1. COVER STORY
THE sually when shareholder some 200 countries. (Its top 15 brands over the last four years and set up an
INNOVATION U
activists call on a CEO de- account for 70 percent of sales.) In innovation and quality center in an
manding a slate of new board trying to build a platform for future ultramodern facility formerly owned by
directors, its time to circle the growth, Johnson and his senior team Siemens in suburban Pittsburgh. The
wagons, but Bill Johnson, 58, had one major advantage. Heinz facility focuses on condiments and
is nothing if not a survivor who took ketchup, according to a Harris poll, sauces, which is 40 percent of its busi-
the takeover titan at his word that he was identified along with Coca-Cola ness. (Consumers can order Heinz
PLAYBOOK
was more interested in building the as the most familiar brand in the U.S. ketchup online with personalized
brand than advancing a personal The company is also a brand leader in labels.) New product introductions
agenda. Johnson confesses that when beans, soups and infant foods in the more than doubled in fiscal 2008,
Nelson Peltz declared that his Trian U.K. and Australia. But iconic brands with a significant amount of new
innovation taking place in Europe
and China. Ten years ago, less than 2
to 3 percent of the company’s annual
How do you generate growth in a sales came from new products. Today,
that figure is somewhere between 10
mature market with tough aggres- and 15 percent. In some markets such
as the U.K., Australia and New
sive competitors and an outside Zealand, it’s north of 15. Over the next
three to five years, new products are
activist breathing down your neck expected to represent at least 15 per-
cent of overall business.
convinced he can do better? “We have more ideas in the pipeline
than we can introduce at any one
BY J.P. DONLON time,” says Johnson. “We are learning
how to differentiate small versus big,
important versus me-too.”
Group owned 5.4 percent of H.J. are not enough in a competitive world Despite the fact that Heinz’s found-
Heinz shares and lectured him on hav- food market dominated by numerous er sold his products to London’s Fort-
ing the wrong recipe for Heinz’s brands and tight margins. The chal- num & Mason as early as the 1870s,
growth, it was not an auspicious begin- lenge was to grow the core portfolio, the extent of the company’s internation-
ning. Among other things, Peltz criti- accelerate growth in emerging markets, al footprint is not generally appreciat-
cized the Pittsburgh-based company and leverage its brands on a larger ed. Johnson, who is the company’s fifth
for too much overhead, over-relying on global scale. chairman in 138 years, has pushed
incentive payments to retailers, and To do this, the company divested hard into emerging markets, which now
insufficient marketing of its brands. more than $3 billion in disadvantaged represent more than 10 percent of sales
That was 2006. Today, the relation- categories to focus on three attractive and 30 percent of its sales growth.
ship between the two is more cordial, businesses: ketchup and sauces, meals Today, 60 percent of the company’s
thanks in part to a strategy, which and snacks, and infant nutrition. It also overall revenues come from outside the
Johnson argues was still in its early days added $1.5 billion in targeted acquisi- U.S. compared to 45 percent in 1997
of implementation when Peltz came tions. But Johnson had to do more, when Johnson became CEO.
calling, that has demonstrated strong much more, if Heinz hoped to pull Despite these trends, analysts worry
results. (See five-year change of MVA ahead of giants like ConAgra Foods, that worsening economic developments
and EVA, p. 39.) Kraft and Sara Lee. He had to step up coupled with rising commodity costs
With almost $10 billion in annual the pace of innovation. might stall future growth. Johnson
revenue, Heinz has leading brands in Johnson doubled R&D spending counters that productivity growth,
CEO Magazine March 2008 37