Date: 6.07.1998
If anyone wonders whether Bill Johnson can fill the shoes of his predecessor, the new Heinz chief certainly doesn't.
ON HIS FIRST DAY as chief executive of $ 9.2 billion H. J. Heinz Co., William Johnson invited FORBES for an all-Heinz product lunch at his Pittsburgh headquarters.
We did not lose any time getting to the obvious question: Was Johnson awestruck by occupying the chair of Anthony O'Reilly, his legendary 62-year-old predecessor?
Johnson, 49, looked as if he would choke. "Tony's described as bigger than life; I hope I'm never described that way," Johnson says frostily. "It's not important."
The question was unavoidable. O'Reilly ran Heinz for 19 years and remains the largest single Heinz shareholder, with a stake worth $ 330 million. The former Irish rugby star is known for his verbal pyrotechnics, charm and salesmanship. And his ego.
"Can I get up in front of an audience and wow them with Irish humor?" Johnson asks. "No. Is that important? No. I don't mean to insult Tony, but my father's footsteps were a lot harder for me than Tony's will ever be. Tony's are a piece of cake, by comparison."
Those footsteps belonged to William (Tiger) Johnson, the former coach of the Cincinnati Bengals, who raised Bill junior in Palo Alto, Calif. Over the meatballs of an Italian wedding soup Heinz makes for institutions, Johnson tells us how he used to get physically ill before his father's games: "I was so nervous and so intense. My dad and mom would see me and just shake their heads. You don't know anybody who hates losing more than I do."
Sticking it to Johnson a bit, I asked if he's to be a caretaker. That was a mean question to put to a guy who hates to lose, but I figured getting him riled up would help reveal his character.
He almost knocked over his soup. "Absolutely not!" he roared. "Tony put Heinz's footprints across the world. My job is to bring all that together, link it and really make it a united Heinz company -- not a group of Heinz affiliates."
In that one sentence, without my even having asked for it, this new chief executive clearly articulated his vision.
The next course comes, a leafy salad. Stabbing a forkful of lettuce, Johnson goes on to forcefully characterize his management style.
"I like change. Sometimes I will change things just to keep people focused and the energy levels high." Johnson points to how in 1990 as head of Starkist Tuna, and in 1992 as president of Heinz's pet food products, he moved both headquarters to Cincinnati, just to shake things up. "We needed a dramatic cultural change," says Johnson. Both moves cost 200 Heinz employees their jobs and allowed Johnson to remake the organization to his taste. By 1996 Starkist became the big kahuna in tuna with a 47% share, up from 35% in 1990; 9-Lives cat food leaped to a 26% share, from 21% in 1988.
However, that didn't hurt Johnson's career. He became known for shaking things up.
An example is his "price-based costing," which came into play in the early Nineties when Heinz was getting slaughtered in pet food. In supermarket retailing, prices are based on costs; the retailer pays the wholesale price and adds his markup. Johnson asked: Why not price pet food on the basis of what consumers were willing to pay and drive the costs back from there?
Research showed that most people didn't want to pay more than 30 cents for a 5.5-ounce can of 9-Lives, which had been selling for more than that. Johnson cut the price to four cans for $ 1. His leap of faith paid off: Volume increased, lowering costs in the factory and with suppliers.
Result: Johnson doubled revenues and quadrupled earnings at the pet food division in his four years ending in 1996, and won the attention of O'Reilly and his board.
That was yesterday. Now he's running the whole company with sales in nearly every country in the world. And all this with Tony O'Reilly, who's staying on as chairman for two more years, watching.
Johnson's goal is to keep earnings growing at 10% to 12% in an industry where competition puts a lid on profit margins and where growth is increasingly hard to come by. "Am I satisfied? I'm a coach's son. I'm never satisfied," he says. "We will have to grow volume, and divest business to push 12%. If we deliver more than 12%, I'll turn around and spend it back against the business."
As clearly as he articulates his strategy, Johnson explains how he hopes to get there.
First, there will be a major shift in the Heinz corporate architecture. Instead of Heinz divisions managed regionally, as they have been, they will be managed in eight product categories -- from baby food to pet food to Weight Watchers.
Nibbling on his hard roll, Johnson uses the example of Bagel Bites, a Heinz snack food, to explain why. Bagel Bites have been growing rapidly in the U.S. market, and Heinz USA suggested its Canadian counterpart roll them out. Canada said in effect -- sorry, we're busy. "We missed an opportunity," says Johnson, "I guarantee you Gillette doesn't operate that way. We won't in the future."
Headquarters will be flexing its muscles regularly. Says Johnson: "In the old days we spent a lot of time cajoling affiliates -- a waste of time. Now we at headquarters decide what priorities are. That's a big cultural change."
The main course arrives: boil-in-the-bag cheese ravioli from Heinz's Rosetto line, clearly not a Weight Watchers product. Nor were any Weight Watchers foods included in this meal. Does this lunch of Heinz food without Weight Watchers signal the future?
Weight Watchers has $ 700 million in worldwide sales, but in the last decade has been a drag on earnings -- costing the career of former O'Reilly protege David Scully, who managed it.
Johnson has never been enamored of the Weight Watchers business, and wasn't overwhelmed with O'Reilly's choice of the Duchess of York as the brand spokesperson. Despite his misgivings, Johnson admits that the Duchess has done well getting media exposure for the program. Americans, more than he expected, relate to her. "Underdogs view her as an underdog," says Johnson, "The ultimate question is whether we can get Weight Watchers [to] where it makes a real difference in the future of Heinz. A year ago I would have been selling distressed merchandise. Now I have more and better options."
In the center of the table are little packages of salad dressings, scattered like worshippers before the shrine -- a Heinz bottle of ketchup, standing tall. Rightly so. Ketchup, with $ 1 billion worldwide sales, is 10% of Heinz revenues. But domestic ketchup sales have been flat for years, and Heinz's U.S. market share -- 50% five years ago -- has been nibbled to 48%.
"Starting today you'll hear more about ketchup," Johnson avers. On his first day he spent two hours in a meeting reviewing ketchup marketing. After a five-year hiatus from television advertising, Heinz recently launched a $20 million marketing campaign trumpeting that 25 tomatoes fill each bottle.
I grab that famous bottle, remarking that it has a lot of sugar. "Sucrose," Johnson corrects, and explains that if the Heinz ads do the trick, I should feel like a bad parent for walking away from the grocery shelf without buying Heinz ketchup.
Aren't Americans, increasingly into multicultural eating, turning to salsa? Johnson doesn't like the question. He points out that the two products are neck and neck in sales and that in the last year salsa sales have declined.
Heinz ketchup sales, on the other hand, have started to grow at a 5% annual rate in the U.S., which Johnson thinks he can maintain by more aggressive marketing to restaurants and by getting Americans to pour it more often on their burgers. "It may surprise you that only 40% of hamburgers are eaten with ketchup!" says Johnson, adding he is a "heavy user" himself, pouring it on eggs but not, gratefully, on his pasta.
No question: This guy believes in advertising. Along with juicing up the ketchup business, Johnson has been dusting off the images of Charlie the Tuna, Morris the Cat, and even creating a new icon, a Private Pickle for Heinz's large military market. Under Johnson, Charlie and Morris are being sent back to work to recapture brand loyalty. Says Johnson: "I'm going to brand everything I possibly can."
The food is swept away, coffee arrives, and it's time for a new subject. Heinz's board has been the target of much criticism from institutional shareholder groups for too many insiders, too much cronyism and high executive pay. Making changes could be difficult with O'Reilly, the nonexecutive chairman, in the backseat.
"I'm not going to pay attention to him in my backseat," says Johnson. "I was Tony's choice. But I'll do what I think is right. With the change of stock ownership in America to include more institutional shareholders, corporate boards will also have to evolve, and so will this one."
Cosmopolitan O'Reilly is known for the extravagant gesture -- a Heinz bash in Ireland, followed by an elegant outing at the horse races. All-American Johnson is more of an ice cream-social type. Employees threw him a surprise ice cream social his first day of work. Charlie the Tuna was there. The 7-foot stuffed pickle, too. His mom and dad were there, along with his wife and two kids.
The one person who was not there was O'Reilly. No matter whose shoes he's filling, clearly Johnson is setting out on his own two feet.
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