The well-known peanut brand, Planters, has a new owner; Hormel Foods [$HRL]. This following a $3.35 billion purchase of the portfolio of products from Kraft Heinz [$KHC] is an investment in a growing snack lineup.
“We identified the Planters brand in our 2016 strategic planning process as a brand that would fit well into our growing and evolving portfolio,” said James Snee, Hormel CEO, on a call after the announcement was made. “However, it wasn’t until early 2020 that we engaged with Kraft Heinz on this process.”
Hormel’s portfolio of brands includes Spam, Dinty Moore, Skippy peanut butter, and Justin’s nut butter. Many of Hormel’s products contain meat, but with this purchase, now a quarter of sales will be non-meat items.
In his remarks, Snee noted that 70% of consumers snack more than twice per day. In addition to the Planters products, Hormel offers snack trays, salsa and guacamole, and meat-and-cheese plates. The Planters brands that were gobbled up contributed $1.1 billion in sales to Kraft Heinz in fiscal 2020, primarily in the U.S. segment, according to Kraft. It includes Nut-rition products, Cheez Balls and, of course, peanuts.
Make no mistake, peanuts make up less than one-third (29%) sales, the same amount as cashews. For Hormel, Planters is a platform for greater innovation. And snacking is more than just something to do alone at a desk when the 3pm munchies hit.
“The business comes with numerous items designed for individual consumption with products such as on-the-go packs, pop-and-pour jars, snack mixes, trail mix, Corn Nuts and many other products,” said Snee. “This acquisition also gives us further scale in social snacking occasions with product formats such as larger canisters and jars of peanuts, cashews, mixed nuts pistachios, almonds, pecans, snack mixes, Cheez Balls and other products.”
“There is an opportunity cost to consider, since Hormel’s acquisition of a low-growth nuts business limits its ability for at least the next couple of years to pursue larger-scale businesses that might be more accretive to its growth rate,” analysts said.
For Kraft, the deal is part of a pivot that the company is undergoing and will discuss further at the Consumer Analyst Group of New York (CAGNY) event next week. “We’re renovating more than 40% of our portfolio,” Carlos Abrams-Rivera, U.S. Zone president at Kraft Heinz, mentioned. He added the strategy is based on what they’re hearing from shoppers.
Kraft reported Q4 earnings and sales that outpaced expectations and announced a quarterly dividend. Kraft is also focused on snacks, but with products like ketchup, mayonnaise, Ore-Ida potatoes and Classico sauces, the company is also looking at ways it can enhance consumer meals, many of which are now being eaten at home due to the pandy.
Kraft is also focused on creating a portfolio with less exposure to private-label encroachment. “Planters is one of the brands that is most affected by private label in our portfolio,” said Miguel Patricio, CEO of Kraft Heinz, on the earnings call. “And so when we looked at that, in order to have more flexibility towards the future on building a portfolio, I think that we made that choice and we’re very happy with that.”
Subsequently, even with widespread vaccinations and moves towards economic normalcy, Abrams-Rivera thinks the emotional connection to at-home dining will continue. Kraft has a niche back-up business plan as well, for instance, in the ketchup and other condiments that diners see at restaurant chains, stadiums and concert halls. But life has changed in ways that eating at home will be more of the norm.
“If you look at how people are going to work going forward, my sense is there is not going to be the same level of people going back to the office five days per week,” he told MarketWatch. “There will be more occasions to eat at home.”