Question

Heinz makes most of its money from ketchup and​ prepared, packaged foods that are substitutes for fresh foods. Revenue tends to be low in the second quarter​ (May, June, and​ July). Can you provide a possible reason for this​ pattern? ​(Hint​: Fresh fruits and vegetables are substitutes for many Heinz prepared​ foods, and ketchup is commonly used on food prepared at outdoor​ cookouts.)

Answer 1

Answer: A possible reason is a drop in the price of fresh fruits and vegetables.

Explanation: The revenues of Heinz have dropped in the second quarter and one very likely possibility is that the demand for their products are on the decline. The market demand for a product is affected by a number of factors and one of them is the price of close substitutes.

In this scenario, the close substitutes for Heinz products are fresh fruits and vegetables. The second quarter of the year (May, June and July) usually records lots of rainfall and good harvests of fresh foods. A good harvest encourages lower prices. If the price of these substitute food items reduces, the consumers would tend to buy more of those, that is, the demand for fresh fruits and vegetables would experience an increase while the demand for ketchup, packaged and processed foods would experience a decline. The decline would translate into lower sales figures and subsequently low revenues.