Oligopoly: A Ketchup Story

by Elaine Schwartz    •    Feb 16, 2013    •    1511 Views

Called the “Ketchup Conundrum” by journalist Malcolm Gladwell, we have many mustards but only one ketchup.

Grey Poupon transformed the mustard market. Originally a delicacy in the gourmet section, Grey Poupon was selected over French’s in taste tests. However, a $1.49 8-ounce bottle of French’s was #1, Gulden’s next, and no one had heard of Grey Poupon. So Grey Poupon offered packets in airline meals, changed their bottle and, most appealingly, convinced us that an expensive “French” mustard ($3.99 for 8 ounces) could reflect our sophistication. True, it was made in Connecticut with Canadian ingredients but we did not know that. From there, other mustards appeared and the market multiplied.

Here is the 1988 Rolls Royce ad for Grey Poupon.

The ketchup story is very different from mustard. Using spaghetti sauces as the typical example, Gladwell explains that Prego entered the market by creating a chunky sauce. Their goal was to discover what people liked that the market leader lacked. Then advertise and you make your mark. For Heinz Ketchup, no one yet has uncovered the alternative that would make people switch.

Researching ketchup, I discovered that, “a typical five year old consumes sixty percent more ketchup than a 40 year old.” Probably impossible to quantify, still a 5 year’s old’s potential ketchup intake reflects Heinz’s clever decision to make its packaging kid-friendly. Once they created an E-Z squirt bottle that a little one could manipulate, ketchup consumption climbed by 12%. Currently, Heinz has 60% of the US ketchup market.

Ketchup is the perfect case study for oligopolistic competition. As a market leader with Hunt’s and Del Monte far behind, Heinz makes meaningful market entry tough, competes through product differentiation, and, as the E-Z squirt decision demonstrates, they still innovate. Around the world, depending on the country, their ketchup recipe varies. Heinz Canada tells us that their ketchup eaters prefer a sweeter version than US consumers who like their ketchup spicier.

Perhaps because 91% of all consumers use ketchup (a Mintel condiment study), Warren Buffett’s Berkshire Hathaway and a Brazilian private equity firm will be spending $28 billion to take Heinz private as its new owners. So yes, we have only one ketchup but will we have a new Heinz? Buffett says that its offices will remain in Pittsburgh.

Sources and Resources: As always, Malcolm Gladwell has written a wonderful article. His “Ketchup Conundrum” takes us to our taste buds, competition gurus, food history and my E-Z squirt quote. If you want more on a history of ketchup that starts in China, Slate has the story while for mustard history, in addition to the Gladwell piece, I went to an excerpt from The 2,000 Percent Solution and this NY Times article. For international ketchup preferences, here is the Heinz Canada link and here, Forbes tells more about the firm and its market share.

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