Grocery Products Segment Investor Day Presentation Ron Fielding, Executive VP Grocery Products Scott Aakre, Vice President Grocery Products Marketing
Our products are generally found in the center of the supermarket
The segment s legacy brands have been complemented by a series of acquisitions and joint ventures 1995 1996 2006
And most of our top-line growth over this time frame can be attributed to this direction $1,000.0 $800.0 Net Revenues CAGR = 3.0% CAGR% 13.9% $ MM $600.0 $400.0 $200.0 1.4% $0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E Historical Grocery Cores Acquisitions/Joint Ventures
Our focus is now being re-balanced to address our franchise players ; by adding more relevant options
Otherwise, market share 1 will be increasingly difficult to protect, especially from private label Private Label Canned Chili Canned LM MW Meals Canned Stew Salsa Canned Hash Chunk Meats Olive Oil CAGR % 05-07 [Volume] -1.0 1.4-6.2-4.3 1.7 1.9 5.6 30.2 Share PP 05 07 11.2 12.1 5.2 5.9 1.5 0.8 12.5 13.4 19.7 20.9 19.5 22.7 19.3 21.2 14.8 19.1 1 52 week Nielsen ending 8-25-07.
And our strong price premiums will be more challenging to maintain By Most Popular Size Average Retail Private Label % Variance HORMEL Chili $1.26 $0.93 +35.5% SPAM $2.23 $1.34 +66.4% DINTY MOORE $2.38 $1.81 +31.5% HORMEL/VF Chunk Chicken $1.79 $1.32 +35.6% CHI CHI S Salsa $2.23 $1.85 +20.5% HORMEL Corned Beef Hash $2.23 $1.46 +52.7% 52 week Nielsen ending 8-25-07.
Ensuring that our franchise players remain relevant to customers and consumers is a key focus area... 1967
Our strategic orientation deals directly with this need Protect and grow our business by Focusing resources Leveraging category leadership positions Driving brand Brand relevancy Relevancy Fixing or exit under-performing businesses or categories Pursue optimum QUALITIVITY [quality + productivity] by Balancing cost/quality needs Building a business system that simultaneously lowers cost, improves quality and/or extends packaging, product formulation options Pursue acquisitions that Add scope, scale and/or capability Deliver 20% pre-tax margins Have potential for growth, category leadership
And we believe meaningful innovation will drive consumer traffic back to the center of the store once again
Recent consumer marketing efforts have reignited our chili business despite price increases/tough competition % Share of Market 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 34.0% 30.4% 32.5% 11.4% 10.9% 11.5% 2005 2006 2007 STAGG Brand 1 HORMEL Brand 1 Core Western Markets
Investments in new packaging, product forms and advertising are driving brand health
Spending efficiencies are derived from our new HORMEL brand umbrella campaign
There is a broad effort against the advancement of our #1 franchise player
SPAM Singles has been key to opening up new doors [households] and is now rolling nationally Returning to SPAM Franchise 32% NEW to SPAM Franchise 68% Singles Buyer Index Category Buyer Index Age Under 35 110 90 Age 55 and over 83 119 Income $50K - $75K 150 114 Income $70K+ 129 78 Source: Spectra Data Affluent 141 90 1 Member HH 109 82
The DINTY MOORE franchise is also making solid moves towards increasing relevancy
New/better products, clear brand messaging and focus on flavor/health will fuel CHI-CHI S growth
Authentic and leading Mexican brands 1 round out our portfolio 1 HERDEZ Corporation is a joint venture company formed between Grupo HERDEZ and Hormel Foods in 1996
Herdez commercials
Mexico s #1 salsa brand appeals to a broad consumer audience HERDEZ Salsa Mountain Region Pacific Region Unit Share 17.6% 11.1% Share Position 1 #1 #3 1 12 week Nielsen ending 8-25-07. (1) excludes private label
In the mid 1980s, Hormel Foods envisioned product solutions that were ultra convenient; 25 years later we reached the tipping point!
Microwave vision video
Our new HORMEL COMPLEATS line solves the consumer need for REAL FOOD, REAL FAST Complete meal, no need to add any sides. REAL MEAL Comfort foods that leaves you filled up. Hot food; ready in 90 seconds; done in 10 minutes. More filling than soup. Faster than frozen. REAL FAST
Our current branding efforts highlight important product attributes New Hormel Brand Mark Complete Meal Use a Fork Speed Improved Appetite Appeal
The added focus and resource deployment is driving growth Tonnage Up 38.6% v. YAG CAGR = 55.5% 2004 2005 2006 2007E
Today s COMPLEATS line includes a broad variety of traditional meals
All key measures 1 continue to move in a positive direction 2004 2005 2006 2007 LE Consumption ($MM) 15.8 23.5 35.5 47.1 Distribution (%ACV) 54.5 67.2 82.0 90.0 Velocity ($/MM) 19.0 23.0 28.0 32.0 Share (PP) 13.1 18.0 22.9 27.6 HH Penetration (%) n/a 4.2 6.0 8.5 Buying Rate (volume/yr.) n/a 4.0 4.2 4.6 Avg. # Items 4.3 5.5 5.9 14.0 1 ACNielsen latest 52 weeks, does not include WAL*MART, alternate channels
We have launched consumer communication targeting the right now lunch occasion Target: hardworking men & women Situation: 10 minute right now meals Competitive frame: sandwich, soup and frozen entrees Benefits: faster + more complete + more filling
Compleats commercials
Line segmentation is under development and is key to continued growth Segmentation Targets: Traditional Larger Portions Ethnic 10 8 6 4 2 0 Healthy Kids Seniors Teens Breakfast
Early next year we will launch a variety of products that promote healthy lifestyles Under 250 calories Under 10 grams fat and less than 3 grams saturated fat. No trans fats. Preservative Free Sodium 600 mg 20 grams of Protein Meets USDA guidelines for Health Lifestyle Launch Date February 2008
Significant capability/capacity is being developed to support our microwave meals growth Rochelle, Rochelle, Illinois Illinois Plainview, Minnesota MW MW Meals Meals Beloit, Beloit, Wisconsin New Focus Plant Tucker, Tucker, Georgia Georgia
A solid execution of our strategy will deliver steady growth in segment profitability 45% 25% 40% 35% 20% Gross Margin % 30% 25% 20% 15% 10% 5% 15% 10% 5% Segment Profit % 0% 2001 2002 2003 2004 2005 2006 2007 2008 Fiscal Year Gross Margin % Segment Profit % 0%
Grocery Products Q&A