Spite and Ketchup

Every once in a while you will run across a business story that reminds you of small children squabbling on a schoolyard, and you will reluctantly have to acknowledge that no matter how hard we try to be adults, professionals, and leaders of commerce, people don’t always change that much between the ages of five and fifty. This may take the form of business people sabotaging deals that would have earned them billions of dollars because a hated rival would have made millions on the same transaction, or of people refusing to work together because of something one of them said about the other decades before, and this past week it took the form of the world’s largest quick-serve restaurant chain severing ties with a valuable supplier because that supplier’s new CEO used to run a rival company…

If you missed the story on Reuters by way of Yahoo Business you can pick it up on the link, but the story is simple enough. McDonald’s announced this week that they are ending a relationship with the H.J. Heinz company, and will no longer purchase their ketchup, because the new CEO of Heinz is the former CEO of Burger King. Why exactly this would be a bad thing from McDonald’s point of view is not clear; certainly it doesn’t suggest that the executive in question is inexperienced in large-scale food service operations or that he wouldn’t understand how important condiments are to a quick-serve hamburger restaurant. It’s possible that the leadership at McDonald’s is reacting to some of the more outrageous (and stupid) management blunders Burger King has made over the past decade (the advertising debacles come to mind, as does Burger King’s insistence on treating its franchise-holders like crap); it is also possible that the leadership knows the new CEO of Heinz from industry functions and just doesn’t like him…

It’s also possible that someone associated with the McDonald’s organization has, or would like to have, a relationship with the Heinz company’s primary rival in the ketchup field, Hunt’s, which is owned by ConAgra Foods. Or, alternately, that someone at McDonald’s is concerned about Warren Buffet’s Berkshire Hathaway group purchasing Heinz, and wants to keep at arm’s length from the operation. These considerations may not seem all that important in the short run, but once we start considering corporate acquisitions in the $28 billion range it becomes much harder to dismiss these concerns as mere spite or simple defensive posturing...

In any event, the move should have minimal impact on your enjoyment of McDonald’s products within the United States, as only two domestic markets (Pittsburgh and Minneapolis) actually feature Heinz products as of this week. For some years now McDonald’s locations across the US have given out condiment packets marked, simply, “fancy ketchup,” and most of the in-store dispensers make no mention of brand names either. It’s possible that the leadership at McDonald’s has obtained a supplier contract that will lower their ketchup-related expenses outside of the US (which the company has been using Heinz products) enough to make up for any losses associated with dropping the name-brand product; it is even possible that the mention of possible rivalry and/or animosity toward the new CEO of Heinz is nothing more than a ruse to misdirect anyone who might be looking away from the details of that new deal…

And, of course, it’s also possible that the people running a multi-billion dollar company have just make a major purchasing decision on the same basis that you might have used in picking players for a dodge-ball team when you were nine years old. We should probably keep an eye on this one…