There are few products as warm and comforting in the mind of the average consumer as the humble baked bean, but in the past few months it has been causing more than its fair share of moans.
Observers say retailers have lost their sanity at the bottom end of the market, with prices so low the market has become destabilised through constant price undercutting.
Budget lines have dropped from 16p a can six months ago to as low as 6p or 7p, echoing the situation 18 months ago when prices as low as 4p a can prompted NestlÃ© to withdraw the Crosse & Blackwell brand.
In the game of how low can you go, the latest marketing machismo has been blamed on Heinz. The leading branded supplier has made a determined foray into own-label.
One industry insider says: “Heinz offered silly prices to the retailers as a way into the market. They took contracts on price and started a chain reaction. The retailers are using beans as a loss-leader, to draw shoppers into the supermarkets.
“A can of beans, which some customers now think is made by Heinz, costs 7p. Sooner or later people will gravitate towards own-label.”
Heinz denies it has triggered a downward spiral in prices, and points the finger at the retailers. The company says own-label production accounts for only three per cent of its business, a proportion which is big enough to keep volumes up in the factories but small enough for Heinz to make a justifiable claim that its branded products would not be threatened.
However, with the growth in the price-fighting end of the market, Heinz may be hard pressed not to leave retailers in the lurch as demand grows. Heinz will not reveal if it plans to expand its B-brand business (its term for its own-label products) but will not rule out a move into other B-brand lines, which could exacerbate the problem. If it gets the balance between B-brand and branded production wrong it could put its top products at risk.
This price war has been cited as the reason why Heinz originally abandoned a policy which seemed set in stone and moved into own-label to keep factories working.
Branded products’ share of the total beans market has dropped from 71.4 per cent by value in 1994 to 66.3 per cent this year, while own-label has grown from 28.6 per cent to 33.7 per cent (AGB).
Sales of Heinz’s branded baked beans have slipped almost one per cent by volume, from 41.2 per cent in August 1995 down to 40.3 per cent in January (AGB), despite Crosse & Blackwell’s withdrawal. Heinz dismisses this fluctuation, and points to its value share of the market which is stronger than ever.
But one industry player says: “In Heinz’s terms that’s worrying, particularly if it’s a long-term trend. Your volume base is what keeps your factories busy. They maintained going into own-label would not affect their premium baked bean share.”
Robert Bailey, marketing director for Heinz grocery products division, says the decision to supply B-brand spaghetti and baked beans is paying off because Heinz is sticking to some basic principles which keeps it out of the retailers’ clutches.
Heinz offers only one recipe for the trade – a recipe it has sold for the past five years under its Montrose label. Bailey insists Heinz will resist any demands from the retailer to make a better quality own-label.
By sticking with B-brand, Heinz maintains it can preserve the status of its own top product and protect it from being cannabilized by the cheap and cheerful versions.
The company says it will protect its brands by continuing its twin-pronged advertising strategy – generic TV advertising extolling the virtues of Heinz and direct marketing promoting specific product lines. “This is the way to protect the whole portfolio and support new introductions to the portfolio.”
Heinz has recently been struggling to meet supplies to supermarket chains and wholesalers, but the company insists this is just an unrelated blip in its sensible and successful long-term strategy to move into own-label (MW February 16).
Bailey says: “Sometimes even the best of us have demand above our expectations. Sometimes that has caught us out.”
One retail buyer for a major grocery chain puts it more pithily: “Heinz has screwed up in a big way this winter. It has had supply problems since November.”
Heinz is not frightened by the situation at the budget end of the market, where it is, after all, a newcomer: “Every manufacturer has got to make their own choices depending on their own particular circumstances rather than looking over their shoulder. We want to be seen as leading the way,” says Bailey.