Opinion Page
StarKist Tuna Sold, A New Era ?
(By
Henk Brus, June 13, 2002)
With the news today that StarKist tuna has been sold to the Texas Pacific Investment group, we might be at the beginning of a new era. The U.S canned tuna business has been plagued the last decade with very low profit margins or losses, which have led to many take-overs of the major U.S brands. With the sale of StarKist tuna this might the start of an era with better earnings in the branded canned tuna sector in the U.S.A.
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With about 40% overall market share of the U.S canned tuna business, StarKist / Heinz has been dominating the retail tuna business. With the Bumble Bee brand having 24 % and Chicken of the Sea 18%, Heinz/ StarKist has set the trend for the last decades in U.S tuna. Through a strong vertical integration StarKist had hoped to be able to rule the global tuna business. It operated its own vessels, in own can making facilities and canneries. Besides that the controlled the marketing through their StarKist tuna brand, with its icon : “ Charlie the Tuna”.
But vertical integration did not bring the expected profit to the Pittsburgh based company. Although the combined the major tuna brands control more then 82% of the market, and private label has only about 17%, the supermarkets managed to keep prices down. The relentless competition between StarKist, the two other brands and private label made “Charlie the Tuna” , the “Problem Child” of Heinz.
StarKist has not managed to create the much-needed profit to Heinz that Wall Street has been looking for. With the sale to the Texas Pacific Group, which also owns a 47% share of Del Monte, StarKist might be looking more for profit then ever before. In the past the U.S retail tuna business has been predominantly volume-, and market share orientated. With the sale to Texas Pacific / Del Monte, it is likely that there will be a shift from volume to higher margins.
The combination of the Del Monte and StarKist brand will bring interesting synergies in U.S canned food distribution. But more importantly then the synergies in distribution and sales, will be Del Monte’s experience in marketing high margin products. If Del Monte manages to create more premium for StarKist tuna, undoubtedly Bumble Bee and Chicken Sea will be very happy to follow. Also Bumble Bee and Chicken have been facing disappointing earnings and changed owners only recently. Their new shareholders will also push them for more profit taking, instead of fighting only for market share. It is already rumored in the market that ConAgra’s, the new owner of Bumble Bee, will be also happy to sell the company, if a buyer is found. It is not unthinkable that Bumble Bee and StarKist end up with the same group of shareholders.
Although Texas Pacific has agreed to take over also StarKist tuna plant in Pago Pago, it remains to be seen if they will keep it open, or continue to operate it themselves. There is a good chance that after StarKist / Heinz has already sold its fishing and can making facilities to others, Texas Pacific will also continue this strategy with the Pago Pago plant. Nowadays most StarKist plants are leased, such as in Ecuador, Seychelles, and Ghana. If the Andean Trade agreement will be grant a duty free status to Ecuador, the chances rise that the American Samoa plant will change hands or will be closed.
On the other hand however, Del Monte has manufacturing experience with their canned fruit plants in the USA. Del Monte employs 2,700 full time employees in its manufacturing and growing operations. Additionally they employ about 11,000 seasonal workers in twelve production facilities in California, the Midwest, Washington, Texas, and in seven strategically located distribution centers. The Company has operations in Venezuela and owns Del Monte brand marketing rights in the USA and South America
It is at this moment still unclear if the canned tuna operations and tuna brands aimed at the European market, as part of Heinz European Seafood, will also be included in the deal. In Europe Heinz owns the John West brand, and also brands in Italy, Portugal and France. In Europe Texas Pacific does not own the Del Monte brand.
Texas Pacific faces a very ambitious task to bring StarKist Heinz to profit, and with its 40% market share, reshape the U.S business. Hopefully this will bring the improvement in marketing, quality and margins the tuna sector has been longing for.
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