AUSTIN, MINN. — Domestic innovation opportunities combined with international market expansion are at the heart of the strategic fit Hormel Foods sees in adding the Skippy brand of peanut butter to its product portfolio. Hormel announced this morning an agreement with Unilever to acquire the Skippy brand for $700 million.
“We feel this transaction will enhance our balanced business model in a number of ways,” said Jeff Ettinger, chairman, president and chief executive officer, in a conference call with financial analysts. “First, it adds a significant and valuable new franchise to two of our reporting segments, Grocery Products and our All Other (International) segment.
“The domestic product line fits easily within our grocery product shelf-stable portfolio, where it will become one of our biggest brands. Skippy is also the leading brand of natural peanut butter, which represents 25% of domestic sales, and which is driving category growth.
“The franchise also includes an interesting and faster-growing international component, including significant volume in Canada and the No. 1 market share in China. Sales of this product line in more than 30 other countries on five continents will expand our global footprint.”
Mr. Ettinger said the Skippy brand has total sales of $370 million and the international portion is approximately $100 million. Of that figure, $30 million to $40 million in sales are in China. Canada is the second-largest international market for the brand.
Mr. Ettinger said he sees three primary strategic opportunities from the acquisition. First, with such well-known brands as Spam and Jennie-O Turkey Store, the company has quite a bit of experience in building and maintaining brand equity.
“Secondly, I think when we turn our innovation skills loose on this brand, that we’re going to find ways to take the product out of the jar and to make the Skippy name usable in other types of products, but that’s not baked into any of the current numbers,” Mr. Ettinger said. “Our team obviously hadn’t even started looking at that yet.”
Third, he said, “We think there are great opportunities to catch the wave of growth in that market, and to synergize between the shelf stable Spam rollout and this product.”
Expanding on the topic of domestic innovation, Mr. Ettinger said he feels there are “extras” available from the acquisition that Hormel may be able to take advantage of over time. He noted there have been several other food companies that have taken brands and moved them into other product categories.
The peanut butter category has been buffeted by food safety-related recalls and higher commodity costs in recent years, and Mr. Ettinger said those concerns have been taken into account by Hormel.
“ … We recognize there have been, in the industry, a couple of (food safety) issues related to some of the industrial players in peanut butter but we live with that every day; that your brand reputation swings on your ability to produce safe products, and we certainly will take on that challenge with this product line,” he said. “In terms of commodity costs, it is indeed correct that the peanut commodity has been volatile lately, as we’ve seen so many things be volatile lately, in that kind of input marketplace. We frankly see that as a plus from our balanced model standpoint, that as we get into other crops that are beyond just the corn and soy that go into feed for animals, that we think that can have a mitigating or balancing effect.”
The transaction is expected to close in two parts, according to Hormel Foods. Sale of the U.S. business is expected to close within the second quarter of the company’s fiscal year. Sale of the China business is expected to close by the end of the fiscal year.