The fundamentals of this transaction will be outside the scope of understanding of the HN crowd.
Why the blanket statement?
Berkshire and 3G Capital to Buy Heinz for $23 Billion
21–30 of 72 posts
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#22Earlier quoted context omitted.
living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz
I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.
Kelloggs' biggest factory is in the UK, but it has something of a strange American history: https://en.wikipedia.org/wiki/Kelloggs#History
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#23Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…
You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow it is a ripoff. What you're not considering is the value to the customer. The incremental cost of a copy of Microsoft Office (with electronic delivery they cut out virtually all of their manufacturing cost) is close to zero. Probably 12p as well. Yet Microsoft…
Ketchup is a physical product with raw material costs which requires physical storage and delivery, and must be distributed through intermediaries. It also has a shelf life, and ingredients that fluctuate in price seasonally. Your comparison is about as sensical as me complaining I can't type an essay using 100 bottles of ketchup.
However, my points are that a) we routinely pay 10x the 'value' of food products, and b) supermarkets piggy back off our conditioning by brands to offer us 'value' products which still cost 8x what they are worth without any of the advertising/marketing overhead.
The parallel would be if Macbook Airs were being made and delivered to Apple stores for $100, or cars were delivered to dealers at a cost of $2,000 and then sold to you for $20,000.
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#24Earlier quoted context omitted.
Heinz is a 100 year brand and generates about $1.3B a year in after tax cash.
1.3 / 23 is less than 6 percent ROI, and buffet thinks this is a good investment. Granted, they may think the business can be streamlined, but I still think this says a lot about the capital glut that's driving down returns. Ps: Most of this deal is financed with debt, so there buying 6% ROI with debt.
as long as the debt costs them less than 6% then free money
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#25Earlier quoted context omitted.
living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz
I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.
As an aside, I grew up very close to a Scottish castle owned by a member of the Heinz family.
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#26Earlier quoted context omitted.
You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow it is a ripoff. What you're not considering is the value to the customer. The incremental cost of a copy of Microsoft Office (with electronic delivery they cut out virtually all of their manufacturing cost) is close to zero. Probably 12p as well. Yet Microsoft…
Ketchup is a physical product with raw material costs which requires physical storage and delivery, and must be distributed through intermediaries. It also has a shelf life, and ingredients that fluctuate in price seasonally. Your comparison is about as sensical as me complaining I can't type an essay using 100 bottles of ketchup. However, my points are that a) we routinely pay 10x the 'value' of food products, and b…
You keep talking about the 'value' of products and what they're 'worth'.
Things are worth what people will pay for them. As nirvana pointed out, looking at only the marginal production cost of something is highly misleading. Heinz makes about 36% gross margins [1], which is certainly good, but it's not as if they're seeing the 'value' of that '10x' markup. And lest you think the rest of their cost is advertising to fool people into spending too much on ketchup, their total marketing (not just ads) budget is only a few hundred million[2] (at least as of 2006) vs total revenue of over $10B.
[1] http://ycharts.com/companies/HNZ/gross_profit_margin
[2] http://adage.com/article/news/heinz-ceo-boost-ad-spend-proxy...
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#27Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…
living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz
I have found the same thing about Kraft in Philly.
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#28Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…
You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow it is a ripoff. What you're not considering is the value to the customer. The incremental cost of a copy of Microsoft Office (with electronic delivery they cut out virtually all of their manufacturing cost) is close to zero. Probably 12p as well. Yet Microsoft…
The OP is assuming it is a ripoff because you can buy other producers ketchup for half the price of "brand-name" Heinz ketchup. I doubt many people would tell the difference between Heinz and something else in a double-blind test. And if they can it is because the better tasting ketchup contains more sugar which anyway is bad. Same thing with jeans, you cant see the difference (unless they have the brand printed on them) so buying Levi's is a waste of money.
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#29Earlier quoted context omitted.
living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz
I have found the same thing about Kraft in Philly.
Try to take away Tastykake from Philly.
Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion
#30Earlier quoted context omitted.
living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz
I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.
We do eat something like 95% of all baked beans they produce, however.