George A. Hormel and Company

views updated

George A. Hormel and Company

501 16th Avenue
Post Office Box 800
Austin, Minnesota 55912
U.S.A.
(507) 437-5611

Public Company
Incorporated: 1901
Employees: 8,000
Sales: $2.3 billion
Stock Index: American

The meat packing industry has always been volatile: profit margins are narrow and companies are heavily dependent on the fluctuating supply and price of livestock. In the 1960s the industry grew even more competitive when new meat packing companies entered the market. By undercutting labor costs, they forced many old-line meat packing companies to disband and forced others to cut wages and streamline their operations. In the 1980s consumers began to eat less meat and meat producers for the first time had to struggle to make their products appealing. Despite these factors, however, George A. Hormel and Company continues to grow and prosper, largely because it is one of the most innovative companies in the meat packing industry.

Hormel looks very different today than it did even ten years ago. It has all but abandoned its participation in the labor-intensive, low-margin slaughtering segment of the meat industry. It has opened a $100 million, state-of-the-art plant in Austin, Minnesota that features robotic technology and automatic ham deboners; it has opened a frozen foods division and has added turkey and fish to its list of products; and most significantly, it has evolved into a market-driven, “total” food company that manufactures value-added foods.

In an 18-month period in the late 1980s, Hormel introduced 134 new products, including Top Shelf, an unfrozen, microwaveable entree with a shelf life of 18 months. CEO Richard L. Knowlton considers this “one of the most important products ever introduced by Hormel. It represents a revolutionary breakthrough in packaging technology and offers consumers a new level of convenience.” With new products such as these, Hormel has overcome a period of sluggish sales and earnings between 1979 and 1984 to record net earnings of $60.1 million in 1988, up from $29.4 million in 1984.

Hormel’s founder, George A. Hormel, could not have imagined such a future when he borrowed $500 in 1887 to form a retail meat market and pork packing business with his partner, Albrect Friedrich. But he did establish a powerful precedent when he refused to be complacent about their early success and pushed ahead with his plans to set up and operate a packing house. He and Friedrich agreed to disband their partnership in September of 1891, and within a few months Hormel and employee George Petersen had transformed a small, abandoned creamery into a meat packing plant complete with smokehouse and slaughterhouse. In addition, he opened the Hormel Provision Market to sell his products; it quickly became the town’s largest and most successful retail meat business.

Faced with low profit margins and competition from large meat packers who could afford state-of-the-art refrigeration facilities, Hormel made expansion his first priority. Within the first few years his two brothers and other members of his family had joined the business, allowing George Hormel to put down his cleaver and devote himself exclusively to management. In 1899 Hormel spent $40,000 to upgrade his facilities, building a new refrigeration facility, new pumps and engines, an electric elevator, smokehouses, and a hog kill. In 1901 the company acquired several acres of adjacent land, and two years later it constructed additional facilities such as a casing processing room and a machine shop. In 1908 it also opened a new office facility, which the company used for more than 60 years.

During this period of expansion Hormel also worked to refine and improve its products. In 1903 it registered its first patent, “Dairy Brand,” with the U.S. Patent Office. In 1915 Hormel began to produce several lines of dry sausage, a product that proved particularly popular with ethnic consumers.

In an effort to increase sales volume, Hormel sent salesmen outside of Austin to set up branches and distribution centers. By 1920 the company operated branches in Minneapolis, Duluth, St. Paul, San Antonio, Dallas, Atlanta, Birmingham, and Chicago. In 1905 George Hormel travelled to England to establish the foundation for an export business. Between 1905 and the end of World War I, exports grew to constitute about a third of the company’s yearly volume.

The Hormel Company participated fully in America’s World War I effort. To control the price and supply of meats, the government regulated the meat packing industry. Hormel expanded its labor force and the hours they worked to help satisfy the increased demand for meat both at home and abroad. With so many American men, including George Hormel’s son Jay, away at war, the company employed women for the first time in its history. In addition to producing meat for the war effort, Hormel employees bought Liberty bonds and donated an hour’s wages per day to the Red Cross.

When Jay Hormel returned from the war, he rejoined the company and uncovered a scandal that very nearly put Hormel out of business. The company’s assistant controller, “Cy” Thomson, had embezzled more than $1 million from the company and had channeled it into several poultry farms. The company had borrowed $3 million that year for operating expenses and hoped to repay the sum at the end of the year. At year end, however, they were unable to do so, and George Hormel had to confront his bankers and convince them to extend the loan.

The embezzlement scandal provided George Hormel with additional incentive to fortify his company. He did so by arranging for more reliable capital management, by dismissing unproductive employees, and by continuing to develop new products. In 1926, after years of research, Hormel introduced “Hormel Flavor-Sealed Ham,” America’s first canned ham.

In 1929 Jay C. Hormel became the company’s second president, and his father, George, became chairman of the board. Under the new president the company continued to expand its product line: some of the company’s best-known products—Dinty Moore beef stew (1935), Hormel chili (1936), and SPAM luncheon meat (1937)—entered the market and became extremely popular.

The company survived a bitter labor strike in 1933, during which disgruntled union employees, armed with clubs, physically removed Jay Hormel from the company’s general offices and shut off the plant’s refrigeration system. The two parties reached a compromise within three days. Soon, the company gained recognition for its innovative labor relations policies. Jay Hormel developed the “Annual Wage Plan,” under which employees were paid weekly, their working hours fluctuated according to need, their employment was considered permanent, and they were guaranteed a year’s notice before they could be terminated. In addition, the company introduced profit sharing, merit pay, a pension plan, and a joint earnings plan. Under this plan, in 1983 Hormel employees received more than $4 million.

During his tenure Jay Hormel co-founded the Hormel Foundation, which controls the company through holdings of its capital stock, and which serves “religious, charitable, scientific, literary, or educational purposes.” This foundation funds the Hormel Institute, a research facility located at the University of Minnesota. Presently this Institute conducts highly respected research on fats and other lipids and how they affect human life.

During World War II, the Hormel Company became a “war facility” and once again increased its meat production. By 1945 Hormel was selling 65% of its total production to the U.S. Government. SPAM, Hormel’s canned spiced ham and ground pork product, became the staple of U.S. servicemen throughout the world; in 1941 Hormel was producing 15 million cans a week, and the government was distributing it under the lend-lease program. Overfamiliarity bred substantial contempt and ridicule during and after the war, but the product has demonstrated uncanny resilience: by 1959, Hormel had sold over 1 billion cans of SPAM.

When George Hormel died in 1946, Jay Hormel took his place as chairman of the board of directors and H.H. Corey became Hormel’s third president. During the eight years of his presidency, the company continued to renovate and upgrade its existing plants and acquire new facilities. It purchased several new packing operations—in Mitchell, South Dakota; Fort Dodge, Iowa; and Fremont, Nebraska. With the wartime restrictions on tin now lifted and with a tremendous demand for Hormel’s canned meat products, the company improved its canning facilities in its Dallas and Houston plants and arranged for independent canning companies to manufacture Hormel products. In addition, Hormel made a concerted effort to make better use of its raw material, and in 1947 the company began to produce gelatin from pork skins.

Hormel’s product line expanded along with the company’s facilities. Mary Kitchen Roast Beef Hash, Corned Beef Hash, and Spaghetti and Beef in Sauce appeared in 1949, along with a new line of meat spreads.

With its constant expansion, the company had to consider how to dispose of its increased waste material. Hormel Company researchers developed an anaerobic digestive system that removed waste cleanly and efficiently. In 1946 the company financed a $2.25 million sewage system that it shares with the Austin community.

In 1954 Jay Hormel died, and Corey assumed his chair on the board of directors, while R. F. Gray succeeded Corey as president. He held this position for ten years, during which the company continued to pursue quality and efficiency. Hormel added several more slaughtering, processing, and packing facilities throughout the country, and in 1965 it added a new 75,000-square-foot, automated sausage manufacturing building to its Austin plant.

Several new products appeared in this decade as well. In 1960 the company introduced its “Famous Foods of the World” line. The following year Little Sizzlers’ sausage entered the market, followed two years later by a fully-cooked sausage product, Brown ’n Serve. The largest success of the decade, however, was the Hormel Cure 81 Ham, a skinless, boneless, trim, cured ham with the shank removed.

After another decade of progressive growth under two different presidents, M. B. Thompson and I. J. Holton, the directors realized that in order to remain competitive in the industry, Hormel needed to undertake a wholesale renovation of its Austin plant. In 1975 the company began planning this new facility, which opened in 1982. At more than a million square feet, it is among the largest and most productive in the industry. Hormel continued to diversify its product lines as well, introducing precooked bacon and three new varieties of Perma Fresh luncheon meats. By 1980 Hormel was producing over 700 different products.

Though this new facility was capable of processing more than two million hogs a year and producing more than 200 million pounds of products annually, the industry began to shrink in the 1980s and Hormel began to feel the effects. With a 40% increase in the price of hogs, Hormel was pinched. It asked employees to accept wage cuts in Austin of more than $2 an hour. In 1985, the union decided to strike. Fifteen hundred workers left their jobs. Under the glare of national publicity, striking workers harassed the 700 nonunion workers whom Hormel hired five months later. In 1986 former employees committed 300 acts of strike-related vandalism. Five hundred union workers eventually returned to work, but the others were either dismissed or were forced into early retirement.

The wounds from this bitter strike were slow to heal, but the Hormel Company has moved ahead, and under President, Chairman, and CEO Richard L. Knowlton, it is adjusting to a rapidly changing market by moving away from the traditional meat-packing business and its many problems and concentrating on satisfying consumers’ appetites for processed foods.

In the late 1980s Hormel focused on the microwaveable-foods market, and by 1989 Top Shelf vacuum-packed unrefrigerated meals were in nationwide distribution. After acquiring Jennie-O Foods, a turkey-processing company, in late 1986, Hormel went on to acquire a small producer of fresh marinated chicken-breast entrees in 1988 and targeted its fish operations for expansion in an effort to exploit the more health-conscious market. Altogether Hormel entered the 1990s well positioned in its new processed-foods niche.

Principal Subsidiaries:

Algona Food Equipment Company; Hormel International Corporation; Farm Fresh Catfish Company, Inc; FDL Marketing, Inc., Jennie-O Foods, Inc.; Dold Foods, Inc; Catalogue Marketing, Inc.