Heinz Plays Catch-up

A front page article in the June 28, 2006 Wall Street Journal talked about how the H.J. Heinz Co. is trying to win back the business of McDonald's in the US. Some highlights of the story:

• Heinz had been a supplier to McDonald's until a tomato shortage in 1973, when Heinz made a decision to support its "glass bottle" customers instead of McDonalds. McDonald's was apparently none too happy, so they decided to end the relationship with Heinz, developed their own ketchup, and outsourced production.
• A company called Golden State Foods -- who started as a supplier to Ray Kroc (McDonald's founder) with a handshake deal -- currently is the dominant ketchup supplier to the restaurant company in the US. According to the article, "McDonald's sees no reason to switch."
• McDonald's uses 250 million pounds of ketchup per year in the US.

Michael Hasco is Heinz' VP of Global Accounts has the job to win McDonald's business. Here are some of the things he's tried or is trying (starting at one end of the value chain and moving to the other):

• A special seed business that creates "proprietary tomatoes"
• Heinz process for breeding that creates "better tasting tomatoes"
• A tracing system for its crops in the event of illness or tampering
• Different packaging to reduce the need to refill dispensers as often
• "A ketchup pot that attaches to a French fry cup that would make it easier for customers to dip fries while eating in cars."

The emphasis on this last point is mine. I think that much can be learned by watching how your product is used, and modify your offering to enhance the customer experience. Here (again!) is an example of innovation that has little to do with the core attributes of the product, but can significantly affect the decision for someone to buy it. Two major lessons:

1. Innovation in the customer experience can differentiate your product.
2. Once someone is established as a loyal supplier, it is very difficult to dislodge them.

I don't know if the ketchup pot or any of the other innovations will help Heinz replace Golden State. It may very well be Golden State's business to lose. P.S. Here is a link to a list of patents that involve condiment cups and food scoops. Twelve of them.