Turning Flavor Notes to C-Notes

Prepared Foods, April, 2000 by Steve Dwyer

Hormel Foods relies on high-flavor, value-added meats and ethnically diverse foods to drive sales and profits. Now it's SPAM and spice and everything's nice!

Hormel Foods' new product development process often revolves around three guiding principles: "Taste, taste and taste," declares Eric Brown, group vice president of the company's Prepared Foods unit.

It sounds redundant until you consider that:

* As baby boomers settle into middle age, their taste buds continue to dull. They compensate by incorporating flavorful foods into their diets.

* As the U.S. population shifts into a melting pot, Americans become more exposed to and accepting of nontraditional ethnic cuisines, where flavors rule.

* As food safety concerns mount, consumers and foodservice operators tend to overcook meats. As a result, cured meats such as bacon can restore flavor to well-done hamburgers.

* As consumer eating patterns shift, meats move away from the center of the plate. "Meat becomes more a flavoring component or condiment of a meal. An example would be pasta with chicken. As the protein is emphasized less, flavor must become more intense," explains Brown.

From marinated peppercorn pork to cocktail smokies with cheese & jalapeno, the $3.4 billion Hormel has implemented a top-line strategy that's stronger than Tabasco--which, incidentally, is now on the ingredient list for Hormel chili.

"We needed to upgrade and contemporize the mix of our products," asserts Joel Johnson, chairman, president and CEO of Austin, Minn.-based Hormel, who joined the company as an executive vp in 1991. "Our strength is a portfolio of real and meaningful products. We're not a company full of little brands that need a lot of hot-air marketing to keep them afloat."

In 1999, Hormel brought 108 new SKU's to market--spread across its refrigerated foods, grocery, foodservice and international operating units.

To foster greater bottom-line efficiency, Hormel streamlined its operations last fall, splitting into two core pillars: Grocery Products and Refrigerated Foods. It also fully integrated manufacturing into the overall business unit, which cut costs. Formerly, plants transferred products--at cost--to the sales and marketing units, which then took it forward. Now, executives have product-line oversight from procurement to sale, providing more hands-on involvement.

These combined efforts have produced a strong balance sheet for Hormel, whose earnings after taxes increased 17.3% in fiscal 1999 and dollar sales grew 3%. Cumulative tonnage was up 7.1%. The momentum has carried into 2000 as Hormel beat Wall Street's first-quarter projection by 2[cent] a share.

Climbing The (Pork) Ladder

Five years ago, Hormel sold essentially all pork loins, the most highly valued components of a hog, on a commodity basis. Today, it sells 60% of its loins as Hormel Always Tender branded pork--be it marinated or precut and case-ready.

Convinced of its nutritional value, Americans consumed about 8% more pork in 1998 than the previous year. Seeing the market growth potential, Hormel has invested $500 million in modern slaughterhouse equipment over the past five years. The company processes between 20,000 and 30,000 hogs a day.

"We've added value to pork cuts by trimming, boning, marinating, flavoring and shipping in case-ready packages," notes Johnson. "We also enhanced fresh pork margins and alleviated volatile commodity cycles."

Ramping up quality led to quantity: fresh pork distribution shot from 1,500 retail stores three years ago to 11,000 today.

"We are building margins by moving retailers and consumers up what we call the Pork Value Ladder," declares Gary Ray, executive vp of refrigerated foods.

Always Tender is helping Hormel scale the pork ladder quickly. Even though it first arrived on the market in 1997, last year represented an "explosion" year for the brand as Hormel rolled out 15 new SKUs at retail. The product--also sold at foodservice--took 18 months from ideation to rollout, and has been expanded to include a fully cooked version.

The distinction driving Always Tender is a patented process that seals in flavor and texture. "People overcook pork because the stigma of safety still exists," notes Ray. "But you can't overcook Always Tender. Chefs were convinced it had to be adulterated. They tried to abuse it, increase the cooking temperature, but it still held its flavor and texture."

To ensure that Always Tender and other meat brands are best in class, Hormel uses test panels that help brand managers chart progress throughout a brand's development cycle. "If you need to raise salt levels or get rid of sinew or reduce toughness, these panels can go through and chart the progress. It's very scientific," offers Joe Swedberg, vp of meat product marketing.

The patented process combined with extensive testing plus a melange of exotic flavors has turned Always Tender into a meal solutions superstar. Sold in the supermarket meat case, the marinated product line features such varieties as honey mustard, lemon garlic, mesquite BBQ and salsa loin filets; peppercorn tenderloins; and boneless onion and garlic roasts. Without any advanced preparation, the product is ready to serve in 30 minutes.