Mr. Johnson: Hormel Foods is a very well-established company, founded in 1891 and profitable ever since. We're based in Austin, Minn., which is in the middle of the agricultural heartland of the country, reflecting our roots in the pork business. We have grown significantly over the generations from this home base and are now well represented with a broad array of branded food products within a diversified portfolio. We have a significant presence in the grocery products segment of the food industry that includes all our shelf staple products. We have a very vibrant presence in food service, which is an area of strategic emphasis in the company. We have grown our participation in the turkey industry to the point where today, we're the largest processor of turkeys in the United States. We have a large and growing processed pork business that ties us closely to the origins of the company. We have a growing international presence in selected areas of the world where we can bring distinct advantages and where we can compete in such a way that our assets, resources and capabilities are leveraged.
TWST: What are the strategic keys for this company as you look to grow
over the next two-, three-, five-year time frame? Is it simply
leveraging the brand and taking on more opportunities? Is it going for
scale or efficiencies of size? What are the keys?
Mr. Johnson: The keys vary by operating unit. Hormel Foods is a
decentralized organization in which each unit operates according to its
own plan or with significant resources provided at the corporate level
in terms of finance, R&D, engineering, legal, etc. But again, the key
opportunities vary unit by unit. In our meat products business, our
approach has been to aggressively grow our portfolio mix toward brand
name products, adding value to items traditionally sold almost purely on
a commodity basis. For instance, five years ago, we sold essentially all
of our pork loins, the most highly valued components of the animal, on a
commodity basis. Today we're selling 60% of our loins as Hormel Always
Tender branded pork. We are marinating the product and in some cases,
precutting it to provide it to the retailer case-ready. Now this has
significantly advanced what had been a traditional business of commodity
sales with commodity-like returns into one that is operating more now
like a classic consumer branded business. Another part of our strategy
in meat products is for internal utilization of raw materials that come
from our slaughter operation. We process between 20,000-30,000 hogs a
day. It's critical to our strategy to use these raw materials internally
for our value-added products. We pay a premium for the best hogs in the
industry, and we want to make sure the products that come from these
animals are processed in our plant and branded with the Hormel name.
Within the Jennie-O turkey operation, we're the low-cost producer in the
country, and the challenge is to add more value and brand more products
through deli and retail operations. We're making significant
improvements in that direction, and the returns on that business are up
considerably. The somewhat parallel story for turkeys can be related to
what we are in pork today. However, we are farther down the road in
pork, perhaps reflecting the fact that we've been in that business since
1891 and in the turkey segment since 1986. Grocery products is an
important part of our total mix. Our shelf stable products include
brands like SPAM luncheon meat, Hormel chili, Dinty Moore stews, Hormel
chunk meats and our wide array of microwaveable products. Here we have
large market shares in just about every category in which we compete.
The challenge is to keep these categories as contemporary and vibrant as
possible. Many of them are valuable to consumers as highly convenient
products and, as such, we meet the need for home meal replacement.
These products have, in many case, been around 50 or 60 years and are
providing increasing convenience. At the same time, we're contemporizing
them for improved nutritional profile and enhanced taste. We did exactly
that with a chili reformulation three years ago where we reduced the fat
content and increased the nutritional profile and flavor mix. We're
opening a test market now with an oven roasted turkey SPAM luncheon meat
that is 96% fat free. It has a very similar taste profile to
conventional SPAM luncheon meat, but provides the nutritional
enhancement. The microwaveable end of our business is also growing
sharply. After a disappointing start when these products were introduced
in the late 1980's with competitors like Kraft, Del Monte and Libby, we
basically now have a two-horse race between ourselves and International
Home Products. We're in a position to grow our portfolio of products
which includes everything from child-oriented items to adult items. In
foodservice, our strategies are to be at the forefront of where we see
restaurant and foodservice operators going today. We provide products
that reflect the restaurant operator's ongoing difficulties and issues
with labor availability and provide products that are preflavored,
presliced, premarinated, preportioned and precooked. We're also
addressing the need to operate across all segments and provide products
for dinner as well as breakfast and lunch. As a result of our very
aggressive pursuit of the foodservice industry, we have gone for many
years with growth rates two to three times what the foodservice industry
in total has realized. Today 53% of the American dollar is spent on food
prepared away from home. One of our core strategies is based upon the
belief that you truly cannot be in food business today without operating
in the foodservice business. Internationally, it's a slightly different
story. Historically, we have been under-represented versus other good-
sized American food companies. We now have 15 separate partners around
the world. Some of them equity positions, some of them joint ventures
and some are contractual arrangements of various terms. We're building
our current products, especially our SPAM luncheon meat business, in
many markets like the Philippines, Japan, the United Kingdom and Korea.
We have built two plants in China with separate joint venture partners.
We own 55% of each plant, one in Beijing and the other in Shanghai. The
plants are operating well, and we are building distribution in both
retail operations and foodservice in China on a branded basis. We are
going forward very aggressively, but very selectively, internationally.
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