Hormel Foods Corporation SWOT & PESTLE Analysis

Strength

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Weakness

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Opportunity

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Threat

1. Changing consumer needs: The company has a strong profile makes it attractive for investments. However, there are challenges ahead which need inspection. The product portfolio has been diversified from the traditional commodity meats to other segments containing various value-added brands as Justin’s, Jennie-O and Applegate. But around 20% of the product mix remains in the commodity meats. With the changing consumer preferences, people are avoiding pre-packaged foods that occupy center positions of the grocery stores and wants fresh products from the outer rim of the store. Though the majority sales of the company come from the perimeter of the store which is higher than its rivals, but with changing preferences and low pricing power in the commodity areas there is a setback. Hormel Foods raises its own pigs and turkeys. The feed prices for these animals are outside the control of the management and therefore, the commodity prices are volatile. This has been a major reason for the struggle of Hormel Foods in recent years.

2. E-commerce: In addition to its competing rivals, Hormel also has to deal with large grocery chains Walmart and Kroger. With the growth of digitization and e-commerce giants like amazon, Hormel has to change its business domain for sustenance. As these platforms offer ultra-low prices there would be increased pressure on Hormel to comply with the trend of cheap prices. To achieve the targeted growth the management has to find more efficient ways of running the production lines to be able to meet both the growth and low pricing criteria. A number of consumers shop online getting all the required products at their door step. It is therefore essential that Hormel focuses on innovative ways of reaching out to the consumers and venture into product diversification to be able to meet the growing preferences. Acquisitions of smaller niche brands or larger established brands shall continue to be a major driver for product mix expansion in the coming future.

3. US-China trade war: There has been a drop in profits for Hormel Foods due to the imposition of high tariffs by China and Mexico on US pork and beef. This came as retaliation to US, when it imposed higher tariffs on imports of steel and aluminum. This trade fight has negatively impacted the meat processing industry. Such escalation of prices has made American pork less competitive in the global market. There is increased volatility and uncertainty of rapidly changing trade politics globally. The American farm sector primarily operates from trade surplus and such circumstances are negatively affecting the industry. Due to cheap prices of beef and pork and excess availability turkey prices have also been hit. Sales have failed to hit the targets, freight costs have increased and exports have come down. Hormel Foods reported a 9% decline in sales and a 31% decline of profit in the segment. It is unlikely that the trade fight would resolve soon continuing to impact the industry.

Political

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Economic

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Social

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Technological

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Legal

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Environmental

1. Concern over Greenhouse gas emissions: UN Food and Agricultural Organization have reported that a quarter of global emissions come from the food and agricultural production. The focus on food industries have intensified in the recent years as one of the major factors for increasing greenhouse emissions. It is incumbent on companies to move towards sustainability goals and support renewable energy. There are new opportunities in plant-based protein, alternatives to meat protein. Investments are made by leading food and agricultural giants like Tyson Foods has a stake in Beyond Meat, a plant based meat Company. Cargill has invested in Memphis Meats which is a cellular meat startup. A Dutch plant based food company is bought by Unilever. Hormel Foods is committed towards protecting its sustainability goals and has made an agreement on wind energy, which will supply around 50% wind power. This will approximately reduce wind power of up to 197,000 metric tons. Apart from this virtual power purchase agreement (VPPA), Hormel Foods has subscribed to community solar gardens at five manufacturing locations.

2. Increasing Production: Overwhelming challenges exist into the food system when we look into the future. Considering the world population, food production need to be doubled by 2050.And this has to be achieved amidst global climatic challenges, with minimal impact on the environment. The issue is whether the productivity can be increased without long lasting environmental impact. Farmers are entrepreneurial and excellent at adopting new and proven technology. In the last 40 years, it is seen that yield in corn increased six fold while using 13% fewer land. Hormel Foods, one of the leaders in the CEO council on Sustainability and Innovation, plans to deal with threats to food security collectively. Scope of improvement exists right from how farmers produce food to reducing food wastage by consumers. New advances in animal health and husbandry, biotechnology need to be explored. Identifying new methods of making arid lands productive and with increasing technical advances using “big data” and machine learning can help achieve gains in the coming decades.