Hormel Bulking Up On CytoSport's Protein

Hormel Foods, the maker of Spam, is going the Whey of protein in a jar, agreeing yesterday to purchase Benicia, Calif.-based CytoSport Holdings, the maker of Muscle Milk, 100% Whey protein powder and other sports nutrition brands for about $450 million.

The “fresh move by the meat processor to expand into other retail food businesses” reflects a “burgeoning market” as consumers embrace high-protein supplements as "fitness and weight-loss aids,” report the Wall Street Journal’s Dana Mattioli, Shasha Dai and Jacob Bunge.

CytoSport was founded in 1998 by the father-and-son team of Greg and Michael Pickett, according to the company website, with a product called Cytomax. Muscle Milk powder was introduced two years later and “took the industry by storm.” It remains the company’s best-selling product. 

Partners over the years have included the University of Southern California athletic program and the Chicago Cubs. Last year, Goldman Sachs named Greg Pickett one of its Top 100 U.S. Entrepreneurs.

“This acquisition builds upon our strength in protein but also allows us to diversify our product portfolio," Austin, Minn.-based Hormel chairman, president and CEO Jeffrey M. Ettinger tells Bloomberg’s Duane D. Stanford, which includes such brands as Hormel Chili, Dinty Moore Beef Stew, Skippy peanut butter and ready-to-heat Don Miguel Mexican Foods.

“With Muscle Milk you get the leading share player in a significant growth category.” It also gets Hormel “further into the realm of portable protein-rich items,” Ettinger said. “The entire product line for Muscle Milk in the ready-to-drink form does satisfy this kind of immediacy that consumers are looking for.”

Total 2014 annual sales for CytoSport are expected to be about $370 million. Pending regulatory approval, the deal is expected to close within 30 days.

CytoSport’s owners decided to sell the company via auction nine months ago, writes BevNet’s Rau Latif, who passes along “rumors that Glanbia, Whitewave Foods and NBTY made bids worth as much as $500 million.” 

Why CytoSport went with Hormel for less return will presumably be answered during a conference call that will be webcast at 8:30 a.m. CT this morning at http://www.hormelfoods.com; the dial-in number is 888-587-0615 (access code 7709925).

In the meantime, we have a press release that tells us: “CytoSport and Hormel Foods share strong corporate values and are passionate about making a difference in the lives of consumers and active lifestyle enthusiasts in local communities throughout the United States and the world.”  

“We view this new opportunity as a tremendous way to expand the CytoSport brand presence on the global scale and align with a company that shares our commitment to employees and consumers,” said Mike Pickett. 

“Protein has been at the center of other food deals this year,” Bloomberg’s Stanford points out, including Tyson Foods’ recent offer to pay $7.7 billion for Hillshire Brands and Post Holdings agreeing in April to buy Michael Foods for $2.45 billion. 

And the WSJ adds that “consumers' hunger for protein” also “played into” Chinese meat company WH Group, then known as Shuanghui International Holdings, buying U.S. pork producer Smithfield Foods last year for $4.7 billion — “the largest-ever Chinese takeover of an American company.”

The release about yesterday’s deal says that “the acquisition will allow for further community investment and growth through the sports nutrition and food industries,” a market that is expected to expand globally in coming years.

“Traditionally, bodybuilders and athletes were the only consumers for sports nutrition products,” according to the write-up for an analysis of the market available through the Research and Markets website. “In recent years, new user groups (recreational and lifestyle users) have increased their market share. The market is also witnessing a shift from major markets (North America) towards developing markets in Europe and Asia Pacific.”

And Millennials “are more aware of and involved in health and wellness than previous generations,” Food Business News’ Donna Berry pointed out in her coverage of last year’s Healthy Beverage Expo at the Las Vegas Convention Center.

But, cautioned Jeff Hilton, partner and co-founder of Brandhive, “for a brand to be successful, especially among Millennials, the functional claims must be proven by science and supported by data. Millennials demand to become part of the brand through social media and peer interaction. They want to understand and validate the product. And if they discover that the product does not deliver, they will simply walk away or actively seek to destroy it.”

Judging by Muscle Milk reviews on Amazon, there’s muscle behind its claims.

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