2008 Food Processor of the Year: Hormel Foods

With layoffs and bankruptcy filings hitting even the food industry, Hormel continues its diet of process innovation, nurtured new products and strategic acquisitions.

By Dave Fusaro, Editor in Chief

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Total operating profits for all of its business segments were up 6 percent from a year ago, but net earnings for the year were $285.5 million, compared with $302 million last year, and sales were up 9 percent from 2007’s $6.2 billion.

At a time when America is hunkering down, looking for value and simple wholesomeness, we couldn’t think of a more suitable Processor of the Year.

The history

Meat processing always has been at the core of Hormel. After working in Chicago’s storied meat packing industry, George Hormel and a partner opened a butcher shop and packing house in Austin, Minn., in 1887. Four years later, he was on his own and Geo. A. Hormel & Co. began.

The innovations began almost immediately. “Originate, don’t imitate” became one of George Hormel’s favorite dictums. In 1895, the company “invented” Canadian bacon. In 1926 came the world’s first canned ham. A year later whole chicken and spiced ham were added.

But it was under the guidance of son Jay Hormel that innovative products – and long-living brands – really began to flow. In the midst of the Great Depression (1935) Hormel-brand canned chili and Dinty Moore beef stew were introduced. SPAM arrived in 1937 and achieved an 18 percent market share in its first year.

There were a number of other product innovations over the years: Brown ’n Serve precooked sausages and Cure 81 ham (1963).

There also was expansion. First came plants across America, then in 1955, SPAM luncheon meat was made in Ireland (through a licensing deal). Hormel International Corp., established in 1967, is a wholly owned subsidiary that manages six joint ventures, four licensees and one wholly owned subsidiary in the Americas, Asia-Pacific, China and Europe.

A milestone came in 1982 with the opening of a new Austin flagship plant. With 1.3 million square feet under one roof, it claims to be the world’s largest vertically integrated meat processing plant. It starts with hog harvesting (it processes 19,000 hogs per day) and makes everything from SPAM to precooked bacon to pepperoni. 

While Hormel  wasn’t acquisitive in its first 100 years, that changed with the 1986 purchase of Jennie-O Foods Inc., Willmar, Minn., which was the time the largest privately owned processor of turkeys in the country at the time, In 2001, the company made its largest acquisition to date with the purchase of The Turkey Store. Jennie-O Foods and The Turkey Store were merged to create Jennie-O Turkey Store.

The 1980s were a pivotal decade for the company, as it transformed itself from a meat packer processing commodities to a branded product marketer, which still relies on the strength of its own manufacturing. More recently, Hormel has developed a portfolio of healthier food options with its Natural Choice products and green-label Hormel Compleats.

The culture

One of the first things you notice in a visit to the Austin headquarters is the longevity of the employees. Company officials figure more than 15 percent of the employees have worked for the company more than 20 years.

“The company has long prided itself on the tenure of its employees, its financial conservatism and its innovation,” says Ettinger. He says the tenure pays off in dedication, institutional memory and continuity. Continuity starts at the top: In its 117-year history Hormel has had just nine presidents.

One thing that keeps people interested is the ability to move within the company to different positions — as we mentioned at the start of this article. Another motivator: 100 stock options were given to every full-time employee of the company in 2007, “to unite the … team with one focus and align their interest with that of the shareholders,” says the chairman.

Innovation and conservatism also are themes that run throughout this company. They are not contradictory concepts at Hormel. If anything, they combine to put the emphasis on homegrown products and line extensions.

“New products are nurtured, but we try to be prudent in years one and two,” Ettinger says. “But once we see the hint of momentum, we make the investment.”

Hormel can afford some patience. While it’s a publicly held company, the Hormel Foundation owns 46 percent of the company’s stock (ownership through the trust as well as the foundation), which provides some cushion from the whims of Wall Street.

Continuity, the chairman/CEO says, is more of a theme than change. Nevertheless, Ettinger issued a “billion-dollar challenge” to employees when he became president in 2005. The new exec wanted $1 billion of sales to come from new (introduced since 2000) products by 2009. The company declared victory two years early, in 2007.

Now the goal is to double that, to reach $2 billion in new product sales – including those introduced since 2000 — by 2012.

“This is not a fad company,” says Phil Minerich, vice president of research and development. “We do a lot of consumer research and try to follow trends, but we’re in this for the long haul. We’re talking about some products that have been around for 60 and 70 years – products and brands that people can count on.”

There’s also talk of Hormel’s “balanced model.” The company is a blend of commodity meats and value-added brands, of raw animal protein and packaged foods, of foodservice and retail products. “Our balanced model is designed to create value under most market conditions,” Ettinger says. The market conditions in 2008 were certainly a challenge.

Nevertheless, there were star performers. Compleats, the microwave-ready, shelf-stable entrees, saw sales grow by double-digits in 2008. The original line (items such as Beef Steak Tips, Chicken Breast & Gravy and Lasagna) were complemented by a green-packaged healthier line in 2008 (the line meets the USDA’s definition of healthy in regard to calories, sodium, protein and fiber).

Ettinger called the Natural Choice line of sandwich and deli meats his “rookie of the year” in 2007. Hormel’s HPP technology, which kills listeria and other pathogens with water pressure, not heat, allows the line to be produced with no preservatives and no artificial ingredients. The company claims it’s the first nationally available line of natural meats.

And don’t forget SPAM. The canned ham product, which celebrated its 70th birthday in 2007, maintains steady sales in the states but is experiencing double-digit growth internationally in Canada, Japan, Philippines and South Korea. While two domestic plants — Austin, Minn. and Fremont, Neb. — make SPAM, three foreign plants (in Denmark, South Korea and the Philippines) are needed to support the rest of the world. SPAM is sold in nearly 50 nations, from Andorra to Zimbabwe. And it’s seen its share of line extensions, from Lite and Less Sodium to Hot & Spicy or SPAM with Garlic or Black Pepper. It’s available in Singles, too.

Despite the wildly varying crises of the past year, Hormel has weathered them well, says Ettinger. “We’ve had a very strong year in terms of sales. All our business segments are up between 5 and 10 percent, international even more.”

As for the future, Ettinger expresses an interest in more ready meals, including both shelf-stable ones like Compleats and refrigerated ones. The future apparently holds more of the same for Hormel: balancing tradition with innovation.

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