Julie Arbore

1
Heinz

• Julie Arbore
• Chuck Creigh
• Brieyana Ott

2
Table of Contents

• Chuck
• Heinz History
• Factors of Production
• Opportunity Cost
• Implicit and Explicit Costs
• Julie
• Substitutes and Complements
• Price Elasticity
• Marginal Utility

• Brie
• 2 Types of Profit
• Monopoly
• Oligopoly
• Advertising

3
Heinz History

• Company founded in 1869
• Products have included relish, horseradish,
  pickles, sauerkraut, vinegar, and of course
  ketchup
• Includes more than 45,000 people, 200 locations
  worldwide, and 5,700 different products
• This year, Heinz will sell 650 million bottles of
  ketchup, consumed in 140 countries.
• www.heinz.com

4
Factors of Production

• Land
• Value of land on the 2002 balance sheet of Heinz
  63,075,000
• Labor
• Heinz Corporation employs more than 45,000 people
  
• On Heinzs balance sheet, salaries incurred are
  listed as 39,376,000

http//heinz.com/jsp/annual.jsp
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Factors Of Production (cont.)

• Entrepreneurial Activity
• Recognizes opportunity to fulfill an unfulfilled
  want of the consumer
• Heinz provides ketchup and other condiments to
  consumers
• Capital
• A) Human Capital- includes the skills possessed
  by the factory workers as well as the knowledge
  of the chairman of the board

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Factors of Production (cont.)

• B) Physical Capital- includes buildings,
  machinery and equipment used by the company
• Value of Heinzs instruments of physical capital
• Buildings and leasehold improvements-
  880,490,000
• Equipment- 2,929,082,000

http//heinz.com/jsp/annual.jsp
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Opportunity Cost

• Definition of Opportunity Cost
• The value of the next best alternative which must
  be given up in order to get something
• Opportunity Costs of Heinz
• Revenue loses mustard revenue when the company
  chooses to produce ketchup rather than mustard
• Rent - instead of using their buildings for
  rental purposes they use them for producing
  ketchup

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Further Costs

• Explicit costs
• out-of-pocket costs, money actually paid for
  the use of inputs
• Heinzs Income Statement shows the company
  incurred a cost of 8,597,111,000
• Implicit costs
• Returns to self-owned factors of production
• Examples- rent, interest, profit, and wages

http//heinz.com/jsp/annual.jsp
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Substitutes and Complements

• Substitute

• Complements

As Heinz holds 60 of the market for ketchup,
Hunts Ketchup is the next available brand of
ketchup for consumers to use as a substitute for
Heinz. www.heinz.com
Commonly used with ketchup, condiments such as
mustard, mayonnaise, and relish would be
complements of Heinz Ketchup.
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Price Elasticity of Demand

• the sensitivity of quantity demanded to price

• Although an exact value for the price
  elasticity of Heinz Ketchup could not be found,
  we estimated that it was INELASTIC because of the
  following determinants of price elasticity
• The number and closeness of substitutes are few.
  Hunts Ketchup is
  the only other big name brand of ketchup that
  serves as a substitute to Heinz.
• The fraction of a consumers budget spent on
  Heinz ketchup is small.
  
  A 24oz. bottle of
  Heinz Ketchup from Wal-Mart costs consumers 0.99

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Marginal Utility

• Marginal utility is defined as the change in
  total utility an individual obtains from
  consuming an additional unit of a good or
  service.
• Marginal utility for a good varies from
  consumer to consumer as different individuals
  have different tastes and opinions.
• In order to present an example of an
  individuals marginal utility in relation to
  Heinz Ketchup, I conducted a survey.

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• I asked my suitemate how many packs of ketchup
  she would purchase at McDonalds for her fries,
  at several different prices.
• I then equated the numbers to the marginal
  utility of money so that
• MUKetchup/PKetchup MUMoney/PMoney
• The price of money 1
• MUKetchup/PKetchup MUMoney/1
• MUKetchup/MUMoneyPKetchup

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Marginal Utility (cont.)

• As seen from the table, as more and more ketchup
  is consumed, the marginal utility decreases,
  illustrating
• THE LAW OF DIMINISHING MARGINAL UTILITY
• A rational consumer will continue to consume
  Heinz ketchup until their marginal utility from
  eating it is zero.

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2 Types of Profit

• Economic profit profit in which all costs, both
  explicit and implicit, are subtracted from the
  total revenue
• PTR-TC where TCtotal explicit costs total
  implicit costs

• Accounting profit profit in which only the
  accounting costs are subtracted from the total
  revenue
• PTR-TEC where TECtotal explicit costs

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Heinzs Accounting Profit(Dollars in
thousands)http//www.heinz.com/2002annualreport/p
dfs/hjh_2002_complete.pdf
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Heinzs Economic Profit

• In order to obtain Heinzs economic profit, we
  must also subtract the implicit costs from the
  total revenue
• Implicit Costs include
• Implicit Rent
• Implicit Wages
• Implicit Interest
• Implicit Profit

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Heinzs Economic Profit (cont.)

• Therefore, Heinzs economic profit would be equal
  to the accounting profit minus the foregone rent
  they could receive on their capital, the salary
  they could earn if they had a different job, the
  interest they could have made if they invested
  money in the bank or elsewhere, and the profit
  that they could have earned with another business.

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Monopoly

• Since Heinz has 60 of the market for ketchup,
  some may consider Heinz to be a monopoly in the
  market for ketchup.
• Our decision as to whether or not Heinz is a
  monopoly depends on how we define the market for
  ketchup.
• www.heinz.com

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Monopoly (cont.)

• If we define the market as the market for Heinz
  ketchup, then we would consider Heinz to be a
  monopoly since it is the only supplier of Heinz
  ketchup which may be preferred by some consumers.
• If we define the market as the market for any
  brand of ketchup, then we would typically not
  consider Heinz to be a monopoly since there are
  other brands of ketchup that consumers can choose
  to purchase.

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Oligopoly

• An oligopoly is a market structure in which a
  few firms produce a large percentage of the total
  industry output.
• In the market for ketchup, Heinz would be
  characterized as one of the firms that makes up
  an oligopoly rather than a monopoly.
• The oligopoly would also consist of at least one
  other firm such as Hunts.

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Advertising

• Today, Heinz typically focuses their advertising
  on their new products.
• Some of their latest versions of the ketchup
  include Organic ketchup, EZ Squeeze ketchup,
  Ketchup Kickers, and Colored ketchup.

• Through advertising, Heinz has been
  differentiating its products from those of other
  companies since the 1800s.
• In fact, the 57 Varieties slogan that made Heinz
  famous was developed slightly before the turn of
  the century.

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Examples of Past Advertisements
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Colored Ketchup

• One example of Heinzs more recent advertisements
  are those which advertise their colored ketchups
  that are directed toward children.
• Last year, Heinz introduced EZ Squirt Blastin'
  Green and Funky Purple ketchup which proved to be
  very successful.
• This April they plan to introduce EZ Squirt
  Mystery Color which will include three new
  colors Passion Pink, Awesome Orange, and Totally
  Teal. The mystery is that consumers won't know
  which color is inside until the very first
  squeeze.

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Any Questions?

• Henry John Heinz liked to put it "To do a common
  thing uncommonly well brings success."