The Hindu Business Line : Heinz to sauce it up

AFTER years of lying low trying to establish its ketchup brand, Heinz India is suddenly in the limelight. Accelerating its operations in the Indian market, it intends to become a major foods player in India.Recently, it decided to sell off its acquired baby food brand of Farex to Dumex India, the fully-owned subsidiary of the Danish East Asiatic Company. Consolidating its foods portfolio, the company, however, intends continuing to market the rest of its acquired brands from the Glaxo stable — Nycil, Complan and Glucon D — along with its flagship ketchup brand, which it introduced nearly six years ago. Having streamlined its foods portfolio, Heinz is now actively looking at other brands in the Indian market through acquisitions and even launching more ethnic sauces and condiments to suit the Indian palate.

Explaining the reasons behind exiting the baby foods business, Nilesh Patel, Managing Director, Heinz India, says, "Today, baby food is not something that we are looking at. As the active promotion of baby food has been banned, we took a strategic decision to divest the brand and focus on the areas where we are strong."

Nilesh Patel, MD, Heinz India

Farex once dominated the domestic infant food market before it lost share to Nestle's Cerelac. The brand has been under pressure as the category itself has not been growing. This combined with a ban on advertising has led to the brand losing prominence in the company's portfolio.

Having registered healthy growth rates at nearly 25 per cent in the first quarter of this year, Heinz now intends scaling up operations before it starts scouting for acquisitions. "We are actively looking at other food brands since we intend growing our food portfolio in India," says Patel.

In India, the MNC has got a three-pronged strategy for growth. Patel says, "In India we are looking at accelerating the growth in our base business along with getting growth through innovation and where appropriate, through strategic acquisition."

Besides, Heinz Worldwide has been using the route of acquisitions to grow and become profitable in the markets where it has set up its subsidiaries. In India, it started operations by acquiring Glaxo's consumer brands, in Indonesia the ABC food brand, in China it bought out two companies in sauces and frozen food) and in the Philippines it set up a joint venture).

"We have been profitable since the time we came to India due to the acquired businesses. As long as we can find the right partners and people with like-minded thinking we do not mind making strategic acquisitions. In fact, there may be opportunities where we can either acquire expertise or food brands that we can take further as we cannot stick to the portfolio that we already have," states Patel, who is open to acquiring food brands in any category.

Realising the complexities of marketing food brands in the country, Patel claims, "Indians are fussy eaters and we have to deliver the right taste, nutrition and price. The biggest challenge in India is to take the housewife away from her home to go and buy packaged food."

Meanwhile, in the Indian market, Heinz intends having a mix of locally produced as well as imported products in its portfolio. In the recent past, it has imported a chilly tomato sauce from its Thailand-based subsidiary and there are plans to introduce more ethnic brands in its sauces stable soon. "We will continue to bring in products from outside to test the market and if necessary build the ingredient base and approach suppliers here as well," adds Patel, who has been heading the company for the past 15 months.

Today, the flagship brand of Heinz Tomato Ketchup is inching up with a 6.7 per cent share in the sauce market behind stalwarts such as Kissan and Maggi. Heinz is now contemplating introducing more `Indian' versions of sauces in local flavours. "There are more opportunities within the sauces segment which we are exploring. In the next 6-12 months we are looking at some Indianised version of sauces which we will manufacture here," says Patel. Lamenting the poor infrastructure to support its future ventures, Patel feels that the development of the agricultural business is still lagging behind in terms of sourcing the right raw material for the new products. "The key challenge is to get the right raw material which is not an easy task in India," says he.

In fact, after acquiring the Glaxo brands, Heinz's entry into the ketchup market was primarily delayed as it took a while to source the right tomatoes for its ketchup. After a series of experts were flown in from its Pittsburgh headquarters to constantly monitor the contract farmers in Karnataka, Heinz finally launched its own ketchup in the country almost five years later.

Industry observers still feel the delay has affected its performance because the others by then had already taken up the `thick and natural' platform. It should have adopted a different positioning for the Indian market. Besides, Heinz should have launched its ketchup with a more Indian-sounding name if it plans to get into ethnic sauces, believe analysts.

Besides, another obstacle is the pricing of its premium ketchup. "Pricing sensitivity is a reality in India and we have to market the brands according to the local strategy where people will buy our products," says Patel, admitting that Heinz had not got its pricing right for its ketchup. Heinz ketchup is pegged at Rs 45 for 500 gm. It was Rs 65 for 500 gm a couple of years ago.)

According to a Mumbai-based retailer, the product had poor offtake and forced the company to remove its stocks from the shop shelves. After a while it bounced back with revised pricing but sales continue to be lacklustre as Maggi and Kissan continue to sell more.

Apart from focusing on its flagship brand, Heinz has also been beefing up its brands acquired from Glaxo, which continue to contribute almost 90 per cent of its turnover. For instance, Complan was recently introduced in a caramel flavour along with a shaker sipper to make the brand more exciting for kids. Glucon D too was re-launched with `shakti boosting vitamins' in a vanilla flavour while Nycil was stretched to a `cool herbal' variant with neem oil and mint as ingredients.

However, there have been product hiccups when extensions and variants have failed. For instance, Complan's coffee flavour was not favoured and consumers were not ready to chew on Glucon D biscuits either.

With almost 1,600 distributors reaching out to 4.5 lakh retailers across the country, Heinz has decided to work on its distribution network for brands such as Glucon D, which is a leader in its category with a 70 per cent share. "Glucon D is growing but not at the pace that we would like it to. We have to work on its distribution," says Patel, who is looking at revamping the company's distribution network.

Analysts question the need for prickly heat powder Nycil's inclusion in Heinz's portfolio if it wants to become a serious foods player. But Patel seems inclined not to shed Nycil and is quite clear that it is unlikely to follow the fate of Farex in his portfolio. Says he, "Nycil is not a food product but it is a brand which is working for us and dominates in its category with almost a 45 per cent share."

The Pittsburgh-based $8.4 billion American foods major is now getting serious about its intentions to prove itself in the Indian market. In spite of initial setbacks in the ketchup market, it now intends unleashing more brands from its international portfolio. "We will selectively look for products which will fit into the Indian market and may be looking at few new areas such as soups," states Patel. But again the going will be tough for the global food major as the local market already has a plethora of imported food brands.

All the same, India is getting treated as a key market for the Pittsburgh-based foods major. "India is the fourth market which is important for us after China, Indonesia and Russia," says Patel, who has worked at most of Heinz's subsidiaries abroad. Clearly Patel's plate is full but whether his consumers would like to partake more of his offerings remains to be seen.

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