Hormel Foods on running Applegate at arm’s length, organic sourcing challenges, and ‘swim lanes’

Indeed, when it comes to snapping up fast-growing natural and organic brands, big CPG firms recognize that their best bet is to be leave their sexier bedfellows well alone, but give them the resources they need to carry on doing what they are doing more rapidly, rather than swallowing them under the corporate umbrella, said Tom Day, who heads up Hormel’s refrigerated foods division in Austin, Minnesota.

“We’re going to run this thing separately, leave the Applegate HQ in Bridgewater, and keep the management team in place. We just see great opportunities to just help them build the business faster, but stay true to their mission,"​ Day told FoodNavigator-USA.

“Applegate’s mission is to change the meat we eat and we believe we can help them to do that. And adding Applegate gives us a broader portfolio to meet the needs of a lot of different consumers, some that we were reaching, some that we weren’t.”​

Applegate – which is on course to generate sales of around $340m in 2015 (Hormel’s refrigerated foods business generates “a​ little over $4bn​”, said Day) – “will be a growth engine for the refrigerated foods group going forward”.   ​

Demand for some organic meats exceeds supply ​

But what can Hormel bring to the party that Applegate couldn’t bring to the table alone?

Said Day: “Applegate has a very strong management team and dedicated employees and it has been growing in the double digits; what we bring is some marketing expertise in the protein space and obviously some capital.​

“But we also bring a number of hog and turkey producers that we work with that can help to expand Applegate’s supply faster than they could have done on their own.​

The challenge right now, he said, is that demand for some organic meats exceeds supply, “so we have to go out and work with farmers to help meet that need and work with grain farmers so there is adequate supply of grain to feed these animals.”​

But it takes time, he acknowledged, “If you make the decision today as a farmer to raise organic soy or corn, the reality is it will be almost four years before you can get a crop. But Applegate has suppliers on the grain and on the manufacturing/production side that we hope to learn from and expand on.”​

Sales teams will not be consolidated​

A “handful” ​of Hormel execs are relocating to Bridgewater including a chief finance officer, a chief operating officer, and some people in junior operations and marketing positions, he said. But the sales teams will not be consolidated.  ​

“There will be lines of communication between the two sales teams, however, and where we can leverage their strength in the specialty channel, and where we can offer some insight on the mass/grocery side, then those discussions will take place… ​We’ve spoken to a number of retail customers and consumers and we see a very bright future for Applegate.”​

As for IT systems, said Day, they will also stay separate: “Applegate has a very effective IT organization and just recently went through a changeover in the last six months.”​

We really don’t see Applegate as a competitor​

While Hormel has spent almost a decade developing its Natural Choice brand – which it relaunched earlier this year – this has primarily been targeted at mainstream grocery retailers and does not compete head on with Applegate, which has to date gained the most traction in natural and organic stores, although it has a lot of potential to grow in conventional channels as well, said Day.

“We really don’t see Applegate as a competitor. Natural Choice is an affordable offering for people looking for certain attributes, but Applegate takes it to another level. We talk about different swim lanes, so we see a swim lane for mainstream, healthy mainstream, naturally inclined, dedicated natural, and then dedicated organic, a very specialized area. ​

“There are opportunities to compete in many of these areas, and Applegate gives us a wider portfolio to do that. ​

"We can learn and understand more about the opportunities in natural and specialty and there will be opportunities for Applegate to get further distribution points in the channels where we traditionally have great relationships. ​

"The natural area is growing in mainstream grocery stores and they are looking for brands that bring credibility such as Applegate.”​

Bacon is hot ​

So what’s happening in the refrigerated meats category?

Said Day: “The store perimeter is going through some great growth and a lot of change; consumers are looking for fresher items with simpler ingredients that they can read and understand, plus attributes such as raised without antibiotics.”​

Within the category, he said, “I’ll tell you Bacon is hot, in retail, foodservice, the entire industry, everyone loves bacon. ​The natural hot dog area is also continuing to grow and Applegate has the number one position in the natural and organic hot dog category, so there is lots of growth potential there. High protein portable snacks such as REV are also doing very well, as people want protein on the go, portability and convenience.”​

In general, he said: “This idea of simpler ingredients is what we’re hearing a lot about; there is a big push to go back and review everything and make sure that all of our ingredients statements are as simple as possible."​

The two parties​

Based in Austin, Minnesota, Hormel Foods' brand stable includes includes Chi-Chi's, Dinty Moore, Farmer John, Herdez, Jennie-O, Lloyd's, Muscle Milk, Skippy, Spam, and Stagg. The firm, which added Skippy peanut butter,  CytoSport (MuscleMilk), and Wholly Guacamole to its portfolio in the past couple of years in a bid to diversify, posted earnings of $180m on sales of $2.3bn in the second quarter of fiscal 2015. 

Applegate, based in Bridgewater, New Jersey, supplies refrigerated deli meat, hot dogs, bacon, dinner sausages, Half-Time meal kits, chicken strips, Italian meats (salami, pancetta etc), and cheese; fresh pork; and frozen burgers, breakfast sausages, breaded chicken, and corn dogs.