The company’s portfolio of brands is getting a facelift behind a new approach to acquisitions.

Hormel Foods Corp. is diversifying. The corporation synonymous with such iconic brands as Spam, Dinty Moore and Cure 81 is now a competitor in such categories as peanut butter with its Skippy brand, performance products (Muscle Milk) and condiments (Wholly Guacamole). The diversification has extended the company’s reach in the marketplace and given it a platform from which to innovate.

“Hormel is a branded operation,” said Jeffrey Ettinger, chairman, president and chief executive officer, during a Sept. 10 presentation at the Barclays Global Consumer Staples Conference in Boston. “We take great pride in having leading brands in multiple categories. We’ve been able to add to that brand stable with such items as Muscle Milk and Applegate and Skippy in recent years.”

Mr. Ettinger said the Austin, Minn.-based company’s traditional portfolio still benefits Hormel, and the company continues to enjoy growth in such products as Hormel pepperoni and Spam luncheon meat, but the company is taking a new approach to expanding its portfolio. He said Hormel is highlighting more multicultural items, offering more items with a healthy or holistic component, and developing products that meet the needs of on-the-go consumers.

The moves are intended to build on what has been a strong run of sales and earnings growth for the company. In the fiscal 2014 year ended Oct. 26, 2014, Hormel’s net income was $602.68 million, up 15% from $526.21 in fiscal 2013 and up 52% from $395.59 million in fiscal 2010, while revenues were $9,316.26 million in fiscal 2014, up 6% from $8,751.65 million in fiscal 2013 and up 29% from $7,220.72 million in fiscal 2010.

An examination of Hormel’s acquisition activity may suggest a somewhat disjointed strategy as the company has acquired businesses in very different markets. But in his September presentation, Mr. Ettinger put the process in a different light, noting that the company focused on acquiring brands that manufacture products that appeal to younger consumers.

Wholly Guacamole, which was acquired in 2011, participates in an area of the grocery store that Mr. Ettinger described as “exciting.”

Jeffrey Ettinger, chairman, president and c.e.o. of Hormel

“Mexican food is certainly a hot item, and it’s part of an overall Mexican food portfolio for us,” he said. “It clearly delivers on a healthy basis. Guacamole and avocado spreads are looked on in some cases as super foods or as certainly a great component for a balanced diet. They are offering on-the-go. … And not only do we like it, consumers like it. In the most recent quarter we saw double-digit growth in the retail segment with the Wholly Guacamole offerings.”

Two years later, in 2013, Hormel acquired Skippy from Unilever for approximately $700 million. Although not the No. 1 peanut butter brand, Skippy’s status as an iconic brand was something Hormel believed would be extendable into other spaces, Mr. Ettinger said.

“We’ve done a nice job of reemphasizing the brand in terms of both its product distribution and new advertising in place,” he explained. “We’ve been offering on-the-go products with the Skippy Singles already, and clearly the global aspect of Skippy was a key attractive element to it for us.”

Hormel is looking to reach on-the-go consumers with the introduction of Skippy PB bites. The new product is available in two varieties: pretzel and double peanut butter. Mr. Ettinger said the bites are a snackable item that is different than anything else in the marketplace and have generated strong retailer interest.

Two more deals in past two years

A little over a year ago, Hormel closed on the acquisition of CytoSport Holdings, Inc., the maker of Muscle Milk products, for $450 million. Mr. Ettinger said Hormel liked the company’s position as a leading share player in an exciting growing area.

“We think Muscle Milk definitely is a platform that we can grow off of,” he said. “One of the first things that the team is focusing on would be to have a stronger set of both offerings and marketing appeal to a young female audience. … We may need to add some products that are more designed for that type of audience.

“Ultimately, it’s a very dynamic space. Whether they’re ready to drink the powders and bars obviously are another way that lots of companies are addressing nutritional opportunities. Muscle Milk has already very good shares in ready-to-drink, the leading share and a good (share) in powders, not much in bars. We think that’s an opportunity if we can come up with the right product offering within that area. But clearly for us it was a real galvanizing event for our Specialty Foods segment and really makes it clear that their mission needs to be to go after this generally health and wellness component.”

During 2015, Hormel made a significant acquisition that it hopes will further its appeal to younger consumers. In July, the company closed on its $775 million acquisition of Applegate Farms, Bridgewater, N.J., a manufacturer of natural and organic processed meat and poultry products. With a growing number of consumers choosing products perceived as natural and certified organic, the acquisition will allow Hormel to expand the breadth of its protein offerings and offer consumers choices between its traditional lines of processed meat products and the specialized items Applegate offers.

“This acquisition will provide our refrigerated food segment an entrance into the high-growth category of premium and natural and organic meats,” Mr. Ettinger said when the transaction first was announced in May. “Our team has long considered ways to build this type of supply chain from the ground up, but clearly with a 25-year head start and deep expertise and credibility in this space, this transaction involving the Applegate brand and team provides us a much more meaningful position in the natural and organic space. Approximately 70% of Applegate’s products are natural, and about 30% are organic and include turkey, pork, and chicken and beef items.”

He said Applegate is broadly well-positioned with access to supplies that is sufficient to fuel continued growth, but Hormel is prepared for challenges along the way, particularly in regards to the natural and organic pork supply availability.

“We have taken potential supply challenges into consideration, and we are confident that we can navigate such situations and still support the value of this business,” he said. “The Applegate brand brings even more diversification to our balanced model through additional channels, a new consumer set, and a different supply chain model.”

Acquisitions aside, the most significant challenge Hormel Foods faced during the past year was of the unexpected variety, when poultry flocks throughout the Midwest were decimated by an outbreak of highly pathogenic avian influenza. While the state of Iowa, the largest egg producer in the United States, was hit hardest, Minnesota, where Hormel’s Jennie-O Turkey Store operations are based, also suffered heavy losses. Many of the company’s turkey flocks were culled in an effort to slow the spread of the virus.

By the end of the year, Hormel’s company turkey farms will be repopulated, said Glenn Leitch, president of Jennie-O Turkey Store.

“We’ve got a vertical integrated supply chain so all of the eggs that are put in incubators come out 28 days later,” Mr. Leitch said. “Seventy-five per cent of them are independent growers. Independent growers are often smaller operations, might want to do it at their own pace, and it’s worked well. They have a place to go so we are on track, and with being on track we expect that we’ll be essentially fully repopulated by the end of our fiscal year.

“With that taking place, by the time we get into January, February time frame, our production plants should be operating at a normal or near normal level.”

Head-to-head with hamburger

Ground turkey is not a new product, but current market conditions have given the management of Hormel Foods’ Jennie-O Turkey Store business unit optimism they may make inroads into the market for ground meats.

“Even if there are a few more cattle around in the next year or two as that cattle cycle tends to move a little bit, we really don’t expect a significant (price) reduction at retail,” Mr. Leitch said. “That cattle business hasn’t been terribly profitable and somebody is going to need a margin there at some point in time going forward.”

Mr. Leitch added that Jennie-O is determined to drive ground turkey sales growth and the company’s target market is younger consumers.

“We know we’ve got to hit that millennial set and one thing we found about millennials is they value fresh, and at Jennie-O Turkey Store we do fresh better than anyone else,” he said.

Mr. Leitch defined the ground beef category as having 2 billion lbs in volume and approximately $7 billion in sales.

“If we can steal one share point, that’s 21 million lbs of conversion to turkey,” he said. “Now, we’re not quite at a point a year, but we have been making inroads and there’s no reason for us to expect that will change.”

To achieve his goals, Mr. Leitch will have to overcome several hurdles: the aforementioned outbreak of highly pathogenic avian influenza that was so devastating to the egg industry, and household penetration.

Jennie-O executives are determined to drive ground turkey sales growth, and the company's target market is younger consumers.

While ground beef may be considered ubiquitous in many households, ground turkey household penetration is at 24%, but Mr. Leitch said that number makes him optimistic.

“The good news is household penetration has been incrementally moving up,” he said. “The better news, frankly for me, is that there’s still a long way to go. We can still put ourselves in a lot more households and this is our goal.”

He added that the product “over indexes” with millennials.

“We’re at 28% with that group and they are growing at a faster clip than the general population.”

It may be argued that Jennie-O is stealing a page from such companies as WhiteWave Foods and Hampton Creek as they strive to offer alternatives to traditional products. In addition to ground turkey, the company is offering a turkey sausage roll to compete with the traditional pork sausage roll.

“If you think about the pork sausage roll, that’s a big business,” Mr. Leitch said. “We were literally nothing three years ago and … now it’s a $20 million business for us.

“We can take a pork roll and a turkey roll side-by-side and at the same lean content we can often be at a lower price point or we can offer a premium lean content for the same price point and, so for consumers, that’s a pretty compelling argument.”

Finally, Mr. Leitch said university and health care institutions also offer good opportunities for the Jennie-O brand.

“As new food service rules come in play in future years for nutritional content and calorie counting, we think it will be more and more important for the role of turkey in this environment …,” he said.