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Hormel, Wal-Mart And The
Meaning Of Upscale

Jim Prevor’s Perishable Pundit, November 30, 2006

Wall Street Journal ran an interesting piece about Hormel. The focus was really on branding and specifically detailed Hormel’s efforts to add upscale items without alienating its customer base:

In February 2004, Hormel rolled out the first of four new ethnic-themed varieties of its Refrigerated Entrees line — Hot and Spicy Szechuan-Style Beef Strips, Teriyaki Chicken Breast Strips, Sweet and Sour Diced Pork, and Southwestern Pork Carnitas. It pulled all four off the shelves earlier this year. The reason: Consumers were skeptical that the maker of Spam could also deliver restaurant-quality ethnic fare.

As part of its efforts to go upscale, Hormel was looking to retain flavor without so many of the additives that had been put in products to maintain shelf life and improve flavor. In pursuit of this, the company came across some new technology:

Finally, Hormel hit on an answer: High Pressure Pasteurization — known internally as HPP — a process developed by Avure Technologies Inc. of Kent, Washington. Using HPP, Hormel, under Mr. Ettinger’s watch, introduced Natural Choice, a line of preservative-free deli-style meats. The company cooks its Natural Choice meat in a smokehouse or steamhouse, and then slices and wraps it in plastic. The meat is then placed onto trays and dipped into an HPP chamber, where 87,000 pounds of water pressure-per-inch kill bacteria, eliminating the need for preservatives.

Grocers like Wal-Mart Stores Inc. and Kroger Co. agreed to sell the Natural Choice line. Hormel had high hopes for acceptance by the world’s biggest natural-foods retailer, Whole Foods Markets Inc. “We thought it’d be icing on the cake if Whole Foods wanted to take it, too,” says Mr. Weisenbeck. But Whole Foods declined. A Whole Foods spokeswoman says the company is buying more of its meats from a handful of “fresh meat” suppliers.

Hormel is concerned about how far it can push its core customer base so it has kept the Hormel name off most of its ethnic foods:

That’s partly why Hormel has been reluctant to put its name onto ethnic brands it owns, such as Patak’s Indian products and Carapelli olive oils, and Herdez Mexican foods, a joint venture with a Mexican company. And it’s also why Hormel’s other line of Mexican foods goes out under the Chi-Chi’s brand. It acquired the licensing rights to Chi-Chi’s in 1985, and full ownership of the trademark for retail products in 2004.

Mr. Ettinger recognizes that skewing the company’s image too far afield might alienate the core consumers who turned Hormel into a surprise star of the packaged-food industry: middle-age, blue-collar men who place a premium on hearty foods that are affordable and easy to make.

When we read this article, it instantly reminded us of Wal-Mart and the dilemmas Wal-Mart is facing.

Wal-Mart, as part of its so far generally unsuccessful efforts to attract more upscale consumers, has introduced a fashion-forward private label clothing line known as Metro 7. Lee Scott, Wal-Mart CEO, says it has done well in 600 stores but failed in most stores.

This whole upscale initiative is misguided.

Wal-Mart doesn’t need a branding consultant. It needs a sociologist who will explain that what upscale consumers want most in their life is the one thing Wal-Mart can never deliver: To NOT be associated with the people who shop at Wal-Mart.

It is snobbery but it is also human nature. Throughout history, the affluent have adopted modes of dress and comportment to distinguish themselves from those less fortunate.

These styles change over time. Once it was formal dress. Today, the wage slave is the one who has to wear the suit; the big boss probably is in torn jeans — although they are probably from Seven for all Mankind or Paper Denim and cost over $200 a pair.

Here is the rub: If Wal-Mart bought actual Seven for all Mankind jeans and sold them in unlimited quantities to all comers for $10, nobody would care about them anymore. Because the purpose of owning these products is to distinguish oneself from those who don’t, making them freely available to everyone diminishes their value.

Wal-Mart has been tricked in a sense because it looks at its demographics and sees more affluent people shopping in the store and wonders why it can’t get more of their business.

Well Clorox is both identical everywhere and nobody asks where you got it. So many people who would never buy their clothes at Wal-Mart are happy to buy their Clorox brand bleach there.

Why do some of these items work in a few stores and not others? We would have to study the list to say definitively, but what is likely is that the national reputation of a chain is not as important as the social structure of an individual community.

In some communities, you have very divisive social structure. One block may teem with recent immigrants from a particular country or culture, and if they shop heavily at the local Wal-Mart, the equidistant community of local White Anglo-Saxon Protestants will not do so. So it becomes a question of what kind of fashion is sought after in that group of shoppers.

Other communities are more homogeneous. For example, some of the printers we use are in rural communities. Everyone is white, Christian of some sort, born and raised in the area, typically of similar ethnic stock, say Scandinavian or German descent. Everyone goes to the same churches; everyone goes to the same schools, everyone works out at the Y and everyone shops at the local stores, in some cases Wal-Mart. The fact that one of our printers might be a multi-millionaire and someone else the guy who sweeps the floor in his printing plant doesn’t matter. The rich guy has no desire to stand out. In fact he wants to blend in so as to avoid resentment.

This rich family likes it when Wal-Mart sells more expensive things because they want a really nice flat screen TV and they want to buy it at Wal-Mart like everyone else in town. But these people, though affluent, are not likely to be fashion-forward and so Wal-Mart’s Metro 7 brand probably isn’t their cup of tea.

So what should Wal-Mart do? There is a limited opportunity to sell more to affluent consumers in its current structure. In most stores Wal-Mart should look for items that are not status-related and market them to the existing base of middle and higher income shoppers. In the homogeneous communities, Wal-Mart should offer better quality options at a higher price, but keep them in line with existing fashion. In other words, an affluent person might buy an all-cotton shirt as opposed to a polyester blend, but he doesn’t want a fashion-forward look.

The big opportunity, though, is to not look at the issue in terms of how Wal-Mart can get more people in its stores. Its opportunity is to serve more people through more concepts. In the Hormel article, it explains that the company failed because “Consumers were skeptical that the maker of Spam could also deliver restaurant-quality ethnic fare.”

So Hormel uses separate brands for separate concepts — which is precisely what Wal-Mart should do. If it feels its growth is constrained because it has saturated the market in many places for consumers who live paycheck to paycheck, it shouldn’t knock its head against the wall trying to convince upscale consumers to buy amidst their downscale brethren. It should develop a separate store concept.

Don’t ape Target; squeeze them. If Wal-Mart is king among shoppers with families that have incomes below $40,000, then Target predominates with its appeal on consumers who make over $40,000. So Wal-Mart should start a concept to appeal to families with incomes over, say $60,000 a year.

Use Wal-Mart’s real estate, procurement and logistics expertise to offer a Wal-Mart-style value proposition on more expensive goods.

It is often said at Wal-Mart headquarters that this is their problem: If they sell diamonds of better quality and at a better price than your typical mall jeweler, they still don’t get the business because no guy wants to tell his girl that he got her an engagement ring at Wal-Mart. No girl wants to tell her friends that her ring came from Wal-Mart.

To change this dynamic is certainly difficult and probably impossible. Wal-Mart needs to get back to its roots of Every Day Low Prices and start an upscale concept under a different name to capture more affluent consumers.

And by the way, the definition of upscale has changed. In the 70s, it might have meant little jars from Europe filled with interesting stuff. Today it means fresh. A commitment to an upscale product would be a commitment to a substantially expanded fresh food and floral effort

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