Hormel Foods strives for niche category leadership
Sept. 7, 2012
by Keith Nunes
BOSTON – Built upon a foundation of well-known brands such as Hormel, Spam, Jennie-O Turkey Store and Dinty Moore, Hormel Foods Corp. sees future growth opportunities by attaining leadership positions in niche categories.
Speaking at the Barclays Back to School Conference on Sept. 6, Jeff Ettinger, chairman, president and chief executive officer, said the company’s long-term objectives are to grow top-line revenues 5 percent and earnings per share 10 percent on a year-over-year basis.
“We announced our third-quarter earnings two weeks ago on Aug. 23 and we were quite pleased with the results overall,” he said. “We achieved net sales of $2 billion, putting us well on pace to achieve $8 billion in sales for the full fiscal year and that was to be the first time ever — a 5 percent increase consistent with our long-term goal in terms of revenue growth of 5 percent.“
Earnings per share during the third quarter rose 14 percent, Ettinger said.
“We really like to think of ourselves first of all as a branded value-added player,” he said. “And second of all, we tend to focus in on the somewhat niche categories, hopefully grab a leadership position in those categories, providing the consumer with something unique in terms of the offering of flavor, convenience, sometimes health and wellness, and then really drive growth within that category.”
Two “niche” categories Ettinger identified as areas of focus for Hormel Foods include snacks and gatherings as well as health and wellness.
“We’ll start with snacks and gatherings,” he said. “It is an area that we feel has a lot of potential going forward in terms of the protein space. There are a lot of obviously other snack-based items that are non-protein based — the classic chips, candies, and those types of items. But we have seen a lot of interest from consumers in a protein-based offering within this environment.”
Hormel has been processing pepperoni for the food service and retail categories for 50 years, but efforts to expand the business has led to product innovations such as Pepperoni Minis and Pepperoni Sticks. As a result, the pepperoni business’ five-year compound annual growth rate is 11 percent and “shows there’s really a lot of runway left for Hormel Pepperoni,” Ettinger said.
Party trays represent another niche category that has experienced nice growth for the company.
“Hormel party trays is an item we kind of innovated from scratch, working in partnership with retailers who already were offering party trays, but would only offer them on a seasonal basis,” Ettinger said. “And it was kind of a difficult economic proposition for them. They had to kind of guess how many consumers are going to be coming in within a fairly short timeframe if they were going to pre-make those party trays. They require significant labor for the retailer to make party trays on their own.”
By recognizing Hormel could help retailers reduce their in-store costs, the party tray business has been growing at a 16 percent compound annual growth rate during the past five years.
With a product portfolio that features Spam, bacon, pork sausage and ham, Ettinger said he understands why the Hormel name may not be synonymous with health and wellness. But the company has been working on building its presence in the health and wellness segment through its Natural Choice and Jennie-O Turkey Store brands.
With Natural Choice, Hormel is able to deliver a processed meat product that has no preservatives, lactate or diacetate but provides retailers with a shelf life they need. The product line has grown from a retail packaged line to the in-store deli and into food service.
“… Innovation in general is a strong theme for Hormel Foods,” Ettinger said. “It is something our founder talked about back in the late 1890s when he started the company; he did not want us to be a ‘me too’ company. He wanted us to be an innovator within the space. And that is something that the team still embraces.”
In conclusion, Ettinger said the fact Hormel Foods does not have brands that have 50 percent to 60 percent household penetration in the United States is a positive, because it gives the company room to grow.
“… Party trays has become nearly a $100 million franchise for us and it is still only reaching 3 percent of the households,” he said. “So we think there is a lot of runway left in terms of the growth opportunities throughout our portfolio.”