When Henry J. Heinz's first food firm went bankrupt in 1875, he hardly had money to buy food.
Even though he wasn't obligated, he vowed to pay back his creditors.
"Setbacks drove him to try harder," Quentin Skrabec, author of "H.J. Heinz: A Biography," told IBD. "His new firm, eventually renamed the H.J. Heinz Company, would become the world's largest food processor, and no single man has ever impacted an industry, culture and market as he did."
H.J. Heinz (HNZ) still pours out tasty numbers amid its ketchup and other products, with sales at $11.6 billion in fiscal 2012 and a near doubling of its stock price since 2009.
Heinz (1844-1919) was practically born an entrepreneur. Growing up in Sharpsburg, Pa., near Pittsburgh, he was pedaling the family's garden vegetables, along with his own brand of horseradish sauce, door-to-door by age 9.
At 10 he had a garden and by 12 had expanded it to four acres and invested his profit in a horse and wagon to deliver to merchants.
That was in addition to his day job helping at his father's brickyard starting at age 10, becoming a master bricklayer, and at 15 doing the bookkeeping after attending business school at night. By 17 he was a partner in the brickyard, where he learned about manufacturing equipment and logistics.
Lightning In A Bottle
At 24 he purchased his own brickyard while still working for the family and selling coal as a sideline.
The following year, he and a friend formed Heinz, Noble & Co. to market bottled condiments and pickled food, in high demand by Americans tired of their bland diet.
Heinz quickly realized he could position his products to charge a premium by using the best ingredients and putting them in clear glass jars; competitors used dark ones to conceal their use of cheaper filler material that ranged from turnips to stomach-turning sawdust.
Heinz also pioneered inventory control, making sure the oldest product sold first; anything spoiled was removed from shelves and the store credited. He experimented with new containers and designed distinctive labels, recognizing that the packaging was as important as the ingredients in branding.
Heinz's early lesson is to develop intense customer loyalty by providing the best products and service.
Heinz, Noble was a national company by the time the economic Panic of 1873 in New York spread to Pittsburgh two years later.
The money supply had contracted because silver coins stopped being minted. And excessive railroad building jarred stocks.
Banks, without a Federal Reserve to provide stability, called in their loans. Dragged down was Heinz, who was arrested twice for an inability to return borrowed money. Although he wasn't jailed, he was humiliated when the news hit the front page. His parents were also hit, pledging their brickyard to help and losing it to his creditors.
Heinz bounced back with a vengeance in 1876, relaunching his firm as F&J Heinz Co. with brother John and cousin Frederick. His reputation for quality and integrity helped his rebuilding, which let him repay his creditors by 1879.
By 1880, annual sales reached $198,000 — worth $4.5 million now — and he had 200 employees.
Heinz wanted strong partnerships along the supply chain. So he gave his farmers the best seeds while providing warehousing for small grocers. "Protect the consumer by owning the product all the way from the soil to the table," he exhorted his managers.
"Heinz positioned his product line, factories and sales organization to capitalize on the rise of the new grocery chains like A&P in the late 19th century," said Michael Mullen, senior vice president for corporate and government affairs at H.J. Heinz. "He once said, 'A real leader does not wait for opportunity, but makes one himself.' He also applied the latest technology to production lines to process food faster and in larger quantities, eventually operating them around the clock."
In addition to maximizing the distribution benefits provided by railroads, Heinz visited trade exhibitions and factories across America and in Europe and embraced new technology, such as:
•Convenient bottles.
•Tin cans.
•A pickle sorter to allow a uniform number in each jar.
•The telephone.
A turning point in his company's marketing came in 1893 at the Columbian Exposition in Chicago.
"Heinz's booth was on the second floor in a remote location that made it easy for fairgoers to ignore," wrote Larry Schweikart and Lynne Doti in "American Entrepreneur." "He quickly assessed the problem and had a printer make small white cards that offered a free pickle to anyone presenting the card at the booth. It attracted such large crowds that fair officials had to strengthen the supports of the gallery floor. By the time the fair had ended, Heinz had given away 1 million pickles, and newspapers and magazines publicized the stunt nationally."
Three years later, he came up with the "57 Varieties" advertising slogan to convey that the company offered a big selection. That made Heinz a household name without mentioning a specific product.
The Adman
"He was a master communicator and brilliant marketer who leveraged the power of words and images to differentiate his brand and build customer loyalty," said Mullen. "He understood consumers and their desire in an increasingly industrialized world to have quality, convenience and value, so his advertising struck a chord with them."
Another economic slump resulted in flat annual sales of $1.8 million from 1893 to 1895, but by 1896 they were at $2.4 million — worth $66 million now.
Two years later, he completed a factory of the future in Allegheny City, which was later incorporated into Pittsburgh. It was one of the few facilities powered by electricity and fully fireproofed, the largest and most advanced of its kind in the world, says Skrabec.
Following the model of German paternal capitalism, he provided employees with restrooms that had running water, at a time when few homes did. The factory also had roof gardens, libraries, a gymnasium and swimming pool, an auditorium for lectures and concerts, and a hospital with free medical and dental care. While steel mills often required workdays of 12 hours all week long, Heinz gave everyone half a day off on Saturday and all day Sunday.
Teamwork
"Investing heavily in the well-being of both his employees and the larger community of Pittsburgh was a pragmatic vision of corporate social responsibility," said Michael Zigarelli, professor of leadership at Messiah College in Mechanicsburg, Pa. "But it wasn't just doing well by doing good. He truly believed he had a God-given duty to do the right thing as an expression of his Methodist faith."
Heinz's lesson: Going beyond traditional obligations to employees can make them more productive.
The building won architectural awards and became a tourist attraction, annually drawing 40,000 visitors who became ambassadors for the Heinz brand.
Another of his marketing brainstorms was when he bought what he renamed the Heinz Ocean Pier in Atlantic City, N.J., in 1898.
He extended it 900 feet over the ocean and adorned it with an edgy concept: electric signs.
He also had samples and discount coupons handed out, organized demonstrations by chefs, hosted concerts, provided plenty of sun chairs and free newspapers, and displayed his collection of curios gathered on trips around the world. It drew 15,000 visitors a day in summer and 4,000 in the winter.
The first year after opening the pier, the publicity gave H.G. Heinz Co. a 30% sales bump, according to Skrabec.
At the turn of the century, the firm boasted some of the first fully automated production lines, 2,000 permanent employees, hundreds of patents, and sales driven by decades of brand advertising, according to Skrabec. Henry Heinz was said to be a multimillionaire, but he was hardly ready to coast.
Despite another financial panic in 1907, H.J. Heinz Co. continued to thrive. When the boss died 12 years later at age 74, the firm had $17 million (or $221 million in today's money) in sales, with 9,000 full-time employees — and the world's best-known brand name.
"He was one of the few marketing geniuses of the past two centuries," said Skrabec.
