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Hormel Foods Corp
Yum! Brands Inc
General Mills Inc
Campbell Soup Co
Spam, the canned curiosity made by Hormel Foods (HRL), is many things in America—a cult brand, the butt of jokes, the inspiration for a Broadway musical. One thing it’s not: a premium product. Yet that’s how Hormel is positioning Spam in China. Hormel Foods International President Rick Bross touts its “juicy meaty satisfaction,” saying that local luncheon meats have a drier consistency.
A blend of chopped pork shoulder, ham, salt, binders, and preservatives, Spam made its debut in 1937. It’s still one of the top brands in Hormel’s Grocery Products division, which last year accounted for some 15 percent of Hormel’s $7.2 billion in sales. Spam’s overseas revenue has doubled in the past five years as it’s entered markets such as Japan, where slices of Spam are slapped on rice and bundled with seaweed for a dish called spam musubi. Burger King restaurants in Tokyo also sell spam burgers.
The Mar. 11 earthquake and tsunami hurt sales in Japan, so Hormel is turning to China to take up the slack. An earlier attempt to launch in China was nixed when the Chinese government banned U.S. pork in the wake of the H1N1 virus scare in 2009. (Hormel has two factories in China, but they make fresh meat products such as sausage and pepperoni for retailers and restaurants like Yum! Brands (YUM)’ Pizza Hut.)
While pork has long been a big part of the Chinese diet, consumers can choose from a slew of local lunch fare—everything from horse to pulled dog meat. That puts pressure on Spam to clearly differentiate itself, says Edward Tse, chairman for Greater China at consultancy Booz & Co. Hence the premium strategy, which taps into the growing Chinese hunger for foreign foodstuffs and has worked for Kraft Foods (KFT)’ Oreo cookies and General Mills (GIS)’ Häagen-Dazs ice cream. In the wake of domestic tainted-food scandals in China, many consumers also deem foreign fare safer.
Bross is betting that Spam’s “Made in America” provenance will allow Hormel to sell the meat for $3.20 a can, almost 40 percent more than the price of local products. Hormel has tweaked Spam’s formulation to make it “meatier” to appeal to Chinese tastes, taking a page from Oreo cookies, which in China are less sweet, slightly smaller, and sold in flavors such as green tea ice cream. Without a big advertising budget for China, Hormel’s marketers are focusing on in-store billboards (Slogan: Juicy meaty satisfaction, hot or cold, Spam hits the spot) and product tastings. There also are recipes on Spam’s Chinese-language website. (Spam with shrimp lotus root, anyone?) “The challenge is convincing consumers that the satisfaction is worth the premium they will pay for the product,” Bross says.
A failure to understand local tastes has vexed U.S. food makers in the past. Campbell Soup (CPB), for one, has struggled for years after underestimating China’s fealty to traditional homemade broths. The big hurdle for Hormel may be its premium pricing strategy. Jason Ding, a partner in the Beijing office of consultancy Roland Berger, says the Chinese may simply opt to buy fresh meat rather than premium-priced Spam. “Right now,” Ding says, “canned food is pretty much only for a picnic.”
The bottom line: Eager to tap China’s hunger for premium U.S. products, Hormel aims to sell Spam for 40 percent more than the price of local lunch fare.