Food companies focusing on fresher cuts to win customers

Food companies focusing on fresher cuts to win customers

At the heart of many of our investment themes is a structural change that forces companies to respond to the changing landscape. We’ve seen that in full force with beverages, both hot and cold, as consumers look for healthier, better for you alternatives. We are now seeing that expand to the deli counter, and it is leading to not only M&A activity but to a re-tooling of products as consumer look for fresh products over pre-packaged ones.

We not only expect this to continue but to ripple across other products that we consume, put on our bodies, our homes and places of business. In short, we see more road ahead for our Clean Living investing theme.

Hormel Foods Corp. , Kraft Heinz Co. , Tyson Inc. and other companies are buying smaller deli-meat brands and reformulating their ham and smoked-turkey recipes to meet rising demand for fresher cuts.

“There’s a feeling of being a little bit special when I go to the deli, as opposed to when I go and shop off the refrigerated meat wall,” said Jeff Baker, a vice president at Hormel, which bought deli-meat maker Columbus Craft Meats in 2017 for $850 million.

Sales of freshly cut deli meat rose 2% over the past four years through February to $5.9 billion, according to market-research firm IRI, while sales of prepackaged lunch meat fell 8% to $3.6 billion.

The number of households eating those prepackaged cuts held flat at about 67 million over the past decade, according to consumer-research firm MRI-Simmons, while the number of households eating freshly cut deli meat climbed 6% in that period to 77 million.

Hormel said it has grown sales of its Natural Choice and Applegate brands that emphasize natural ingredients and, at Applegate, humane treatment of animals. Hormel’s U.S. deli sales rose 19% to $251.3 million in its fiscal first quarter, outpacing a 1% overall gain in revenue.

Tyson’s Hillshire Farm brand this summer will introduce a line of prepackaged cold cuts meant to draw in consumers looking for deli-style meats at a lower price point.

No company has more to lose from the consumer drift away from prepackaged cold cuts than Kraft Heinz, whose Oscar Mayer brand dominates that category. Kraft Heinz in February lowered the value of brands including Oscar Mayer by $15.4 billion, in part to reflect diminishing profit-margin expectations.

To make its sliced meats more appealing, Kraft Heinz has removed preservatives and hormones from some Oscar Mayer products and labelled them “DeliFresh.” Ingredient lists for those meats now include a handful of more familiar ingredients, like sea salt and honey. A Kraft Heinz spokeswoman said retail sales of lunch meat have risen 1% over the past year.

Source: Fresh Deli Cuts Muscle Out Packaged Meats – WSJ

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Kraft Heinz agrees to buy paleo company Primal Kitchen

Kraft Heinz agrees to buy paleo company Primal Kitchen

We have seen a growing number of food and beverage companies acquiring businesses to help reposition their offering to include healthy, natural and good for you food. Kraft Heinz is joining a group that includes Hershey, Kellogg, PepsiCo, and Coca-Cola among others as they look to rise the tailwinds associated with our Clean Living investing theme.

With the Kraft Heinz purchase of Primal Kitchen, we’d note the valuation of 4x sales, which helps explain why Kraft Heinz is also launching a venture arm, Springboard, that will work with food start-ups that we suspect will also be in tune with our Clean Living investing theme.

Kraft Heinz said Thursday it plans to buy paleo condiment and dressing company Primal Kitchen for about $200 million, as the ketchup maker looks for a platform to help compete against upstart brands.

Primal Kitchen is expected to generate about $50 million in revenue this year, Kraft Heinz said. The deal is expected to be completed in early 2019.

Primal Kitchen was founded by food blogger Mark Sisson, who started “Mark’s Daily Apple” in 2006 and has written a number of diet and exercise books. The company makes paleo-friendly products including mayo, avocado oil and dressings. It says its products are without processed or artificial ingredients, added sugars, soybean or canola oils.

Paleo diets focus on foods that were available in the Paleolithic era, like nuts, seeds, lean meats and vegetables. The idea, which has gained a strong following in recent years, is that the human body is best suited to eat the foods that early humans ate rather than the modern diet, which includes processed foods.

Kraft Heinz has begun to follow the playbook written by many of its peers seeking growth as eating habits change. For most Big Food companies, it is hard to duplicate the innovation and culture necessary to create the same success seen by younger brands like Kind Bar.

As such, Kraft Heinz joined other Big Food brands this year in launching a venture arm, Springboard, to partner with food start-ups.

Using Primal Kitchen as a platform would also echo a strategy that others have employed, to varying degrees of success. Kellogg has said it wants to use its $600 million acquisition of RXBar as a platform and Hershey is looking at its acquisition of Amplify Brands as a platform for its growing suite of snack brands.

Source: Kraft Heinz agrees to buy paleo mayo and dressing company Primal Kitchen