Smithfield's singular success

by Erica Shaffer
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Smithfield Foods fresh pork ribs and pork chops
Smithfield is starting to build on its campaign "One Smithfield".

SMITHFIELD, Va. – To hear Smithfield Foods president and CEO Ken Sullivan tell it, ‘One Smithfield’ is taking the pork processor in one direction — up.

One Smithfield is a campaign started by the company’s former chief executive, C. Larry Pope who retired from Smithfield in late 2015. Pope started the initiative to unify the company’s brands, marketing and independent units under one corporate identity. One Smithfield eliminated the independent operating companies that accumulated over a 30-year period during which the company was on an acquisition binge, and combined the processor’s international operations into four cohesive units.

One Smithfield turned 2015 into the most transformative period in the company’s history, both culturally and structurally. But Sullivan credited the transformation for the success driving Smithfield Foods.

Kenneth M. Sullivan, president and COO, Smithfield Foods
Ken Sullivan, CEO Smithfield Foods

“I said at the time, I thought One Smithfield would be a real catalyst for profit improvement, as we would be much better positioned to: one, optimize our sprawling manufacturing platform … two, take costs out of our logistics and distribution system; three, better manage the front end of our sales process; [and] four, allow us to manage the crown jewel — our brand portfolio — with a more cohesive strategy,” Sullivan said during a March 29 earnings call with analysts. “I am pleased to report to you today, One Smithfield has indeed been a catalyst for earnings improvement.”

Highlights to prove the point, Sullivan said, include an all-time high in operating profit for the company’s Packaged Meats business. “Our volume growth, 7.1 percent, was exceptional,” he said. “We saw broad-based market share expansion across numerous brands and product categories. It was so strong, Smithfield was the second-fastest growing top 25 food company — not just protein company — but food company, according to IRI data…”

Smithfield Foods ham and bacon
Smithfield has seen a surge in bacon retail sales.

Smithfield Foods branded retail bacon volume advanced by double digits, he continued. Eckrich brand smoked sausage gained record-high distribution, and hit an all-time high in market share “pulling within shouting distance of becoming the Number One smoked sausage brand nationally.” The Eckrich deli brand was the fastest growing deli brand in the United States among the top established brands while exceeding category growth by three times, Sullivan added.

Market share for Nathan’s Famous brand hot dogs climbed to nearly 40 percent in the premium beef hot dog category, Sullivan continued, while the Kretschmar deli brand recorded impressive volume gains.

“Virtually everywhere I look on our brand scorecard, I see green ink in sales, volume and margin growth,” Sullivan said.

And the green included Smithfield’s fresh pork business — retail sales grew by double-digits while margins improved by more than 20 percent.

“We grew our branded fresh pork sales by double-digits, delivering almost 500 million lbs. of Smithfield retail branded pork,” Sullivan said. “Our Smithfield marinated fresh pork reached record-high distribution and captured leading dollar shares and volume share of the marinated fresh pork category.”

In the company’s international business, sales and volume climbed 5 percent, while operating margins surged to more than 40 percent. “We had significant volume and margin gains in core categories like hot dogs, smoked muscles, cooked ham, canned meat, the list goes on,” Sullivan said.

Smithfield Foods sow housing static image
Check out the chart of Smithfield's initiatives for group housing of pregnant sows.

The company’s animal welfare initiatives benefited from One Smithfield structure as the company’s live hog production teams have enabled Smithfield’s transition to group housing for sows. Sullivan said 81.8 percent of sows on company owned farms in the United States are living in group housing systems. Sullivan said he expects “the marketplace to assign a premium to group-housed pork” as more retailers pledge to transition to more humane forms of animal housing systems.

“So you see, our One Smithfield initiative is paying dividends already, particularly in our domestic meat operations,” Sullivan said, adding that 2015 will be a clear demarcation for the company’s transition from a pork processor to a formidable force in consumer packaged goods.

“2015 will be remembered as the year Smithfield finally harnessed the power of its brands and the year we emerged as a powerful market force that could no longer be ignored in CPG circle,” Sullivan said. “I’m also hoping it will be remembered as the year market observers finally sat up [and] took notice that Smithfield has a world class CPG company embedded inside it with more than $7 billion in annual sales and more than $750 million of EBITDA.”

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