Hormel homes in on four growth drivers
Sept. 5, 2014
by Monica Watrous
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|Hormel introduced REV snack wraps to expand its portable offerings.
BOSTON — Hormel Foods Corp. identified four ways to complement its core portfolio after deciding the base business was no longer enough to bring home the bacon.
“When you look at our core portfolio, and we’re kind of being candid about it, you look and say, okay, it’s the bacon, the chili, the pepperoni and so forth, it’s pretty American, and indeed our sales have been dominant in the United States,” said Jeff Ettinger, chairman, president and CEO of the Austin, Minn.-based company, during a Sept. 3 presentation at Barclays Back-to-School Consumer Conference in Boston. “Until very recently we had under 5 percent of our company sales outside the US. It’s been pretty American in the sense of classic American foods and not particularly multicultural.
“I think we probably would have to concede that most of it is not high on the list of nutrition-based items,” he added. “They’re a little bit more indulgent items, bacon and Spam and so forth. And then lastly, they’re not particularly on-the-go. Our items have been oriented more toward a sit-down family experience that frankly is happening less and less.”
Homing in on international markets, ethnic flavors, health and wellness, and portability led to three acquisitions and a major product launch within the past few years, venturing the company into new categories of peanut butter, Mexican food, sports nutrition and snack wraps.
Sales in international markets have increased from $146 million in 2005 to an estimated $500 million this year, benefiting from the expansion of Spam and fresh pork products outside of the United States. Hormel’s $700 million acquisition of Skippy peanut butter from Unilever last year has boosted the company’s business in China.
“The global element of Skippy was clearly one of the attractive components of that acquisition to us,” Ettinger said. “It came with $100 million worth of business outside the US. It came with a plant in China. We already had two other plants in China and we had a team very capable of taking on the management and ownership of an additional facility and line of business and that’s been a great growth vehicle for the international group.”
|The acquisition of Wholly Guacamole has positioned Hormel to deliver on demand for ethnic flavors and better-for-you, on-the-go snacks.
To expand its multicultural offerings, Hormel formed MegaMex Foods LLC, a joint venture with Herdez Del Fuerte S.A. de C.V., Mexico City, in 2009. Products include traditional Mexican sauces, salsas and tortillas.
“A $200 million business back in 2010 when we formed it, it’s going to be a $600 million business as we conclude 2014,” Ettinger said.
Acquiring Wholly Guacamole in 2011 has further propelled Hormel’s Mexican food business. The brand not only has generated international sales but also builds on Hormel’s targeted platforms of better-for-you and on-the-go.
“It clearly is and is seen as highly nutritious, and then on top of that, I mean, it provides the opportunities for natural offerings and even for organic offerings, which in general organic can be a little bit of a challenge for our company when you go back into the meat realm,” Ettinger said. “And then lastly, on-the-go. As I mentioned earlier that the minis is the fastest growing component of the Wholly line. It’s growing at a 60 percent, 70 percent clip this year.”
Building on better-for-you
On the health and wellness front, Hormel has supplemented its Jennie-O Turkey Store lean ground turkey franchise with the creation of Natural Choice, a preservative-free line of deli meat and bacon.
“That’s north of $100 million product line now that brings a sort of better-for-you component to consumers,” Ettinger said.
The company also keyed in on health perceptions surrounding protein with last year’s launch of REV refrigerated snack wraps, which include sliced meat and cheese rolled in a flatbread.
“Obviously we’ve been about protein since 1891, but protein is particularly of interest to consumers these days, and it doesn’t have to be just the meat proteins that we deliver in pork or turkey, other items,” Ettinger said. “They can be Skippy peanut butter with its 7 grams of protein. It can be the REV product line at all 15 grams and up. It can be Muscle Milk that we’ve just introduced into the team at Hormel Foods.”
|Hormel said it is working quickly to expand its portable offerings with innovation and acquisitions.
The acquisition of Muscle Milk maker CytoSport Holdings for $450 million earlier this year further positions Hormel to deliver on the demand for protein and portability. The line of products includes ready-to-drink beverages, protein-based powders, sports nutrition bars and energy chews.
“Probably the one that we’re the least developed on but we’re working on quickly is this notion of on-the-go, products such as the Muscle Milk product line and the Pepperoni Stix, the REV items,” Ettinger said. “And we really view this as an area that is not only ripe for growth but that we just plain need to have more offerings in this realm because when you look at consumers these days and you kind of say, okay, how many of you are eating just the classic three meals a day at home or home/office combination? It’s actually a substantial minority of consumers right now.”
REV snack wraps have become of the most successful product launches in Hormel’s history. The company recently expanded the product line with the addition of breakfast varieties.
“And this product line was absolutely designed against on-the-go,” Ettinger said. “The whole point of this product line was to come up with an item that you can have in your hand and you can consume it cold or hot.… For first year of sales, retail sales on a scan basis were $55 million for this item. That's a very nice start for the REV product line.”