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Heinz Seeks to Tap Mexico's Taste for Ketchup Food Giant Pours It On to Promote Flagship Product in Small, but Fast-Growing, Market By ILAN BRAT And PAUL KIERNAN Mexicans eat more ketchup by sales value than consumers in all but eight other countries. Many of them slather the thick red sauce on chicken, pasta and eggs—even pizza. At the start of 2007, U.S. ketchup giant H.J. Heinz Co. held less than 1% of the Mexican ketchup market. In fact, Mexico was such a low priority that Heinz had fewer than 10 salespeople in the country, which is nearly three times as large as Texas. Tuesday, when Heinz releases quarterly earnings, its executives plan to boast that Heinz now accounts for 12% of the ketchup poured in Mexico, where a spokesman says the company now has 150 ketchup sales and marketing employees. View Full Image Heinz Heinz Ketchup products are shown for sale at a Walmart in Mexico City. The shift illustrates how Heinz is positioning itself for growth in emerging markets. The Pittsburgh-based company sells most of its baby food, baked beans, namesake ketchup and other products in the U.S. and Europe, where sales growth is sluggish and usually comes from higher prices or one food company snatching market share from another. In some developing countries, however, packaged-food sales are surging, as fewer consumers prepare their meals from scratch. Since 2004, retail sales of packaged food, measured in metric tons, have risen 32% in the Asian-Pacific region and 27% in the Middle East and Africa. That compares with an increase of 4% in Western Europe and decline of 1% in North America, according to market researcher Euromonitor International. The future of "the industry is still very much predicated on growing in emerging markets," said Heinz Chief Executive William Johnson, in an interview. "We're going to generate disproportionate growth in" those markets. Though Heinz doesn't break out its ketchup sales in Mexico, the entire Mexican market for ketchup is a tiny fraction of the company's total annual sales of around $10 billion. Still, Heinz is excited about Mexico because the company's combined retail and food-service sales of ketchup there are growing at an annual rate of 25%, and Mr. Johnson said he expects that growth rate to continue for the next five years. By contrast, Heinz's overall sales, excluding the impact of currency translation, grew 5.5% during the fiscal year ended April 29, 2009. Heinz's management, which Mr. Johnson said overlooked Mexico while chasing sales in China, Russia, Indonesia and other emerging markets, didn't begin eyeing the country until the mid-2000s. Few restaurants in Mexico carried Heinz ketchup and, at retail, it was mostly sold in the imported-goods sections of grocery stores. Even so, Mexico's overall retail sales of ketchup had climbed more than 70% since 2000, according to Euromonitor. In April 2005, Heinz's Latin American management bought a small manufacturer in Guadalajara that supplied its own ketchup, mustard and hot sauces to restaurant chains. Among its clients were Mexican outlets of Domino's Pizza Inc., Burger King Holdings Inc. and Yum Brands Inc.'s KFC brand. Soon, Heinz began to see how popular ketchup was with Mexicans. Janet Aceves, a 28-year- old office worker is a case in point. At a Domino's one day last week, Ms. Aceves poured Heinz ketchup all over her cheese pizza before taking a big bite. The pizza sauce didn't provide enough zing for her taste buds, she said, adding, "It needs more." Ms. Aceves isn't alone in her preferences. Domino's routinely includes packets of ketchup with its pizza deliveries in Mexico. Heinz also learned that Mexicans "wanted better ketchup and were willing to pay for better ketchup," Mr. Johnson said. Fernando Pocaterra, who directs Heinz's Latin American and Caribbean business, and his team started studying rival products to see how Heinz could set its ketchup apart in Mexico. They soon found that almost all other ketchups on the market there contained starch to thicken the tomato paste, food colorings to deepen the red color or synthetic preservatives, Mr. Pocaterra said. Heinz went first to potential fast-food customers, and later to retailers, and told them that its ketchup contained none of those additives. To prove the point, the Heinz team often conducted demonstrations when meeting with customers, said Jesús García, Heinz's quality and research and development director in Mexico. Mr. García said he would bring an iodine dropper, paper plates and bottles of Heinz and whichever rival ketchup the customer was using. He would drip iodine onto dollops of Heinz and the rival next to each other on a paper plate. The competitor's ketchup would turn black—indicating the presence of starch—while Heinz's stayed the same color, he said. Customers "get a surprised look on their face because they think they're buying a quality product," Mr. García said. He tells customers that Heinz's competitors are giving them "less tomato and replacing it with food colorings and starch." The company's local competitors couldn't be reached for comment. Heinz's Mexico team scored a coup in mid-2006 by winning the contract to supply Domino's. Although the ketchup would be distributed in Domino's-branded packets, Mr. Pocaterra said the contract introduced millions of Mexican consumers to the taste of Heinz, which is a bit sweeter in Mexico than the company's U.S. ketchup formulation. Soon Heinz had the contract to supply all Burger King restaurants in Mexico, as well as another large pizza chain there. In early 2007, Heinz opened a ketchup-production plant in Guadalajara to supply distributors and restaurant chains. Mr. Johnson, the Heinz CEO, made Mexico a strategic priority for the company and set a goal of increasing sales 25% annually. At the time, Heinz still had about a 1% share of Mexico's $118 million in retail ketchup sales, according to Euromonitor. In late 2007, Heinz launched its first consumer marketing campaign in Mexico. In one TV ad, a boy held two paper plates containing Heinz and a generic ketchup at an angle; the generic ketchup slid down the plate, leaving a red smear, while the Heinz stayed put. In early 2008, Wal-Mart Stores Inc. and other large grocery-store chains in Mexico began stocking bottles of Heinz ketchup alongside several other brands. By the end of 2008, the company's share of the retail ketchup market had grown to about 9%, according to Nielsen data provided by Heinz. Mr. Pocaterra says that while its ketchup sales have been mostly confined to large retailers, such as Wal-Mart, the company recently began linking up with distributors to sell its ketchup in the mom-and-pop stores that still dominate Mexico's grocery market. The market leader in the country, Del Monte Foods Co., claims about 30% of the market, with Sabormex SA de CV second at about 20%, according to Euromonitor. "We are still far behind where we want to be," Heinz's Mr. Pocaterra said. "We want to become the market leaders."
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