Hormel Foods Corporation Business Information, Profile, and History

Company Perspectives:

Company Mission: To be a leader in the food field with highly differentiated quality products that attain optimum share of market while meeting established profit objectives.

History of Hormel Foods Corporation

Hormel Foods Corporation is a diversified producer of branded, packaged-food products, including hams, bacon, franks, luncheon meats, turkey products, stews, chilies, hash, meat spreads, microwavable entrees, and a variety of ethnic food items. Hormel has successfully evolved from meatpacker to value-added food manufacturer over its more than 110 years in business. In addition to its flagship SPAM brand, Hormel also produces and sells products under such brands as Always Tender, Black Label, Chi-Chi's, Cure 81, Dinty Moore, Dubuque, Farm Fresh, Herdez, House of Tsang, Jennie-O, Light & Lean 100, Little Sizzlers, Marrakesh Express, Mary Kitchen, Patak's, Peloponnese, Po River Valley, Stagg, Top Shelf, Turkey Store, and, of course, Hormel. Through its Jennie-O Turkey Store business, Hormel is the leading turkey processor in the world. The company markets its products abroad to more than 40 countries, with the larger markets including Australia, Canada, China, Japan, Mexico, Micronesia, and the United Kingdom. The Hormel Foundation, which was formed in the early 1940s by the founder of the company and his son, maintains an ownership stake of about 46 percent.

Founding a Meatpacking Business in the Late 19th Century

Hormel's history began when the company's founder, George A. Hormel, borrowed $500 in 1887 to form a retail meat market and pork packing business with his partner, Albrect Friedrich. Hormel established a powerful precedent when he refused to be complacent about their early success and pushed ahead with his plans to set up and operate a packing house. He and Friedrich agreed to disband their partnership in September 1891, and in November of that same year Hormel and employee George Petersen had transformed a small, abandoned creamery in Austin, Minnesota, into a meatpacking plant complete with smokehouse and slaughterhouse, operating under the name George A. Hormel and Company. In addition, he opened the Hormel Provision Market to sell his products; it quickly became the town's largest and most successful retail meat business.

Faced with low profit margins and competition from large meatpackers who could afford state-of-the-art refrigeration facilities, Hormel made expansion his first priority. Within the first few years his two brothers and other members of his family had joined the business, allowing George Hormel to put down his cleaver and devote himself exclusively to management. In 1899 Hormel spent $40,000 to upgrade his facilities, building a new refrigeration facility, new pumps and engines, an electric elevator, smokehouses, and a slaughterhouse. In 1901 the company was incorporated and also acquired several acres of adjacent land, and two years later it constructed additional facilities such as a casing processing room and a machine shop. In 1908 it also opened a new office facility, which the company used for more than 60 years.

During this period of expansion Hormel also worked to refine and improve its products. In 1903 it registered its first patent, "Dairy Brand," with the U.S. Patent Office. In 1915 Hormel began to produce several lines of dry sausage, a product that proved particularly popular with ethnic consumers.

In an effort to increase sales volume, Hormel sent salesmen outside of Austin to set up branches and distribution centers. By 1920 the company operated branches in Minneapolis, Duluth, St. Paul, San Antonio, Dallas, Atlanta, Birmingham, and Chicago. In 1905 George Hormel traveled to England to establish the foundation for an export business. Between 1905 and the end of World War I, exports grew to constitute about a third of the company's yearly volume.

Hormel and Company participated fully in the country's World War I effort. To control the price and supply of meats, the government regulated the meatpacking industry. Hormel expanded its labor force and the hours worked to help satisfy the increased demand for meat both at home and abroad. With so many American men, including George Hormel's son Jay, away at war, the company employed women for the first time in its history. In addition to producing meat for the war effort, Hormel employees bought Liberty bonds and donated an hour's wages per day to the Red Cross.

Surviving Scandal Following World War I

When Jay Hormel returned from the war, he rejoined the company and uncovered a scandal that very nearly put Hormel out of business. The company's assistant controller, "Cy" Thomson, had embezzled more than $1 million from the company and had channeled it into several poultry farms. The company had borrowed $3 million that year for operating expenses and hoped to repay the sum at the end of the year. At year-end, however, they were unable to do so, and George Hormel had to confront his bankers and persuade them to extend the loan.

The embezzlement scandal provided George Hormel with additional incentive to fortify his company. He did so by arranging for more reliable capital management, by dismissing unproductive employees, and by continuing to develop new products. In 1926, after years of research, Hormel introduced "Hormel Flavor-Sealed Ham," the world's first canned ham. Two years later, Hormel and Company went public.

In 1929 Jay C. Hormel became the company's second president, and his father, George, became chairman of the board. Under the new president the company continued to expand its product line: some of the company's best-known products--Dinty Moore beef stew (1935), Hormel chili (1936), and SPAM luncheon meat (1937)--entered the market and became extremely popular.

The company survived a bitter labor strike in 1933, during which disgruntled union employees, armed with clubs, physically removed Jay Hormel from the company's general offices and shut off the plant's refrigeration system. The two parties reached a compromise within three days. Soon, the company gained recognition for its innovative labor relations policies. Jay Hormel developed the "Annual Wage Plan," under which employees were paid weekly, their working hours fluctuated according to need, employment was considered permanent, and workers were guaranteed a year's notice before they could be terminated. In addition, the company introduced profit sharing, merit pay, a pension plan, and a joint earnings plan. Under this plan, in 1983 Hormel employees received more than $4 million.

During his tenure Jay Hormel cofounded (with his father) the Hormel Foundation, which controlled the company through holdings of its capital stock, and which served "religious, charitable, scientific, literary, or educational purposes." This foundation funds the Hormel Institute, a research facility located at the University of Minnesota that conducts highly respected research on fats and other lipids and how they affect human life.

SPAM Becoming Staple During World War II

During World War II, Hormel and Company became a "war facility" and once again increased its meat production. By 1945 Hormel was selling 65 percent of its total production to the U.S. government. SPAM, Hormel's canned spiced ham and ground pork product, became the staple of U.S. forces throughout the world; in 1941 Hormel was producing 15 million cans a week, and the government was distributing it under the lend-lease program. Overfamiliarity bred substantial contempt and ridicule during and after the war, but the product demonstrated uncanny resilience: by 1959, Hormel had sold more than one billion cans of SPAM.

When George Hormel died in 1946, Jay Hormel took his place as chairman of the board of directors and H.H. Corey became Hormel's third president. During the eight years under Corey, the company continued to renovate and upgrade its existing plants and acquire new facilities. It purchased several new packing operations--in Mitchell, South Dakota; Fort Dodge, Iowa; and Fremont, Nebraska. With the wartime restrictions on tin now lifted and with a tremendous demand for Hormel's canned meat products, the company improved its canning facilities in its Dallas and Houston plants and arranged for independent canning companies to manufacture Hormel products. In addition, Hormel made a concerted effort to make better use of its raw material, and in 1947 the company began to produce gelatin from pork skins.

Hormel's product line expanded along with the company's facilities. Mary Kitchen Roast Beef Hash, Corned Beef Hash, and Spaghetti and Beef in Sauce appeared in 1949, along with a new line of meat spreads.

With its constant expansion, the company had to consider how to dispose of its increased waste material. Hormel researchers developed an anaerobic digestive system that removed waste cleanly and efficiently. In 1946 the company financed a $2.25 million sewage system that it shared with the Austin community.

In 1954 Jay Hormel died, and Corey assumed his chair on the board of directors, while R.F. Gray succeeded Corey as president. He held this position for ten years, during which the company continued to pursue quality and efficiency. Hormel added several more slaughtering, processing, and packing facilities throughout the country, and in 1965 it added a new 75,000-square-foot automated sausage manufacturing building to its Austin plant.

Several new products appeared in this decade as well. In 1960 the company introduced its "Famous Foods of the World" line. The following year Little Sizzlers' sausage entered the market, followed two years later by a fully cooked sausage product, Brown'n Serve. The largest success of the decade, however, was the Hormel Cure 81 Ham, a skinless, boneless, cured ham with the shank removed; it debuted in 1963.

After another decade of progressive growth under two different presidents, M.B. Thompson and I.J. Holton, the directors realized that to remain competitive in the industry, Hormel needed to undertake a wholesale renovation of its Austin plant. In 1975 the company began planning a $100 million state-of-the-art facility, which opened in 1982. At more than a million square feet, it was among the largest and most productive in the industry and featured robotic technology and automatic ham deboners. Hormel continued to diversify its product lines as well, introducing precooked bacon and three new varieties of Perma Fresh luncheon meats. By 1980 Hormel was producing more than 700 different products.

Bitter Strike and Moving Away from Meatpacking in the 1980s

Although this new facility was capable of processing more than two million hogs a year and producing more than 200 million pounds of products annually, the industry began to shrink in the 1980s and Hormel began to feel the effects. In the 1980s consumers began to eat less meat, and meat producers for the first time had to struggle to make their products appealing. With a 40 percent increase in the price of hogs, Hormel was pinched. It asked employees to accept wage cuts in Austin of more than $2 an hour. In August 1985 the union decided to strike. A total of 1,500 workers left their jobs. Under the glare of national publicity, striking workers harassed the 700 replacements whom Hormel hired five months later. Five hundred union workers eventually returned to work--under lower pay scales--but the others were either dismissed or forced into early retirement.

The wounds from this bitter strike (which had lasted into early 1986) were slow to heal, but Hormel moved ahead, and under President, Chairman, and CEO Richard L. Knowlton (who had accepted a $236,000 raise in the midst of the strike), it adjusted to a rapidly changing market by moving away from the traditional meatpacking business and its many problems and concentrating on satisfying consumers' appetites for processed foods.

In an 18-month period in the late 1980s, Hormel introduced 134 new products, including Top Shelf vacuum-packed unrefrigerated meals with a shelf life of 18 months. Knowlton considered this "one of the most important products ever introduced by Hormel. It represents a revolutionary breakthrough in packaging technology and offers consumers a new level of convenience." After acquiring Willmar, Minnesota-based Jennie-O Foods, a turkey-processing company, in late 1986, Hormel went on to acquire a small producer of fresh marinated chicken breast entrees in 1988 and targeted its fish operations for expansion in an effort to exploit the more health-conscious market. With these new and acquired products, Hormel overcame a period of sluggish sales and earnings between 1979 and 1984 to record net earnings of $60.1 million in 1988, up from $29.4 million in 1984.

Beginning to Focus on Healthful, Convenient, Ethnic Foods in the Early 1990s

In the 1990s, Hormel worked hard to react quickly to consumers' increasing appetite for more healthful and more convenient foods as well as ethnic foods. It did so by seeking out targeted acquisitions and through new products and line extensions. The company also sought out additional opportunities for international expansion.

Hormel's continuing move away from meatpacking and toward value-added food production was highlighted by the 1992 appointment of Joel W. Johnson as president. Johnson became the first president not to have risen through the Hormel ranks, having been hired away from rival Kraft General Foods. Johnson added the CEO title in 1993, then became chairman of the Hormel board as well upon Knowlton's retirement in 1995.

In 1991 Hormel celebrated 100 years in business. The following year, the three grandsons of George Hormel--George Hormel II, James Hormel, and Thomas Hormel--who held control of the company through the Hormel Foundation, filed suit to attempt to force the foundation to diversify its holdings, which consisted almost entirely of Hormel stock. After an initially favorable ruling, the Hormel heirs eventually lost the suit in 1994. By 1996, the company's decision to repurchase as many as five million shares of Hormel stock was destined to further increase the foundation's Hormel holdings.

Meanwhile, in 1993 the company's own diversification efforts precipitated the first name change in company history: George A. Hormel and Company became Hormel Foods Corporation, a name more reflective of Hormel's food products orientation of the 1980s and 1990s. At the same time, however, the company did not abandon longtime mainstays such as SPAM. Johnson was credited with reviving SPAM sales by repositioning the canned pork mix as a quick and easy base for a "SPAMburger." He called it the "only hamburger made out of ham." The SPAM line was also successfully expanded with low-sodium and light extensions. In 1993 SPAM maintained a stunning 80 percent market share of its sales category.

Hormel aggressively went after the leaner food products category in the early 1990s. In 1992 the company introduced Light & Lean 97 hot dogs, which were 97 percent fat free and were praised for their taste by the likes of Eaters Digest, a consumer magazine. Additional Light & Lean 97 products were soon introduced, including all-beef hot dogs, boneless ham, turkey breasts, smoked sausages, and packaged luncheon meats.

The ethnic foods category was an area targeted for expansion in the 1990s primarily through acquisitions. In 1992 the House of Tsang and Oriental Deli brands were acquired, with Dubuque meats and Herb-Ox instant broths and seasonings added the following year. In mid-1995, Hormel purchased from Rockridge Trading Company the Peloponnese brand, a line of Mediterranean-based specialty foods including olives, olive oil, peppers, stuffed grape leaves, and salad dressings. Later that same year, the assets of Melting Pot Foods were acquired, which featured Po River Valley risotto rice, Marrakesh Express couscous, and Terrazza pasta and beans.

Another acquisition--that of American Institutional Products, Inc. (AIP) in 1994--brought Hormel a presence in the distribution of food products to hospitals, nursing homes, and other healthcare facilities. AIP made instant food thickeners and pureed food products. AIP was later renamed Hormel HealthLabs, Inc.

Hormel also spent heavily to add to and upgrade its facilities in the early to mid-1990s. In 1993 it bought from Rochelle Foods a 1.8 million head hog processing plant located in Rochelle, Illinois, then spent $4 million in renovating the site. Hormel also spent $15 million to upgrade its Davenport, Iowa, gelatin/proteins plant, and $20 million to expand and renovate its Fremont, Nebraska, hog processing plant. In 1995 alone, the company spent $97.2 million in capital additions and improvements, the most ever in company history. Meanwhile, in fiscal 1994, Hormel Foods exceeded the $3 billion revenue level for the first time.

International Expansion in the Mid- to Late 1990s

A couple of lawsuits involving Hormel made headlines in 1995. Hormel sued Jim Henson Productions over a wild boar named Spa'am that appeared in the movie Muppet Treasure Island. Although Hormel contended the character tarnished its SPAM trademark, a circuit judge rejected the argument and said it was legitimate satire. Hormel settled a more serious case out of court when it agreed to pay $7.5 million to settle a class-action suit brought by fish distributors and processors who claimed that Hormel's Farm Fresh Catfish Company and six other catfish wholesalers conspired to fix prices for nearly a decade. While some of the smaller defendants had admitted guilt, neither Hormel nor the other major defendants--ConAgra Inc. and Delta Pride Catfish Inc.--admitted responsibility. Late in 1996, Hormel sold Farm Fresh Catfish for an undisclosed sum, taking a $5.4 million charge related to the divestment.

In the mid-1990s, Hormel increasingly looked overseas for growth opportunities, and often turned to joint ventures to pursue foreign revenue as well as domestic sales. After opening sales offices in Hong Kong and Mexico earlier in 1994, Hormel in December of that year joined with Beijing Agriculture Industry and Commerce to form Beijing Hormel Foods Co. In 1996 this venture began constructing a hog processing plant, which was completed in early 1998; the plant could process 300,000 hogs each year and began producing a variety of pork products under the Hormel brand for sale in China. In Mexico, Hormel Alimentos S.A., a joint venture with Grupo Herdez S.A. of Mexico, was formed in 1995 to market U.S.-manufactured Hormel products in Mexico. Another 1995 joint venture was with Darling Downs Bacon Cooperative Association Limited of Australia.

The following year saw additional joint ventures. In January 1996 Hormel and the U.K.-based Patak Spices Ltd. formed Patak's Foods USA to import and market Indian sauces, pastes, pickles, and chutneys in the United States. In July Hormel and Grupo Herdez formed a second joint venture--Herdez Corp.--to distribute Mexican foods products in the United States under the Herdez, Búfalo, and Doña María brands. Then in December Hormel spent $64.3 million to purchase a 21.4 percent interest in Campofrio Alimentacion, S.A., a food company based in Madrid that sold ham, sausage, and turkey products in Spain, Russia, and Latin America. All of these 1996 activities expanded Hormel's already extensive presence in the ethnic foods category.

During this same period, the company was not inactive on the domestic front. In October 1996 Hormel acquired Stagg Foods, Inc., maker of the Stagg brand of chili products, for $50 million in cash and stock. In the fall of 1997, Hormel acquired Heartland Foods Co., which operated a 117,000-square-foot plant in Marshall, Minnesota. Under Hormel, the plant began processing whole turkeys and bone-in turkey breasts for sale under Jennie-O, Heartland, and private-label brands. The Heartland acquisition helped boost Jennie-O into position as the top turkey processor in the United States, with production of 855 million pounds of turkey in 1998. Early in 1998, Hormel sold its Davenport, Iowa, gelatin/proteins plant to Goodman Fielder Limited of Sydney, Australia, for $71.4 million. Hormel completed the sale to further its focus on consumer-branded meat and food products.

By fiscal 2000, Hormel Foods had achieved record net sales of $3.68 billion. The 9.5 percent increase over the previous year was fueled in part by a significant increase in purchases of nonperishable products, including SPAM, during the final months of 1999 as nervous consumers stocked up in advance of impending Y2K problems that never materialized. The company also recorded a strong profit margin of 4.63 percent, well above the 2.5 to 4 percent margins that prevailed during the early 1990s and more than double the levels of the mid-1980s.

Early 2000s: Increasing Acquisition Activity

Hormel stepped up its acquisition activity during the early 2000s. Two deals bolstered the firm's expanding Hormel HealthLabs unit, which supplied foods to the rapidly growing healthcare portion of the foodservice industry, specializing in modified foods for people with dietary restrictions, such as swallowing difficulties, bowel problems, and diabetes. In December 2000 Hormel acquired Quakerstown, Pennsylvania-based Cliffdale Farms, a supplier of texture-modified foods with annual sales of $3.4 million. Then in April of the following year, Hormel paid about $65 million to Imperial Sugar Company for the nutritional products division of Diamond Crystal Brands. The acquired unit, which had annual sales of about $50 million, produced more than 170 nutritional products, including thickened ready-to-serve juices, frozen pureed meats, fortified shakes and breakfast mixes, and ready-to-serve instant breakfasts. These acquisitions helped propel Hormel HealthLabs past $100 million in annual revenues.

Hormel's largest deal, however--in fact the largest in company history--was the purchase of Jerome Foods, Inc., which did business as the Turkey Store Company, in February 2001 for $334.4 million. Based in Barron, Wisconsin, the Turkey Store processed about 375 million pounds of turkey annually and had revenues of $309 million for the year ending in February 2000. The Turkey Store was merged into Jennie-O to form Jennie-O Turkey Store (JOTS), which ranked as the largest processor of turkey in the world, processing more than 1.2 billion pounds per year. Heading up JOTS was Jerry Jerome, the son of the founder of the Turkey Store and that firm's CEO and chairman. During fiscal 2001, JOTS accounted for 20 percent of overall Hormel Foods revenues and 22 percent of operating profits.

By the early 2000s, Hormel also had ended, for the most part, its efforts to curtail alternate uses of the term "spam"--most notably its increasingly common usage as a term meaning junk e-mail. This latter meaning apparently had been inspired by a sketch by the British comedy troupe Monty Python in which several Vikings repeatedly chant "Spam," in the process drowning out normal conversation. Hormel eventually gave up fighting the use of the term "spam" for junk e-mail but emphasized that the brand should be rendered in all capital letters, SPAM, while the junk e-mail term should appear in lowercase, spam. The company continued to object to and to discourage the use of the luncheon meat's image in connection with junk e-mail.

An important initiative of the early 2000s was the continuing drive to convert the company's fresh meat products from commodity to branded, value-added products. This program began in the mid-1990s with the introduction of the Hormel Always Tender line of marinated, flavored, and precut pork loins and tenderloins. In April 2002 Hormel and the Excel Corporation subsidiary of Cargill, Incorporated created Precept Foods, LLC, a joint venture that would market fresh, prepackaged beef and pork under the Hormel Always Tender brand. The venture, by leveraging Excel's position as the second largest beef processor in the United States, would enable Hormel to get into the value-added beef market without having to invest a great deal of resources.

In December 2002 Hormel acquired Diamond Crystal Brands from Imperial Sugar for $115 million in stock. Diamond Crystal was a maker of soups, beverages, sauces, seasonings, and gravy and dessert mixes primarily for foodservice customers. The unit had annual sales of about $160 million, and its operations were placed within Hormel's Grocery Products business.

Hormel Foods had continued its remarkably consistent history into the new century. The company maintained its continuous level of profitability, having operated in the black every year since its founding. Hormel had not missed a dividend payment since becoming a public company in 1928, and in fiscal 2002 the company increased its cash dividend for the 36th straight year. The company maintained a strong balance sheet with a low debt load, positioning it to continue to grow through targeted acquisitions. Another of the company's strengths was the large ownership stake held by the Hormel Foundation. This ownership structure lessened the chances of Hormel becoming a takeover target and also shielded the firm from the heavy pressure to achieve quarterly financial goals that most public companies face.

Principal Subsidiaries: Hormel Financial Services Corporation; Jennie-O Turkey Store, Inc.; Hormel Foods, LLC; Hormel Foods International Corporation; Hormel HealthLabs, Inc.; Vista International Packaging, Inc.; Dan's Prize, Inc.; Mountain Prairie, LLC (67%); PH, Inc.; Fort Dodge Foods, Inc.; Rochelle Foods, Inc.; Logistic Services Incorporated; Creative Contract Packaging Corp.; Dold Foods, Inc.; Stagg Foods, Inc.; Osceola Foods, Inc.; Melting Pot Foods, Inc.; Park Ten Foods, Ltd.; West Central Turkeys, Inc.; Heartland Foods Co.; JJOTS, LLC; Beijing Hormel Foods Co. Ltd. (China; 76%); Shanghai Hormel Foods Co. Ltd. (China; 77%); Campoco, Inc.; Hormel Netherlands B.V.; Hormel Foods Australia Pty Limited; Hormel Spain SRL; Dubuque Foods, Inc.; Hormel Canada, Ltd.; Park Ten MN, LLC; Park Ten TX, LLC; Hormel Foods FSC, Inc. (Barbados); Precept Foods, LLC (51%).

Principal Operating Units: Meat Products Group; Foodservice Group; Prepared Foods Group.

Principal Competitors: Tyson Foods, Inc.; ConAgra Foods, Inc.; Cargill, Incorporated; Smithfield Foods, Inc.; Sara Lee Corporation; The Dial Corporation; Campbell Soup Company.

Chronology

• Key Dates:
• 1891: George A. Hormel begins operating a meatpacking plant in Austin, Minnesota, forming George A. Hormel and Company.
• 1901: The company is incorporated.
• 1926: The company introduces the world's first canned ham.
• 1928: The company goes public.
• 1929: Jay C. Hormel, son of George, becomes company president, with his father becoming company chairman.
• 1935: Dinty Moore beef stew is introduced.
• 1937: SPAM luncheon meat is introduced.
• Early 1940s:Jay and George Hormel found the Hormel Foundation, which would control the company through holdings of its capital stock.
• 1963: Cure 81 ham debuts.
• 1982: A $100 million, state-of-the-art manufacturing plant opens in Austin.
• 1985-86:A bitter, nationally publicized strike takes place at the Austin plant.
• 1986: The company acquires Jennie-O Foods, a turkey-processing company.
• 1993: The company changes its name to Hormel Foods Corporation.
• 2001: The Turkey Store Company is acquired in the largest acquisition in company history.