CHICAGO (Reuters) - Hormel Foods Corp HRL.N is feeling both edges of the recession's sword, with cash-strapped consumers embracing products like Spam processed meat but turning away from other, more upscale items.
“We are seeing some ups and downs in terms of demand for our products -- very strong demand for the canned side of the franchise, spam luncheon meat, Hormel chili, Dinty Moore beef stew,” Hormel CEO Jeffrey Ettinger said on Monday at the Reuters Food and Agriculture Summit in Chicago.
On the other hand, weaker areas include single-serve microwave products, and there is some softness in the company’s food-service business.
Hormel is still trying to figure out what consumers want in this environment, where they are looking not just to save money, but also to buy food to eat at home that is an equal substitute for what they are foregoing at restaurants.
“I think we’re still trying to sort through what the challenge in this economy is on some of these items for consumers to make sure we continue to deliver the value they are looking for,” Ettinger said.
Consumers are not universally seeking out lower prices, Ettinger said. Hormel party trays, which sell for $12 to $15 apiece, had a strong holiday selling season, Ettinger noted, while microwaveable items that sell at $2 to $3 have suffered.
But affordability is still something the company is focusing on, especially as it develops new products.
“Going forward, there is going to be an added attention to the affordability aspect,” Ettinger said.
Retailers are also becoming more aggressive in promoting their own store brands as the U.S. economy shrinks, and branded-foods manufacturers are looking for ways to maintain their market share. Wal-Mart Stores Inc WMT.N, for example, is relaunching its Great Value brand with more than 80 products as it looks to win more business from price-conscious consumers.
One way to defend against private-label strength is to ramp up marketing spending, be it through advertising, coupons or in-store promotions.
“Our goal right now would be to have somewhat of an increase in overall marketing spend in 2009,” Ettinger said. He did not elaborate.
Hormel has also seen sales hit in its food service business, which accounts for about one-third of the company’s revenue, as consumers shun restaurants and eat more at home.
But the company has seen a slight sign of improvement in the restaurant sector, Ettinger said.
“We’re seeing in our results and hearing from some of our customers that their local-based businesses, the comps (comparisons) aren’t as negative as they were,” Ettinger said, though he added that those sales at comparable restaurants were still down, just less so than in the past.
Also, the change seems to be only at restaurants that count on local residents for their business.
“The area that still seems to be under much more pressure would be travel-based destination areas, both with individual travel being off and business travel being off,” Ettinger said.
Hormel shares closed down 13 cents at $30.36 on Monday on the New York Stock Exchange.
Reporting by Brad Dorfman, editing by Matthew Lewis
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