More On Brand Strategies: Hormel

Wednesday's Wall Street Journal carried an article on Hormel's attempt to "Add Upscale Foods Without Alienating Lovers of Its Spam." In short, to broaden its product line and stoke growth without screwing up its brand identity.

What struck me about this was a quote by Hormel's lawyer-turned-CEO, Jeffrey Ettinger,

"Hormel stands for canned ham, bacon and more traditional products. We don't want to harm these items with the target consumers."

Well, score one for Mr. Ettinger getting half of the concept of branding right. Unfortunately, the article begins by describing the company's failed attempt to market ethnic foods of restaurant quality.

The piece also lists the components of Spam, and how it is actually made. I won't go into the details here- if you're interested in them, wait a couple hours after eating, then go read the Journal article. Suffice to say, it is hard to see how a company which has staked its brand on a product like that can actually believe anyone would also buy haute cuisine from the same kitchens.

As I wrote here in September of last year, about Les Wexner's Limited Brands strategy, Hormel could simply create a new brand identity for these upscale offerings. For example, Frito-Lay acquired Stacy's Pita Chips last year, as described here. The announcement states,

"Stacy's, which will continue to be based in Randolph, MA, with more than 100 employees, is planned to operate as a separate unit and report to Frito-Lay North America chairman and chief executive officer Irene Rosenfeld."

I Googled Stacy's Pita Chips and had to search through two screens to learn who the acquirer was. I was aware some large food company had acquired it, but could recall which one. It is nowhere to be seen on the Stacy's packages.

Why can't Hormel do likewise?

As the nearby Yahoo-sourced, five-year price chart of Hormel and the S&P500 shows (click on the chart to view a larger version), the company has actually done rather well over the period. Most of its outperformance seems to have come from its sagging far less than the index when the technology bubble burst at the beginning of this decade. However, it has at least kept pace with the S&P, which is no mean feat.

I think the WSJ piece illustrates the pitfalls of listening to CEOs on media venues such as CNBC, and presuming each of them knows what he is doing. Ettinger has had the job only one year, with no external candidates being considered. Taking Hormel into more 'natural' processed food niches would not seem to be a brand-enhancing strategy. Witness Wal-Mart's floundering with its new upscale fashion merchandising strategy this year.

Instead, Hormel should probably stick to more brand extensions for Spam, as it has been doing. The company seems to know this consumer segment of older males well, so mining it further is more likely to bring profitable sales than going after young ethnic mothers.

Why is the fundamental concept of branding seemingly so difficult for companies tounderstandd? Why do CEOs and group managers attempt to make a successful brand straddle multiple segments which have differing buyer values? How do managers who do this wind up as CEOs?

Now there's a question for those interested in shareholder democracy and corporate governance.