BOCA RATON, FLA. — The deli of the past is not the deli of the future, said James P. Snee, chairman, president and chief executive officer of Hormel Foods Corp.
“This is not our parents’ deli,” Mr. Snee said during a Feb. 22 presentation at the Consumer Analyst Group of New York conference in Boca Raton. “The deli is no longer only a place where you order a pound of your favorite protein sliced to your desired thickness ... today terms like quarter pound, half pound, paper thin, extra thick are joined by words like charcuterie, artisanal, crafted and millennials.”
Austin, Minn.-based Hormel Foods has identified the deli as a $35 billion opportunity and its next growth engine. The growth of the deli is far outpacing other parts of the retail outlet and out pacing total food by more than four times, Mr. Snee said.
“And not only is the deli growing at a faster rate of other parts of the store, it’s growing its footprint as more and more space continues to be allocated to this very important part of any retailer’s business,” he said. “And this deli business is made up of four key areas. The first of which is behind the glass. And this is what we all remember as the deli, right, either whole pieces of meat sliced to your preference or, more recently, a wide array of already sliced product. And I will tell you the rumors about the demise of behind the glass are a bit presumptuous. As you can see, this remains a sizable and growing segment with premium brands fueling this growth.
“The next segment is grab-and-go. And grab-and-go is where you’ll find typically prepackaged meats, prepackaged cheeses or perhaps the combination of the two.
“Next, prepared foods. This is no longer about just macaroni and cheese and mashed potatoes. As consumers continue to have less and less time, they are now including this area of the store in their consideration set for on-the-go food, and retailers are looking for higher-quality signature offerings.
“And finally, in-store restaurants or what many of us know as grocerants. Many times, they are freestanding restaurants within the retail outlet, but wherever they are, it’s clear that this is in the wheelhouse of our strong branded food service business.
“And all of these segments combined, they’re all significant in size and growing.”
Hormel Foods acquired Columbus Manufacturing, a producer of salami, Italian specialty meats and deli meats, last year for $850 million. This deal has positioned the company to “compete and win in the deli of the future,” Mr. Snee said.
“Hormel Foods has always had a strong product representation in many of the deli segments, but the acquisition of Columbus really helped us close some of those gaps with items like charcuterie trays and high-quality artisanal meats,” Mr. Snee said. “Additionally, our unmatched array of deli solutions far outpaces any of the competitors’ in this space, and they simply cannot match the breadth or depth of our solutions.
“Now we’ve had strong behind-the-glass expertise with brands like Jennie-O and Di Lusso Deli. We are the turkey experts at Jennie-O, the ham experts at Hormel, and now we are the dry sausage experts with the addition of Columbus. The addition of our Applegate brand now affords us the opportunity to offer the leading natural and organic brand as well.”
The company also has a growing presence in the $4.2 billion grab-and-go section with Hormel Gatherings party trays and culinary pairings, plus new Columbus items. Within the $10.2 billion in-store restaurant segment, Hormel brings a broad range of food service brands including Austin Blues, Cafe H and Fontanini, he said.
“And when you put it all together, we now bring unmatched knowledge in both deli and food service, expertise in bringing solution-based selling and game-changing innovation while leveraging incredibly powerful brands to this high-growth area,” Mr. Snee said. “Hormel, Hormel food service, Jennie-O, Applegate and now Columbus, truly a dream team of brands.”
To support its efforts in the deli department, Hormel recently named Jeff Baker to the newly created role of group vice-president of deli.
“This role will consolidate all deli sales into one highly focused division reporting into Refrigerated Foods,” Mr. Snee said. “Jeff most recently led our highly successful food service business, and he also has deep retail deli experience. He will be able to leverage our food service strategy as he understands how to manage and motivate a direct sales organization and provide thought leadership, solution-based selling and industry changing innovations to the marketplace.”
Combined, the new deli group provides meaningful scale with nearly $1 billion in sales. The addition of Columbus expands Hormel Foods’ total points of distribution by 41%.
“Columbus also boosts our presence out west, where we are traditionally weaker with our current Hormel brands,” Mr. Snee said. “We believe we have a very long runway as we start to help Columbus migrate east successfully. Columbus brings an excellent direct sales force that is a perfect complement to our current sales team and will allow us to deliver our solutions-based selling model to any major retail channel.”
Net earnings attributable to Hormel Foods in the first quarter ended Jan. 28 were $303,107,000, equal to 57c per share on the common stock, up from $235,147,000, or 44c, in the year-ago period. Net sales increased to $2,331,293,000 from $2,280,227,000.