H.J. Heinz Co. said yesterday that it is combining all of its U.S. grocery and food-service businesses, including StarKist foods and Heinz pet products, into a Pittsburgh-based $5 billion operation.
Heinz--which sells more than 5,700 brands in 200 countries--also announced that it will combine the sales forces of Heinz USA, StarKist Seafood, Heinz pet products and Heinz Frozen Food into a single company, Heinz Sales Co., led by David C. Moran as president.
"The combination of our North American businesses will maximize the efficiency and growth opportunities of Heinz's people, brands and operating systems," said William R. Johnson, president and chief executive of Heinz.
Under the restructuring, Heinz will set up a North American campus in Pittsburgh to house the headquarters of the business units for Heinz USA, StarKist Foods and Heinz Frozen Food. A common business support center will provide functions such as human resources, finance and accounting, and information technology.
In July, Heinz incorporated Ore-Ida and Weight Watchers Gourmet Food Co. into Heinz Frozen Food Co.
Earlier this year, Heinz launched a restructuring program called Operation Excel aimed at creating manufacturing "centers of excellence," pruning the product portfolio, realigning the management teams and creating new growth opportunities.
The company expects Operation Excel, which will involve closing down some plants and the sale of non-core brands, to generate more than $200 million in annual pretax savings.
Analysts see the new restructuring as an extension of Operation Excel. "The primary driver seems to be to get some cost out of the system and make the company more efficient," said Terry Bivens, packaged-foods analyst at Bear, Stearns & Co.
Food companies have been facing flat sales and falling earnings because of market saturation and consolidation of the retail industry. Heinz's revenue for the year ended April 1999 rose just 1 percent, and net income fell to $474.3 million, from $801.6 million in 1998.
"Food companies have very little price flexibility, so they are doing what they can, which is restructure, restructure, restructure," said Richard Joy, industry analyst at S&P Equity Group.
Heinz said combining the North American operations will yield $25 million in annual savings. This, in turn, will be plowed back into brand building.
Heinz's shares rose 37 1/2 cents to close at $44 on the New York Stock Exchange.