- Hormel announced in a press release Thursday that it will sell one of its pork processing plants in Fremont, Nebraska, to WholeStone Farms, a newly formed cooperative of 220 Midwestern hog farmers. Neither Hormel nor WholeStone Farms disclosed the sale price.
- The transaction is expected to close in December 2018, and includes a processing facility and a multiyear agreement to supply raw pork materials to Hormel Foods.
- "A multiyear supply agreement with WholeStone Farms ensures the Fremont facility will continue as an integral part of our supply chain in the future," Glenn Leitch, executive vice president of supply chain at Hormel Foods, said in the release. "Our focus continues to be on ensuring a stronger supply chain from procurement to shipment of products, fully optimizing our system to create an efficient, enterprise-wide structure to keep pace with the growing needs of our business."
In the midst of changing consumer tastes, the big packaging companies of yore are being pushed to make serious changes, and for Hormel, this sale is another major step away from its traditional domain in the meatpacking process.
Interestingly, Hormel's sale of its processing plant is out of step with other large meat manufacturers. Recently, Tyson, Foster Farms, Costco and Sanderson Farms have all announced the development of new processing plants. However, much of their demand comes from poultry, not hogs. The U.S. has experienced continuing consumer demand for poultry products, as per-capita chicken consumption is climbing. Americans eat nearly twice as much chicken — 89 pounds per year — than they do beef and pork — 54 and 50 pounds, respectively.
But Hormel has also had long-term struggles with its Jenny-O poultry division. Demand for turkey has remained relatively stable for the last several years, but an oversupply of birds has pressured sales and profitability. Hormel posted declines in the second quarter of this year, noting an oversupply of turkeys and excess meat in cold storage. Even though sales dropped just slightly more than 4%, the division's profitability plunged 34%.
Although meat consumption as a whole is on the rise, the sale of one of its major meat processing plants seems in line with the Hormel's trend toward M&A, where deals have given the company a stronger presence in fast-growing categories like natural and organic meats and nut butter snacks. In recent years, Hormel has purchased high-performing and trendy brands including Applegate, Columbus, Muscle Milk and Justin's.
But the company has identified the deli as one of its growth targets, noting the space is growing four times faster than other food parts of the store. The category is also ripe with innovation opportunity, including the development of premium brands, grab-and-go items and prepared foods.
Investing heavily in prepared foods is a wise approach if Hormel is looking to shield itself from volatile commodity costs, which are constantly eating away at grocery profit margins. And that might be the case. The company recently created a division focused entirely on deli sales as they continue to distance themselves from refrigerated meats. The sale of this Nebraska plant could free up funds that could help the company stay on the cusp of trends like this and edge out competitors.
While Hormel is still keeping very close ties with meat processing plants, the company’s acquisition targets are indicative of a changing landscape — a common theme among Big Food companies struggling for growth, looking to diversify and scrambling to get their portfolios in line with rapidly changing consumer trends — that may usher in a new era for the meat giant.