Deli is the next growth driver
Hormel Foods (HRL) is looking for growth in a challenging food and beverage environment, and it’s expecting the deli business to be a growth driver.
The company has called deli a high-growth area for its retail grocery stores. On Hormel’s fiscal 1Q18 earnings conference call, CEO Jim Snee stated that the company’s deli business was growing four times faster than its total food business despite its own set of challenges (keeping up with changing customer preferences, finding labor, and dealing with the shrink).
More importantly, the deli footprint is also increasing as retailers dedicate more store area to this fast growth avenue. Given that consumers are now looking for quick and quality food options while grocery shopping, deli service is becoming an indispensable part of grocery stores. There are four aspects of a deli: behind the glass, grab and go, in-store restaurants, and prepared foods.
Hormel has a created new deli division within its Refrigerated Products segment and has integrated all its deli businesses, including Columbus Craft Meats, the Jennie-O Turkey Store deli division, the Hormel and Di Lusso deli brands, and the Hormel Gatherings party trays. The company’s deli division is currently a billion-dollar-plus sales contributor. Going forward, the company expects a buyout of Columbus Craft Meats to boost its deli division.
Hormel Foods acquired Columbus Craft Meats for $850 million in November 2017. After that, the company merged all its deli businesses into a single unit. Columbus Craft specializes in salami and charcuterie and other high-quality artisanal meat offerings, which will boost Hormel’s deli offering.
The acquisition also enhances the number of distribution points for Hormel. On the company’s fiscal 1Q18 earnings conference call, Snee added that the buyout had enhanced the company’s presence in the western part of the country, which has been a relatively weak market. The acquisition is expected to be meaningfully accretive to the company’s bottom line ($0.06–$0.08) in 2019.