nearly 500 factories

worldwide, across a span of 197 countries. (18)

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The final company we view as a close competitor in our market is Unilever. The Dutch

consumer goods company headquartered in London, England and in the Netherlands is the third

largest in the world. With over 400 brands available in over 190 countries, Unilever produces

goods organized into four segments that include; foods, refreshments, home care, and personal

care. Unilever’s vision of sustainable business practices and “intense sense of social purpose”

inspires them to create goods that not only make consumers feel better, but urge them to get

more out of life with the use of their products. (20)

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Competitor’s SWOT Analysis

ConAgra Nestle UnileverStrengths · Strong brand

recognition· High focus on R&D· High pricing power

· Largest variety of food and beverages· Unmatched global distribution channels· Reputable brand

· Operates in over 190 countries· Heavily funded R&D· Record of enhancing value

Weaknesses · Product recalls· Poor customer service

· Inconsistencies in quality· Social issues

· Highly competitive market· Highly priced goods

Opportunities · Online markets· International expansion

· Health food trend· Engaged in strong partnerships

· Consumer preferences in Asia· Health conscious consumer market

Threats · Tightening food regulation· Intense competition

· Leading supplier of cocoa products· Irresponsibility in quality assurance

· Generic brands in emerging markets· Competing Asian Conglomerates

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Competitive Advantage

Where we see Heinz holding a competitive advantage in creating a name brand version of

the popular Yum Yum sauce is by being the first food manufacturer to do so. None of our close

competitors or any other large food or consumer goods company has yet to create and market

their own version of this widely versatile condiment. We believe that by being the first to do so

among national brands, we can obtain a large, if not the entire portion of the market share. By

setting our selling price per bottle at $2.50 wholesale, and $2.99 retail, we believe that our

product will be affordable in most consumers’ disposable budgets.

The consumers that currently purchase other products by Heinz at a relatively similar

price will be encouraged to try our Yum Yum sauce with the hopes of trying something new and

exciting, but also something that is versatile with all sorts of foods. Our sauce will revolutionize

the market by allowing consumers to get ahold of our Yum Yum sauce at their local grocery

store or supermarket without having to go out to eat and spend more money at a restaurant.

Consumers with the fiscal ability to dine out at restaurants will also be able to enjoy our sauce

through our U.S. Foodservice distribution network, which supply restaurant chains and smaller

mom and pop establishments with our Yum Yum sauce as well as other Heinz products. For

consumers that have never had the sauce before we will open their eyes to the different types of

foods that it compliments, including chicken, steak, sushi, as well as an assortment of vegetables

by providing easy and affordable recipes that incorporate our Heinz Yum Yum sauce, listed on

the back label.

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We are known for producing high quality ketchup and sauces and doing so in a

sustainable and consumer oriented fashion. The main ingredients found in Yum Yum sauce

include; tomato paste, mayonnaise, and water. All of which are ingredients or products that we

currently use or make. This will allow us to manufacture this product without having to build

specialized factories or change any of our current manufacturing processes. Multiple different

sauces are produced simultaneously in each of the 67 Heinz factories around the world, allowing

us to produce Heinz Yum Yum sauce without delaying or halting production of other products.

Consumers will be more likely to try a new product from a trusted brand they’ve come to know

and love like Heinz, which has been a staple in most U.S. households and around the world for

over 100 years.

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Financial Ratio Analysis

Heinz Nestle Unilever ConAgra

Current Ratio

1.1 1.0 .63 1.6

Debt to Equity

214.5% 30.2% 92.66% 167.94%

Return on Equity

36.4% 21.8% 36.94% 5.76%

Price to Earnings

20.716 15.4 20.31 17.71

The current ratio is a measure of liquidity of a company at a certain date calculated by

dividing a company’s current assets by their current liabilities. Generally, companies will strive

to maintain a current ratio of at least 1 to ensure that the value of their current assets cover at

least the amount of their short term obligations. We are comparable to our competitors in the

sense that they maintain a current ratio of around 1. It is important to note that we use just-in-

time (JIT) inventory management, an inventory strategy that increases efficiency by purchasing

materials only as they are needed, thus, reducing inventory costs. (17) JIT inventory management

results in a significant reduction in the amount of working capital investments due to the fact that

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companies are able to buy exactly how much they need, when they need it. This will, in turn,

result in a significantly lower, misleading current ratio.

We feel very comfortable in our ability to pay off our current obligations with the current

assets we carry on hand. The debt to equity ratio is simply the proportion of debt financing in an

organization relative to its equity. It is calculated by dividing total liabilities by total

stockholder’s equity. With the exception of ConAgra, our debt to equity ratio more than doubles

that of its competitors’. A high debt to equity ratio is not always a bad thing. If a lot of debt is

used to finance more operations, the company could potentially produce more earnings than it

would have without the outside financing. If earnings are increased by a greater amount than the

interest costs, the shareholders benefit more because more earnings are being divided among the

same number of shareholders. Debt is also a cheaper source of finance compared to equity

because of the tax advantages. Interest paid by Heinz on their bonds is deductible on their federal

and state income tax returns, whereas dividends are not. Our large debt to equity ratio implies

that we are willing to take a much more aggressive, risk-based approach to grow our company in

order to maximize the potential benefits to the shareholders than our competitors.

Return on equity measures how efficiently a firm can use the money from its

shareholders to generate profits. It is calculated by dividing Net Income by Stockholder’s Equity.

Return on equity is a profitability ratio from the investor’s point of view, tracing its profits to

each individual shareholder dollar. We are just as efficient as Unilever when using money from

our shareholders and we are much more efficient than our other two main competitors. One of

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the reasons that we have such high ROE ratio is because they operate primarily on debt. A high

debt to equity ratio (Heinz and ConAgra) will artificially boost ROE because the company is not

primarily financed by equity. With this being said, we operate much more efficiently than

ConAgra, taking on a higher percentage of debt and returning a higher percentage of our profits

back to its shareholders. On the other hand, we operate less efficiently than Unilever, taking on a

much higher percentage of debt and returning a similar percentage of our profits back to our

shareholders.

The Price to earnings ratio evaluates a company’s current share price compared to its per-

share earnings. It is calculated by dividing Market Value per Share by EPS. In other words, this

ratio indicates the expected price of a share based on its earnings. A high price to earnings ratio

is usually indicative of positive current/future performance, thus, investors are willing to pay

more for the company’s shares. We have a higher price to earnings ratio than all of our

competitors. This means that investors anticipate higher future performance and growth, which

will result in the issuance of higher dividends.

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Growth Strategy

Detailed Description

Our growth strategy is going to revolutionize the sauce and condiment industry by being

the first national brand to bottle and sell Yum Yum sauce, the popular condiment for a variety of

foods which include chicken, steak, sushi, as well as vegetables. No other company currently

produces Yum Yum sauce on a national scale, and the only place to get it currently is Asian

cuisine restaurants or Japanese steakhouses that make it in house. Our goal with our Yum Yum

sauce is to introduce our product for consumers that will jump at the chance of trying a new type

of condiment from a notable company like Heinz. We also believe that upon discovery of the

versatility of our product, consumers will escalate the success in sales for both the H.J. Heinz Co.

and, our new line of Yum Yum sauce.

Goals and Objectives

As one of the largest and most successful food processing industries in the world, our

goal at Heinz is to create a new and exciting condiment that customers all over the globe are

going to enjoy. By following our vision to be the best food company, “growing a better world”,

we will continue to be a leader in our industry by providing our customers with the absolute best

food products available.

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Segmentation

When deciding which segments we should target when promoting our new product,

factors such as geographic areas and customers are our main focus. The geographic segmentation

that we currently use is broken up into five regions, however, the larger focus of our product is to

localize the North American and U.S. Foodservice regions which will include cities and

neighborhoods where we believe the largest market for our product is. We want our product to

appeal to the increasing popularity of Yum Yum sauce for consumers as well as supplying it to

the current and emerging restaurants that would benefit from featuring our sauce.

Our consumer segment includes young adults, middle aged with higher incomes, and

business customers. Young adults aged 18-30 are typically more open-minded to try new things,

for those that have never tried Yum Yum sauce before. For these individuals seeing our new

product on the shelves at a grocery store would be something they would be willing to purchase.

Middle-aged consumers with higher incomes have a greater purchasing power and a larger

disposable income for a product like our Yum Yum sauce. People in the middle aged segment

also do a majority of the grocery shopping for their families, making them an important market

for us to focus on.

Our business segment is comprised of quick-dining restaurants like “mom and pop”

Asian cuisine restaurants, all the way up to high-class Japanese steakhouses like P.F. Chang’s

and Benihana’s. Marketing to these types of businesses will be done with help from our

established foodservice segment. This segment already provides our condiments and sauces to

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thousands of quick serve, casual, and fine dining establishments across the U.S., utilizing current

customers of our business-to-business sales.

Positioning

Without any real competitors in the current retail markets, with the exception of a few

small local brands, Heinz Yum Yum sauce will be the first high quality version to hit the market.

As a new way to enhance foods like steak, sushi and veggies, our company would like

consumers to purchase our product knowing that it is the best tasting Yum Yum sauce available

in grocery stores and supermarkets today. We also want businesses to view our Yum Yum sauce

as a more practical way of obtaining the product, and an easier alternative to making it from

scratch.

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Strategy Execution

Product

Goals

The goal for our Yum Yum sauce is to be the first nationally branded product of its kind

on the market. By being the first mass-produced Yum Yum sauce we aspire to obtain a large, if

not the entire, market share before our competitors are capable of producing a similar product.

We also strive to make our product affordable in order to accommodate for our diverse customer

demographic. Our end goal is for Heinz Yum Yum sauce to become the most popular condiment

in the homes of consumers and in restaurants all around the world.

Detailed Description

Heinz Yum Yum sauce will be produced using the same process that is used to blend and

mix the cooked ingredients involved in making our famous ketchup. The only difference is that

Yum Yum sauce is made with a mixture of tomato paste, mayonnaise, butter, water, and a blend

of spices. Our product is a creamy dipping sauce popular when paired with a wide variety of

meats and vegetables. We will offer our product in 20 oz., clear plastic bottles, similar to those

currently used at Heinz for products such as ketchup, mustard, and relish.

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Distribution

Goals

Our goal is to distribute Heinz yum yum sauce to the largest amount of target consumers

possible. To do this, we will focus our distribution efforts primarily on getting our product on the

shelves of the nation's largest retailers like Wal-Mart, Costco, and Kroger. Another factor that

contributed to our goal selection is the use of Heinz Foodservice to distribute our product to

restaurants and businesses. Currently, Heinz Foodservice provides full-serve, quick-serve, and

noncommercial dining establishments with products to better their business. Through Heinz

Foodservice, we aspire to make our yum yum sauce the most widely used condiment in

restaurants across the United States and around the world.

Level of Market Exposure

Our popular brand name and global presence, along with over 50 brands that rank #1 and

#2 in market share will allow us to gain a high level of market exposure without overwhelming

advertising costs during the introduction of our product. Many of our target customers currently

purchase our products, so we believe the word-of-mouth advertising will be a powerful

motivating tool in attracting new customers. To increase our exposure in our business-to-

business market, we will use our Heinz Newsletter that is sent to current business customers to

inform them about products services, and specials. Within the newsletter we will introduce our

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new Yum Yum sauce as an available product for immediate purchase. For the advertisements of

our new product, we will use television, social media, and sections in the Heinz Newsletter.

Detailed Description of Channels Used

Here at Heinz, we operate in a business-to-consumer marketing channel. In order to

achieve exceptional distribution, our product is manufactured and shipped to retailers by way of

truck to ensure that Heinz Yum Yum sauce makes it on the shelf of the most highly shopped

food retailers in the United State and abroad. In order to keep track of thousands of products

traveling to hundreds of locations around the world, we have partnered with JDA, a software

company that specializes in integrating supply chains, for increased efficiency and inventory

management solutions. Our product will also use business-to-business marketing channels to

promote our sales to the restaurant industry. This will allow current and future business

customers to make orders through our Heinz Newsletter, or by going online and ordering through

our US Foodservice website.

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Promotion

Goals

Yum Yum Sauce is a product that has very high potential due to its versatility and fair

price. In order to get this product into the homes of consumers and on the tables of restaurants

we plan to use methods we have been using here at Heinz for a very long time. Our connections

and well-known brand quality will take us a long way, but our goal is to make Yum Yum sauce a

product that the average household cannot be without.

Implementation

In order to put Yum Yum Sauce in a position to really take off, we plan to continue to use

two main tools that are part of the promotional mix, advertising and public relations. We spend

over $60 million per year on advertising our products and in our opinion, an increase in that

spending is warranted with a new product like Yum Yum Sauce. Our first objective is to inform

consumers about our new product and the many ways it can be used in order to get them excited

for a new alternative to add to their pantry to improve their meals. Next, our advertisements will

need to persuade customers to purchase our Yum Yum Sauce over other condiments on the

market. Television ads would be a great way to convey these messages to millions of people in a

short period of time. Along with the capability to put a good amount of money into advertising,

we have a great public relations record. Integrating our strong P.R. record into our

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advertisements will be a good way to show consumers that Heinz is a company that is conscious

of environmental and social issues and is doing its part to help solve these issues, ultimately

creating customer loyalty.

Price

Goals Our main goal is to put our new, high quality Yum Yum sauce on the market at an

affordable price that is consistent with our current range of sauce prices. Our priority is to

maintain the satisfaction of our customers, and by keeping the price of our product relatively

low, we are able to do so. Since the production of our sauce will sell in high volumes, it will

allow us to keep our costs low and our customers happy.

Value Proposition and Customer Price Sensitivity

Our Yum Yum sauce has a value proposition similar to the other condiments sold by

Heinz. It is a highly dependable product that has great quality and is guaranteed to satisfy. Along

with dependability, our product is unique because our customers have never been able to

purchase Yum Yum sauce from a nationally recognized brand, such as Heinz. We are

introducing a brand new product to a large market of consumers, at an affordable price. Heinz is

aware that customers are sensitive to price fluctuations, but because the price of our product will

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stay low and have minimal changes, it will not affect our customers desire to purchase our

product, and therefore, will have low price sensitivity.

Pricing Strategy

Our pricing strategy for the sale of Heinz Yum Yum sauce is to charge a price of $2.50

wholesale. The product will be $2.99 retail, making the .49-cent mark-up consistent among other

condiments and sauces in the market. Potential prices we could have chosen from would include;

$2, $2.50, $3, and $3.50. Our product will be introduced at the lower end of the price range to

appeal to as many consumers as possible. In our first year, we would need to sell 135,708,340

bottles of Yum Yum sauce at a wholesale price of $2.50 to reach our break-even mark. At $2.00

per bottle, we would need to sell 113,090,284 bottles, and at $3.50 we would only need to sell

96,934,529 bottles.

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Implementation and control

Timing and Implementation Activities

Before any sales will happen, we must make capital purchases. These capital purchases

will be for new machinery and increased warehousing capacity. Our new capital purchases will

allow us to maintain our company’s current capacity without putting a strain on the rest of the

system. In addition to capital purchases, we must also purchase raw materials and hire new

factory workers to make a finished and well-polished product. Once our design is finalized,

production can start and shortly after, selling activities will ensue.

Sales Estimates (Forecast)

In 2013, Heinz sales totaled $11,528,900,000.00, 46% of these sales were from Ketchup

and Other Sauces while the remaining sales were split between Meals and Snacks,

Infant/Nutrition, and Other. Heinz has 8 lines of top-selling sauces. There were an estimated 650

million bottles of ketchup sold in 2013 at an average price of $2.00 per bottle. After some simple

math, we were able to conclude that $1.3 billion of Heinz sales were from ketchup; this comes

out to be 24.2% of all Ketchup and Other Sauces sales. By dividing the remaining 75.8% of

Ketchup and Other Sauces sales by the remaining 7 sauces, we estimated that each of the

remaining sauces generated around 10.83% of the remaining sales, or $581,781,057.14 per

sauce. (16)

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Over the last 5 years, sales have grown an average of 4.774% per year. Using this

percentage we estimated that Ketchup & Other Sauces sales for the next year would equal

$5,628,948,993.68. (16) We assume that introducing a line of yum yum sauce will not affect

ketchup sales. By assigning the same 24.2% of sales within this category to ketchup and dividing

the remaining 75.8% of the sales by 8 sauces (the remaining 7 + Yum Yum), we were able to

estimate that Heinz would sell $533,360,874.21 in Yum Yum sauce during the first year. (16)

In years two and three, we will assume that overall sales will continue to grow by

4.774%. The only calculation that would differ from year 1 is that we will assign a larger

percentage of Ketchup and Other Sauces sales to Yum Yum sauce in anticipation of the

popularity that it will gain throughout future years. We will limit our project to 3 years in order

to remain relevant and accurate when making assumptions.

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Scenario Analysis and Discussion

Base Case

Our projected base case income statement projects sales based on Heinz’s average sales

growth (4.774%) in proportion to an individual product line’s percentage of Ketchup & Other

Sauces sales as projected on Heinz’s 2014 financial statements. In this situation, we account for

the expected increase in popularity of yum-yum sauce by increasing the percentage of Ketchup

& Other Sauces sales that our new product line will enjoy in years 2 and 3. The cost of sales and

selling, general, and administrative expenses were taken as a percentage of Heinz’s total sales as

projected on their 2014 financial statements. Depreciation expense was calculated based on a

percentage of Heinz’s cost of goods sold.

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When calculating the net present value (NPV) of our project’s cash flows, the weighted

average cost of capital (WACC) found through research was 7.96% (CITATION). The weighted

average cost of capital is calculated as follows:

WACC = Re(E/V) + Rp(P/V) + Rd(D/V) (1-t)Re = Cost of EquityRp= Cost of Preferred StockRd= Cost of Debt t= Tax RateE/V = % value of equityP/V = % value of preferred stockD/V = % value of debt

In order to remain consistent and accurate, the weighted average cost of capital found in

our research will be used for all scenarios to calculate the net present value of the proposed

project.

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Because the present value of the benefits that our project brings exceeds the present value

of the costs, we would accept the project.

Internal Rate of Return

Length of Project 3 yearsInitial Investment $76,570,203.89NPV of Cash Flows $221,712,344.60

Internal Rate of Return 65.5%

Capital Budgeting Analysis

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Sensitivity Analysis and Discussion

Our new project has two different items that can greatly affect our sales, and in turn, the

overall success of the project. These two items are raw material costs and customer demand.

Heinz already has an established process to purchase raw materials at a consistent price, so this is

of lesser concern. (21) However, a drop in customer demand could be detrimental to the profits

that our project generates. If the consumer decides that our project does not have the same value

that we believe it to have, sales will probably fall. Even though the drop in sales would increase

our average costs per unit, our project would still sustain itself, as shown by our worst-case

scenario.

Comprehensive Financial Analysis

Our proposed project offers great positive potential.  If everything goes according to plan,

our straight payback period is just over a year, and our profitability index is a whopping 2.9! Due

to the nature of our business, this project is a very safe endeavor. It is very compatible with our

current operations and would simply require Heinz to diversify its product mix while

maintaining company policy. Having established itself as a household favorite, Heinz is the most

recognizable condiment brand in the world. The potential for reward under our base and best-

case scenarios is overwhelming, and even under our worst-case scenario; our project meets the

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required rate of return. Based on the results, this seems like a very reasonable project for Heinz

to take on.

Conclusion

Works Cited

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