Hormel Foods – Continued Foodservice Strength &
Pricing Opportunities – 21 September 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Erik Waterkotte (EW)
Former Director, Sales, Hormel Deli Solutions, Central Region at Hormel Foods Corp
Agenda:
1. Hormel Foods’ (NYSE: HRL) offering amid broader CPG trends – competitive merits, brand
management dynamics and portfolio agility
2. Sustainability of foodservice recovery and Hormel’s relative positioning
3. Consumer trends within at-home eating and read-throughs to post-pandemic opportunities –
perception and trajectory of better-for-you, meal kits and frozen foods
4. Hormel’s acquisitive strategy and longer-term industry trends
Contents
Q: Can you outline the key consumer behaviour trends across CPG and their evolution throughout the
pandemic? How is Hormel positioned in relation, having noted its acquisitive strategy in your introduction? 3
Q: How agile is Hormel at recognising trends, having discussed its footprint around the entire grocery store?
4
How would you grade its portfolio management and risk, given some categories may fall out of favour?
Q: Could you elaborate on Hormel’s lack of control in foodservice?
Q: Could you break down supply-demand across the overall meat industry? To what extent is Hormel’s
vertical integration an advantage vs competitors who may have been unable to meet supply crunches?
Q: How would you rate Hormel’s portfolio or preparedness for the trend towards alternative meat?
Q: Has the pandemic impacted the manufacturer-retailer relationship between Hormel or Tyson and big
players such as Walmart? Has the power dynamic shifted around competitive pricing or less promotional
activity? Who is driving those discussions?
4
5
5
5
Q: How would you grade Hormel’s push into the better-for-you category, given many retailers and grocers
are setting out entire aisles for these products stacked with many new brands or entrants? How should we
consider the bigger CPGs jumping into this category?
Q: How would you describe the brand management of Hormel’s many acquisitions? Are there some brands
that lacked the necessary investment to innovate effectively? What is the life cycle of these businesses?
Q: Why do you think some CPGs struggle to replicate Hormel’s strategy? Kraft plays more in condiments,
but many CPGs have struggled on profitability.
6
6
7
Q: Which categories could represent the greatest opportunities for CPGs post-pandemic? Secularly, there’s a
reduced intake for red and processed meat from US consumers due to health and wellness, which could
imply greater pricing pressure for some poultry producers if that demand doesn’t sustain. Which categories
within Hormel or other CPGs might provide continued opportunities, whether in meal kits or elsewhere?
7
Q: How should we frame Hormel’s grocery footprint, given Walmart is almost 15% of total revenue? Is that
high concentration a risk?
Q: How is promotional activity trending across the breadth of Hormel’s portfolio? Where are you noting
price-cutting and promotions as grocery demand falters, and who will drive those discussions?
Q: What scope is there to mitigate labour and freight costs in this industry through automation?
Q: Are there areas Hormel lacks presence, despite the company covering the entire grocery store?
8
8
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9
Q: What do you think is Hormel’s strategy to become category leader? Is it a price war to take share and then
9
gradually raise back up, or just buying the next competitor?
Q: Could you outline how Hormel has expanded Columbus since the Q4 2017 acquisition, having mentioned
10
the grab-and-go dynamic?
Q: How is consumer perception of the frozen category shifting amid the better-for-you trend and grocers
preferring fresh food? There are consumers who perceive frozen as less healthy.
Q: How has the shift towards digital impacted some CPGs’ ability to drive effective marketing? It seems
everyone has crowded to the same channels for brand-building.
10
10
Q: How are allergens and sugar-free dynamics impacting some categories? Hormel finalised its acquisition
of Planters’ snacking portfolio in June, and peanut butter is a common allergy. How might the company
consider its portfolio structure and how might any new designations from the FDA impact the business?
11
Hormel Foods – Continued Foodservice Strength &
Pricing Opportunities
Transcription begins at 00:00:04 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Hormel Foods – Continued Foodservice Strength &
Pricing Opportunities. I am Nyree Hinton, and I’ll be facilitating today’s Interview with Mr Erik Waterkotte,
former Director of Sales, Hormel Deli Foods in Central Region at Hormel Foods Corp.
Erik, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
EW: I agree.
NH: Can you start with a brief introduction to your experience across CPG and with Hormel specifically?
EW: I’ve really been in the CPG retail business for 25 years in various categories. From centre-store with
American Greetings to computer products with Hewlett Packard, and then moved into the meat and protein
business, specifically with Smithfield and John Morrell, which is a competitor of Hormel. Spent about nine
years there as Director of Sales and Director of Marketing in different capacities with different parts of the
organisation, then went to Columbus Craft Meats, which was a private equity owned business of about USD
350m-400m that, after two years, was ultimately purchased by Hormel, at which time Hormel decided to
create a unique deli business and Columbus was one of the organisations that they folded into that operation,
along with Jennie-O Turkey Store, Dan’s Prize, the previous Hormel deli business and then some of their
foodservice business. Eventually they were folding in the Applegate Farms deli business as well. Spent about a
year-and-a-half with them, putting that organisation together and building that, which is where my familiarity
with Hormel came about. Since then, I’ve spent another three or four years outside of Hormel in the prepared
foods, wholemeal replacement and of the consumer products or consumer food business.
[00:02:53]
Q: Can you outline the key consumer behaviour trends across CPG and their evolution throughout the
pandemic? How is Hormel positioned in relation, having noted its acquisitive strategy in your introduction?
EW: Let’s start very generally with Hormel and the CPG business. I think Hormel is not afraid to experiment
and try different businesses, for example, they had Muscle Milk. I think they found after a couple of years that
the better-for-you part of the business was good, but the beverage part of the business wasn’t necessarily
something that they wanted to focus on, hence they spun that off, I believe it was PepsiCo that purchased it. I
think what that says from a CPG business is they’re not centre-store, they’re not perimeter, they really have a
full view of the complete supermarket and grocery business, as well as the foodservice business. They’ve really
done a fantastic job of building all-encompassing, you can’t call it recession-proof or growth-proof, but they’ve
really done a very good job of not being, “I’m going to be approaching business,” or, “I’m going to be a centre-
store shelf-stable business.” They’ve really taken on the food industry very generally, which is pretty amazing.
With the trends, do you want them in general? Do you want them specific to Hormel? The Hormel stuff, I’ll
look at it from a CPG business, sustainability and better for you were huge, pre-pandemic and then
sustainability went by the wayside, better-for-you kind of stayed but it wasn’t as driven by the retailers and by
consumers as it was pre-pandemic. Beforehand, it was how much bamboo can you sell? How much recyclable
product? How can you do product minimalisation? Then pandemic hit and everybody was, “Wrap it in plastic
Private and confidential 3
as tight as it can get. Make it look as safe as you can and get it out to the stores as fast as possible.”
From a better-for-you standpoint, I think people became less concerned with having everything perfect, they
needed it shelf-stable, they needed to do the pantry-load so products that would fit that bill were a little bit
more acceptable. I think you saw things just slow a little bit from a development standpoint in both of those
cases. What I’ve seen and what I believe, we are getting back to the sustainability, so more and more there will
be retailers specifically are starting to evaluate again where they were back in 2019 on their goal to be
sustainable, and they’re starting to push their manufacturers again in that way. From a better for you, I just
think it paused the growth a little bit, I don’t think it’s changed the dynamic in any way. I think that continues
to be the meatless, alternative meats, alternative proteins, the no-antibiotic stuff is here to stay but we
continue to see more ways to find better-for-you products in both the centre-store and within the perimeter of
the store.
[00:06:54]
Q: How agile is Hormel at recognising trends, having discussed its footprint around the entire grocery store?
How would you grade its portfolio management and risk, given some categories may fall out of favour?
EW: This really only works at retail, because foodservice is less of… it’s benefit, but generally, the Skippy
Peanut Butter is riding on different trucks and going to different customers at foodservice than, say, a frozen
rack of ribs and all of the on-trade business that they have. From a retail standpoint, their portfolio makes
them an invaluable partner, because you can get a Smithfield that comes in and says, “I could talk to you about
how the meat business is going and I can talk to you about how the packaged product is going,” but you get
somebody like Hormel, they can talk, “I can talk to you about how’s shelf-stable soup, I can talk to you about
peanut butter. I can talk to you about various commodities, from the corn, the beans and the stuff that goes
into the products, as well as the peanuts and stuff that’s different.” I think what that does is it really helps
them elevate their relationships with retailers. They have the ability to get into places and be received by, and
have strategic conversations with retailers that other retailers, or other manufacturers that are probably their
same size don’t get to have that same level, because they’re a little bit more siloed. I think when you talk about
them, you don’t put them up there with the P&Gs, but the breadth of their products across a store really does
cover that big of a portfolio and makes them very indispensable to the supermarkets. The only thing that puts
a little bit of a detriment to Hormel is they’ve really been hesitant to do private label, but they do it when it’s
strategic and when they have the right partners, which I think even helps further. When they can further a
relationship with a retailer, they’ll do it. When it doesn’t further a relationship with a retailer, they’re like, “It’s
not a good thing, it’s not what we want to do and it’s not how we go to market.”
[00:09:33]
Q: Could you elaborate on Hormel’s lack of control in foodservice?
EW: I think their foodservice business is, from a multi-unit standpoint, from a protein standpoint, it’s
unbelievable. The pizza business that they have between fun mini and the stuff that they have with Columbus,
just the general cooked products that they have and the culinary business that they have is incredible. I just
don’t see it as being as broad as it is from their supermarket, when you get the peanut butters and you get the
mashed potatoes, you get the Dinty Moores and you have all of the different… the Hormel Chilis, that doesn’t
translate as well to the foodservice business as it does from a retail portfolio. They still sell it, but their
foodservice business is really built on the proteins, the bacons, the Black Label hams, the Black Label bacons,
the fresh and frozen proteins that they have and the culinary business, the culinary standpoints that they have
to go along with it really helps from that recipe development. I didn’t work in the foodservice business, I just
worked with those people, so those are just my notes from being a part of it and then seeing them in the
industry and how they work as both… I’m not a competitor, but as a person that participates in a lot of the
same markets. I don’t do proteins now, so I see how they continue to do that market and do that business.
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[00:11:25]
Q: Could you break down supply-demand across the overall meat industry? To what extent is Hormel’s
vertical integration an advantage vs competitors who may have been unable to meet supply crunches?
EW: I think when you look at the best protein suppliers, they’re all vertical integrated. In my opinion, one of
the things that Hormel has done fantastically is because they are so well vertically integrated they have very
well-controlled costs, yet they also do a very good job of managing crisis to their advantage. If the prices are
going up in the market, it doesn’t necessarily mean that their input costs are going up, but they certainly utilise
those market swings to maximise their profitability in both foodservice and at retail. They’re a machine when
it comes to being able to manage and get those cost changes in in advance, and I think by controlling their raw
material supplies so well, especially in the poultry and the pork products, not so much in chicken and beef,
they do a little bit more with the chicken but mostly turkey and pork, they really have a fantastic view on what
it costs and how they can maximise those cut-outs and make the most of it, through both their Jennie-O and
through their normal Hormel business. I don’t know, I think it’s their business operations that really make it
better, because you look at Butterball and Cargill and Smithfield, Tyson, they’re all vertically integrated, but I
think that from an executional standpoint, Hormel probably does it better.
[00:13:42]
Q: How would you rate Hormel’s portfolio or preparedness for the trend towards alternative meat?
EW: When I look at them, they were just getting into that and I’ve seen some of it. I don’t know where they
are and I’m not all that well-schooled on the alternative meat. What I would say from their perspective as an
alternative meat, when they do something, they’ve studied it and they’re going to do it well. They’ve figured
out that, “We probably don’t want the alternative meat that has more ingredients that nobody can pronounce
than anybody else, that if we’re going to do it we’re going to stick more on the true better-for-you category.”
Their knowledge with Justin’s and with Applegate, and their previous experience with Muscle Milk I think give
them better insights than a lot of the other protein companies into this market. When you look at Maple Leaf
has their own, Smithfield has their own, Tyson are working on theirs, they’re all trying to do it. They certainly
have the scale and the ability to do it, but from a marketing standpoint and from a product development
standpoint I would say that once Hormel decides to be in that and figures out that they’re going to be it, that
they’ll be a force to be reckoned with, because they’ll do it and they’ll do it correctly.
[00:15:22]
Q: Has the pandemic impacted the manufacturer-retailer relationship between Hormel or Tyson and big
players such as Walmart? Has the power dynamic shifted around competitive pricing or less promotional
activity? Who is driving those discussions?
EW: I don’t think it’s impacted that at all. I think things slowed down and it stalled a little bit, but from major
manufacturers like that, they’re still finding ways to do business and they’re still finding ways to get together
and do things in person. My experience says that the smaller manufacturers are the ones that are getting a
little bit of the colder shoulder, because it’s not imperative. It’s not necessary to deal with that, so those are the
relationships I think that have been more hindered than people like Hormel. I think that they’ve probably
done a better job of managing through this because they find ways to still connect, whether it’s in-person or
whether it’s virtually, they still have that multi-level relationship. I think those are the things that put them in
that position before the pandemic and I think those are the ones that are going to continue to drive it as they
come out of it.
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[00:17:30]
Q: How would you grade Hormel’s push into the better-for-you category, given many retailers and grocers are
setting out entire aisles for these products stacked with many new brands or entrants? How should we
consider the bigger CPGs jumping into this category?
EW: I think I always look at it as I was in the deli business, and the chicken part of the deli business was great
as far as fried chicken, it was terrible as far as cooked chicken. Nobody had it, nobody had it, nobody had it,
and it was growing at 90% a year. It wasn’t until about the fifth year or sixth year, where all of a sudden they
looked at it and they went, “The growth is not as great as it used to be, but the dollars are really good.” It
wasn’t until it got a little bit more sustainable from a volume standpoint that all of the major players decided,
“We’re going to put some innovation to this and we’re going to figure out really how do we put chicken in a
deli-bag and sell it really well?” I think that’s not dissimilar to what you have going on here, there are a lot of
people that are making mistakes and driving and leading, trying to cross the chasm and do all of this stuff. The
major manufacturers, that’s not what they’re going to do. They’re going to put their investments in stuff, in
others, and they’re either going to buy the technology or they’re going to find somebody that’s made a few of
those hiccups and they can do it.
The old saying is you never build a golf course because the guy that owns it the second time is the one that
makes the money, and I think that’s sort of true with the way these guys are going to operate. They’re either
going to take their time and build it based on what they’ve seen, which I think Hormel and I know Maple Leaf
and a few of the other guys have their own better-for-you, alternative-meat-type stuff. Let’s differentiate,
because I think better for you is still a little different than the alternative meat, because no antibiotics and all
of that stuff is better for you, but the alternative meat is much different, it’s much newer and there’s still a lot
less that’s known about that one. I’m assuming that’s what you’re talking about when you’re talking better for
you, is you’re really talking about the alternative meat stuff, correct?
NH: Yes, and it’s all-encompassing. Whatever you can make, whether it’s snacks, cereal, milk or elsewhere.
EW: It is, and that’s a whole different ballgame. We’ve been going down the road of protein, but when you
look at Justin’s and you look at the Applegate and you look at all of the stuff that they’ve done for better for
you, they clearly want to lead. They want to buy strategically, they’ve determined that… look at just the way
their business is set up. It’s set up to find nuggets and to be able to invest. Half of their company is owned by a
foundation. They have the ability to invest, they have the ability to look long term. It’s things like Columbus
and Applegate and now just most recently Planters, that’s how they’ve really looked to continually grow their
businesses, it’s not just organic growth. It’s organic people growth, but they certainly go to look to find
companies that match their culture, match their growth strategy, and those are the ones that they bring in and
they acquire. That’s a key component of how they evaluate businesses, it’s not just how much and what market
it is, it’s also the people and the culture that go into the business that help them determine what they should
buy and where they should go.
[00:21:36]
Q: How would you describe the brand management of Hormel’s many acquisitions? Are there some brands
that lacked the necessary investment to innovate effectively? What is the life cycle of these businesses?
EW: What I’ve seen is they take the time to figure it out and they’re willing to put the work in, but they’re also
willing to make the decision that, “This isn’t where we want to be and this isn’t going to be part of our strategic
footprint,” so they’ll let some things go, but they do their homework to make sure that it’s going to fit before
they go in. The amount of time that they’ve spent on Columbus, the amount of time that they’ve spent on
Justin’s and Applegate, those are the ones that were most my contemporary while I was around there. I wasn’t
around when they did the Planters acquisition, but the Fontanini, they’ve put a lot of diligence into the brands,
they’re not just buying plants. They like to buy brands that they can work with and fit in with their brand
management process, and they do a really good job of it. Skippy sucked before they bought them, they did a
Private and confidential 6
really good job of bringing that one back. They still do Spam. Anybody that can have Applegate and Spam in
their same retail portfolio is pretty amazing.
[00:23:31]
Q: Why do you think some CPGs struggle to replicate Hormel’s strategy? Kraft plays more in condiments, but
many CPGs have struggled on profitability.
EW: I think first of all, from an operation, talk culture, talk people, talk belief system, talk knowing who they
are. They don’t get caught up in becoming Kraft and RJR and they don’t do big. They do acquisitions that they
can bolt-on, that make them better as a whole. They fundamentally know who they are and what they want to
be and how they want to go about doing it, and they don’t let anyone dictate their terms to them. When you
think about it, they’re probably the most unique publicly-held company in the US, if I’m not mistaken. I don’t
know how much of the stock is owned by the Hormel Foundation, but that certainly gives them a different
perspective on how they go to market. I think the culture of making things better and trying to do things right
for the Austin community and the communities that they exist in, it helps drive the decisions they do. They
take their time and they go about it, they still look at things very much… make no mistake, the quarterly
numbers and the monthly numbers are important, but they always look at things with an eye for the year and
the two- or three-year, and they do that across the company. Even when I was at the deli business, we looked
at our quarterly numbers, for our goals we were 18-24 months out, and I’m far down the food chain. I think
their breadth in their brand management is something that helps them.
[00:25:52]
Q: Which categories could represent the greatest opportunities for CPGs post-pandemic? Secularly, there’s a
reduced intake for red and processed meat from US consumers due to health and wellness, which could imply
greater pricing pressure for some poultry producers if that demand doesn’t sustain. Which categories within
Hormel or other CPGs might provide continued opportunities, whether in meal kits or elsewhere?
EW: Their biggest opportunity is, you asked about their foodservice business. Part of their foodservice
business was great over the course of last year. My uncle owns pizza restaurants and he had his two best
summers these past two years ever, because of the pandemic, so there were parts of foodservice that did
exceedingly well. The white tablecloth and that kind of stuff and the sit-downs didn’t do well, but when you
look at some of the fast-casual and some of the restaurants that were able to pivot quickly, they did
phenomenally well, so let’s start with taking a look at that. Then when you look at from a retail perspective,
everything did well except for the service deli. You look at the retail market and cut-through didn’t do fantastic
at most of the pandemic because people still were trying to do that pantry load, so they were at home, they had
time, they bought the cheaper stuff, they bought whole fruit, cut it down, did it themselves. The soup business
and the deli was 99% down at one point. I think getting the resetting to normal of some of that on the
perimeter, you’re going to see some of those areas that didn’t exceed, you’re going to see those grow. I still
think the deli has some room to get back to where it was and get its feet down a little bit, but they’ve got to
figure out that whole meal replacement and what it’s really going to mean and how are they going to compete
against restaurants, because, let’s face it, one of the things that the pandemic did is it forced everybody to get
into the meal kit business.
If you were a grocery story or if you were a restaurant, you had to figure out how to get into the meal delivery
business or the meal pickup business, because that’s really all there was for a really extended period of time. I
think that’s going to be a tough part of the market there, but from a manufacturer standpoint, Hormel is
positioned well, because they’re both in the foodservice and in the retail business, so whether the
supermarkets figure it out first or Hormel figures out how to help the supermarkets get back into that and
exceed, or whether they stick with the foodservice component, selling to the Freshlys and the restaurant
business, they’re going to do well there. As far as commodities, I think your shelf-stable stuff is going to go
back to being the pantry load stuff that grew well, the Slim Jims that grew 25-30%, because people just were
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into all that comfort. I think a lot of that’s going to settle back down and it’s going to grow, but it’s not going to
be what it was the last two years.
[00:30:47]
Q: How should we frame Hormel’s grocery footprint, given Walmart is almost 15% of total revenue? Is that
high concentration a risk?
EW: Look at where Hormel is vs where a company is that doesn’t have the foodservice diversities that Hormel
does and I would say you’re going to find a lot of customers where Walmart is a much more significant player
than they are to Hormel. I think they’re in a great position to manage that.
[00:31:55]
Q: How is promotional activity trending across the breadth of Hormel’s portfolio? Where are you noting price-
cutting and promotions as grocery demand falters, and who will drive those discussions?
EW: I don’t know. Right now, the prices are all going up, the supply chain is tough, so finding and figuring out
and making sure that you have products that fulfil a promotion I think is one of the biggest things a lot of
people struggle with today. If it’s not one day it’s plastic, the next day it’s raw materials. I think that’s one thing
that if you’re in the protein business and you’re vertically integrated, you’ve got a lot more control over
anything than anybody else. I know where I sit, I’m not vertically integrated because we pull from a lot of
different stuff, and it makes it extremely difficult to run any promotions these days, so I’m not sure I can
answer that one as well as you probably want.
[00:33:12]
Q: What scope is there to mitigate labour and freight costs in this industry through automation?
EW: These are from my personal experience, not from a Hormel perspective, correct? All I can tell you is I
went to my home town, which has three very large distributors of food products, and I’d never seen it before,
but there were three tractor trailers and a couple of billboards advertising for drivers and for warehouse help,
and they were doing the, “Rise and shine, we’ll pay you extra for the early shifts,” so it’s a struggle everywhere
to get labour. I know especially in the distribution pieces it’s very challenging to get labour and even more
challenging to be able to keep it. I live in an area where Amazon has just absolutely escalated their pay scale in
order to make sure that they can hire enough people, so they’re struggling. It’s challenging from our
standpoint, from a manufacturing standpoint, to find it, and then if you do ,the rotation and the tenure at
seniority level, it’s difficult to get consistency there, which then, when you talk about automation, part of
automation is having a very tenured workforce, because the more seniority they have, the more efficient they
are. If you’re rotating through people and you have to bring in temp workers all the time, you’re not nearly as
efficient as you could be, and from a freight standpoint the fuel has marched back up, so the fuel surcharges
are higher than they used to be, the number of trucks going if you can’t find backhauls, the lanes are
exceedingly more expensive, so you have to be much more diligent about your business if you want to keep
your freight down.
NH: What is Hormel’s international opportunity, given the company’s size and unique footprint?
EW: I know it’s very disconnected, they operate their international business very separately. I know Spam is a
huge chunk of it because it has such an international flavour to it. I knew more about the Smithfield and the
Morell stuff because I knew they had businesses that they specifically operated overseas and I didn’t get into
the Hormel international business very much.
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[00:36:28]
Q: Are there areas Hormel lacks presence, despite the company covering the entire grocery store?
EW: When you look at their business, some of it, like the mashed potatoes and a lot of this stuff that have the
Hormel, it used to be, I forget what the name, Hormel Compleats or whatever it was, they do utilise some third
parties to help them produce. I think one of the weaknesses from them, from a standpoint, is when they try
and flip foodservice to retail, foodservice is very accepting of frozen product, retail is a little bit more want
things to be a little bit more fresh, and yet a lot of the way that Hormel goes to market with some of those
entrees and some of those sides from a foodservice standpoint is frozen. That makes that a difficult transition
to the retail market. It’s getting there, but that’s not the way people want it, meaning that’s not the way the
retailers want it. They don’t want to slack things out to then portion it out to do that, so that makes things a
little bit more challenging. Then I think they don’t have full-on vegetable production and some of the ways to
do complete meal kits, if that’s what you’re looking for, because that’s not quite the way they do everything.
They rely on partners, and they still rely on partners to help them put all of their party trays together, but
they’ve created a very good partnership that makes it profitable for everybody. I think there are still some
opportunities for them for that in the meal kit area. The rest of it, I think they pick away until they figure out
how to get to be number one or two in the market and then they go after it.
[00:39:27]
Q: What do you think is Hormel’s strategy to become category leader? Is it a price war to take share and then
gradually raise back up, or just buying the next competitor?
EW: I don’t think they ever go price, they never want to be the cheapest. That’s never the way they get market
share and they are very clear that when you are building business, that you do not sacrifice profitability to get
share. You may do it a little bit from a promotional standpoint, but you’re never given a break as far as, “We
know this is going to be an investment year,” and you can do it, you can invest, but it’s going to be in brand, it’s
going to be in product development, it’s not going to be in shredding your price in order to get more people to
buy your product. At least, that was never my experience there.
NH: How is Hormel positioned in the meal kit industry?
EW: When you say meal kits, are you talking delivered meals at Freshly? Are you talking about the stuff that’s
in supermarkets? Are you talking about it being from a manufacturing standpoint? I think the meal kit
business is not homogeneous. It is all over the board and it is delivery, it’s pickup in supermarkets, and as I
said earlier, it’s even restaurants getting into the business, so I think that’s a pretty broad question.
[00:41:18]
Q: How is the meal kit trend developing for Hormel in retail grocery, given the company mainly focuses on the
frozen products? Could you break down the click and collect, delivery and other avenues?
EW: Click and collect is a retail thing, so that’s specific to, and I think that’s unique and that depends, I think
more even than the grocery store, that depends on the location of the grocery store, the click and collect. It
used to be, and I think as we get back to more normalcy, it’s going to be that click and collect is going to work if
the supermarket is on your way to work or mostly on the way home, otherwise the delivery is going to be
stronger. I notice even now, I don’t think the click and collect is as big at my Kroger store as it used to be and I
think they’re starting to see more people go back, so I think a lot of that growth is not going to stop but it’s
going to slow down from its meteoric rise during the pandemic. As far as meal kits and Hormel’s ability to
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service that, I don’t know. I have mixed, because they like to be the final, they like to be the brand that people
see, and that’s not what the Freshlys and the Home Chefs and the Blue Aprons are all about. Every once in a
while they may say, “Made with Hormel pork,” but that’s not usually how they do it because they don’t want to
spend the extra money for that, they want it less expensive. From a retail standpoint, I know they’ve had some
projects to work with retailers on in-store prepared meals. I don’t know if they’re necessarily kits. I think that’s
also how you’d define kit. Is the kit with the raw product, or is it the heat meat? They’re much better suited to
the heat meat, where they can work in-store and the stores can put the meals together and the consumer can
take it home and heat and it. They’re not as suited to, say, the home shelf where you bring it in, you repackage
everything, and then you cook it and go, because that doesn’t seem to me to be the best way they would go to
market.
[00:44:01]
Q: Could you outline how Hormel has expanded Columbus since the Q4 2017 acquisition, having mentioned
the grab-and-go dynamic?
EW: I can’t really, because I was only there for a year, so I know what they wanted it to do and I know what
they liked about it and why they did. It was because it was a premium brand that gave some history and some
cache that fed into the Hormel brand. I know when they looked at it from a deli perspective it was going to
aggregate a lot of their business, and it gave them the impetus to basically put a business unit together that
was over USD 1bn and has some brilliant people that could drive it and grow it. I think that was kind of the
lynchpin and the opportunity to do that. You don’t get a company like Columbus, they don’t come along every
day, with the history and the profitability and the growth trajectory that that company has, and bolting that on
to the other pieces that Hormel had was a phenomenal idea.
[00:45:23]
Q: How is consumer perception of the frozen category shifting amid the better-for-you trend and grocers
preferring fresh food? There are consumers who perceive frozen as less healthy.
EW: I think the days of frozen food being less healthy are slowly going away. I think the pandemic did a great
thing for frozen food, because people wanted things that they needed to be able to stock up and they couldn’t
just stock up on fresh. I’ll look at our freezer, the things that my wife keeps in the freezer are all healthier,
better-for-you meals. It’s not the Totino’s pizzas or the Totino’s pizza rolls. It’s those fresh meals that are flash
frozen and are essentially meal kits that are frozen. Nothing is perfect, but they’ve certainly, with the amount
of green vegetables and the way that you can quick freeze things and par-cook them and then freeze them so
that they can be microwaved is really phenomenal, and you see that when you go through the supermarket
section now, or that better-for-you section, or that healthier meals, it’s not dominated by Swanson’s pot pies
anymore.
[00:47:00]
Q: How has the shift towards digital impacted some CPGs’ ability to drive effective marketing? It seems
everyone has crowded to the same channels for brand-building.
EW: The digital marketing, there is one place that the perimeter of the store has fallen far short. It’s really
difficult to market your hot fried chicken meal online or digitally or through the click and collect. It just
doesn’t translate as well as it does when you get somebody in there at 17:00 in the afternoon and they smell
the fried chicken and the fresh bread and they go, “I need this and this and this.” It just doesn’t translate as
well, but the Skippy peanut butters and the frozen foods and those things, I think they’ve done a lot better in
the days of the Kroger online shopping and the Amazon.coms of the world.
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[00:48:20]
Q: How are allergens and sugar-free dynamics impacting some categories? Hormel finalised its acquisition of
Planters’ snacking portfolio in June, and peanut butter is a common allergy. How might the company consider
its portfolio structure and how might any new designations from the FDA impact the business?
EW: I don’t know. I think if you bought a nut business, you’re buying it because you’ve got an iconic brand
and you look at the size of the market and what you think you can do, where that brand was in the market and
how much you can grow it. If you’re worried about how many people have a peanut allergy when you already
own Justin’s and Skippy and then whether you’re going to acquire Planters, I think you’re probably all-in and
you’re not looking at that particular food allergy as being a detriment.
NH: I was also alluding to potentially making variations of the same product in a more allergy-free way.
EW: That’s kind of hard to envision Planters making nuts without any nuts.
NH: It’s possible to make meat without any meat now, so it doesn’t sound too far off.
[00:50:04]
NH: Erik, we covered a lot, and I think that’s a good place to end today’s Interview. Thank you for your time.
Thank you, clients, for joining Third Bridge Forum’s Interview. If you would like to speak to Erik in a private
call or meeting, please let your relationship manager know. Have a good one, Erik.
EW: Alright, take care.
Transcription ends at 00:50:21 of the recorded material
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