HJ Heinz’s decision to axe indefinitely its &£25m advertising and marketing budget as it undertakes a strategic review of its business following the &£470m acquisition of rival HP Foods signals a period of consolidation at the company.
In June, the company announced it is reviewing its non-core brands, which include John West and Linda McCartney. It is likely that the brands under review will be sold off as Heinz seeks to become a more focused and faster growing company.
The food giant’s decision coincides with some gloomy predictions for the advertising industry from the Institute of Practitioners in Advertising’s latest Bellwether Report. The report shows that mainstream advertising was hit in the second quarter of 2005 and marketing budgets have been cut for the first time in two years. It predicts that actual marketing spend for 2005 will be 2.3 per cent lower than expected, the first fall since autumn 2003.
Although Heinz will continue its trade marketing programme, a retail source says that the marketing freeze is an unusual move for Heinz, as it had a particularly aggressive marketing plan for the first half of the year. He says this strategy should be “paying dividends now”, but warns that it would be short-sighted to think that this momentum would carry the company through the second half of the year as well.
It is not the first time that Heinz has diverted its marketing spend away from mainstream advertising. In 1994, the company reversed its advertising strategy and, following a major agency review, moved the bulk of its spend to below-the-line. The new strategy was meant to help Heinz counter competition from own-label products and to build loyalty among consumers by using more targeted advertising channels. A consumer magazine, At Home, which showcased its products, was a central part of its strategy.
However, by 1998 the company had ditched the magazine, saying the project had come to a “natural end” and that Heinz was looking at reinvesting above-the-line. Insiders say that four years out of mainstream advertising led to a drop in brand awareness and concerns that the Heinz brand would suffer long-term damage.
While Heinz is not going to be out of the mainstream for so long this time, possible damage is still a key concern for industry observers. Adrian Goldthorpe, vice- president of strategy and innovation at branding consultancy FutureBrand, says: “If Heinz is only freezing the ad spend over the short-term, then it will not harm a brand with that kind of heritage – but over the long-term it would.”
There is also a worry that the freeze on advertising will put the brakes on brand-building, as trade marketing spend does not have the same impact upon consumers as above-the-line.
However, the food industry insider concludes: “Heinz is an incredibly analytical company and it would never do anything without looking closely at both sides.” He adds that a period of consolidation “doesn’t do any harm from time to time”, and explains: “It keeps the media buyers on their toes.”