Buffett made a splash, but the biggest Heinz story is yet to come

Reading the beans.

Warren Buffet’s Berkshire Hathaway and Brazilian billionaire Jorge Paulo Lemann have teamed up to buy Heinz for $28 m — making this the fourth largest food and beverage acquisition of all time.

As if this wasn’t enough to excite the M&A markets, Buffet has been dropping not-so-subtle hints that he’s planning some more big moves, telling CNBC that he was “ready for another elephant.” Shares of other food companies rose yesterday in anticipation of more merger activity.

Buffet, the so-called “sage of Omaha”, isn’t known for making bad calls and Heinz has had a good few years, largely on the back of rising sales in Asia, which increased by 15.6 per cent last year.

That said, there’s something peculiar and anachronistic about the enduring success of Heinz’s most famous products. I should mention that beans on toast is my comfort dinner of choice — and yet I find it bizarre that processed beans in gloopy, sugary sauce didn’t follow spam off our shelves to be replaced by new and funky exotic produce like pasta, hummous and avocados.

Not only have baked beans survived the UK’s culinary dark ages to the modern day, but unlike fish fingers and dreaded turkey twizzlers, they aren’t only fed to children too young to know better. According to the Heinz website, 1.5 million cans of Heinz baked beans are sold in the UK every day.

H J Heinz, who founded the company in 1869, bankrupted himself trying to sell horseradish to the American public before he stumbled upon his winning ketchup recipe. Heinz ketchup too has proved remarkably enduring, although our attitude towards it has changed — it was first designed to disguise the taste of rotting food, now it’s simply seen as the natural accompaniment to horse, I mean, beef burgers.

According to Forbes, Heinz’s CEO William Johnson smothers his broccoli in ketchup, which can only illustrate a scary level of commitment to the brand.

The first UK supplier of ketchup was Fortnum and Mason. Today if you were silly enough to head to the Knightsbridge store for ketchup, you’d probably have to make do with some kind of hand-squeezed Sicilian organic sun-blushed plum tomato relish priced its weight in gold. At the same time, the growing trend for posh burgers and a confused nostalgia for American-style diners (think of hip London joints like Dirty Burger, Burger & Lobster, Meat Liquor etc) means that Heinz is enjoying something of a revival among foodies too.

Not all of this is down to chance. Like Coco-Cola (also owned by Buffet) the recipe for ketchup varies according to each country’s palate — in the Philippines it contains banana. The company’s plans to expand in Asia and South America — its aiming to double sales to emerging markets in five years — was preceded by strategic acquisitions such as Food Star, a Chinese soy sauce manufacturer in 2010, and Brazilian tomato sauce maker Quero.

It will be interesting to see how the impressively adaptable brand weathers the transition back to private company and its global expansion — will Johnson be kept on as CEO? How hard will Buffet and Lemann seek to squeeze Heinz to cut costs? (Lemann has form here) How much will Heinz be affected by rising commodity prices? Will an ever-more global Heinz outgrow its Pittsburgh roots? And — most important for us here in the UK — are the 2,700 jobs at Heinz’s Wigan branch safe? Buffet’s takeover has made a big splash, but one senses there are bigger Heinz stories to come.

Sophie McBain writes for Spear's magazine.

Photograph: Getty Images

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.