The Pantry Paradox: Hormel & Smucker’s, Clarity as a Catalyst
Both Hormel and Smucker reported earnings this week. Timing is good because both are CPG comfort food companies that crushed it last year when consumers were trading down and seeking pantry nostalgia. 18 months later, in a tough environment, both are making hard choices under fire. But Hormel is facing it head on, Smucker is papering over it with iterative improvement moves, which is not the right signal during transformative times
There was a day in early 2024 where Hormel stock jumped 16.8% in a single day - its best performance in over a decade. Smucker was riding high on Uncrustables (I don’t get it), pet food, and frozen snacks. Consumers were inflation-weary, and both brands were doubling down in the emotional safety of pantry staples. Smuckers snuck out a surprise EPS boon that had all of the shareholders grinning.
Today? Hormel just reported a challenging fourth quarter with operating margins down 200 basis points, hit by a veritable CPG Murphy’s Law list of a chicken recall, a facility fire, and excessive inflation. Smucker posted comparable sales growth of 5% and maintained guidance. On the surface, it's not even close which company had the better quarter. Smucker’s, right? so what?
Smucker: Saying a lot of Nothing
Smucker's Q2 call was a masterclass in corporate tapdance. Mark Smucker opened by noting they're "very pleased with the progress" on Sweet Baked Snacks and that "sequential improvement" continues across the portfolio. Tucker Marshall, the CFO, walked through narrowed guidance ranges and maintained full-year expectations. Everything sounded... fine.
And signals support that - a share buyback indicates belief in their forward-plan.
You need to believe that it’s portfolio - which has few synergies (pantry, coffee, pet) can defend margins despite sweeping coffee volatility, tariffs, consumer spending.
And then you start listening to the actual questions.
Coffee Tariffs: no pricing actions - absorbing $75MM in tariffs. Btw - Kraft is doing this with coffee, too.
He framed this as creating "a headwind to this fiscal year but a tailwind to next fiscal year." For my audience: what he is saying here is that next year will benefit from better pricing, not better volume this makes sense when you’re publicly traded and live quarter-to-quarter, but startup brands should maintain a value-over-volume stance when faced with this kind of inflation.
The coffee story gets worse when you dig into brand performance. An analyst pointed out on the call that Dunkin's elasticities have been notably softer than Folgers or Bustelo in measured channel data. Mark Smucker's response was telling: they've seen "competitive pricing pressure that we have not overcome," and they're "making surgical pricing investments" while hoping that "over time as we would expect pricing to moderate competitively, that will support the brand overall."
Read that last bit again. “moderate competitively” does not mean “come back down”. They're waiting for competitors to take pricing actions so Dunkin can follow. The waiting game. It’s what you do when you’re unsure if anyone likes your product. It is not an uncommon pricing strategy. We’re often told to wait for the category leader to take price, and then follow along. And the guidance is: it depends. But the annals of CPG history are full of brands bleeding out while they wait to course correct. For our brands, I’ll repeat what I said above: value-over-volume.
This is a classic case of Wall Street analysts doing exactly what they should be doing - making sense of quarter-to-quarter to optimize portfolios. But this strategy is not built for enduring, small brands. So what is?
Hormel: Clarity as a Catalyst
Organizational Clarity is at the heart of Dovetail’s values.
And apparently, that is true for Hormel’s interim CEO, who was brutally honest: "Fiscal 2025 was a challenging year. Candidly, we fell significantly short of our earnings goal." No hedging. No "sequential improvement". Just owned it. I love that.
Then he laid out what they're actually doing about it. The tl;dr is a variety of cost cutting in corporate positions, which they are pressured to do, and no doubt hope AI will overcome. Sad and common in Q4 2025.
But Hormel's president laid out their strategic focus in a way that actually means something. He covered foodservice, center store, any many others. But their focus on:
The "protein-centric portfolio" is music to my ears. If you’re reading this in 2025, you don’t need to be reminded about GLP-1s and protein’s moment in the sun.
Two points:
1) portfolio-shaping is common, and we should see big CPG reshaping their portfolio by 5% ever year. Over 20 years, it’s a new company.
2) relentless focus wins.
How did that play out at Hormel? For one, hot news: they spun off Justin’s. It’s a great brand, and a great distraction for Hormel. Someone will do it justice. Second, they are doubling down on the protein portfolio.
This is the definition of aligning strengths to opportunities. Because there is always a market opportunity for a creative strategist. A huge competitive advantage for Hormel is aligned with macro trends, and organizational focus will naturally shift to this segment.
When beef gets expensive, you win with SPAM (pork), Jennie-O (turkey), and Applegate (chicken).
When consumers want protein but are price-sensitive, you have options across the value spectrum, across types of meat.
I’ll be curious what they do with this.
There’s a lot more to say on Hormel, but the tl;dr: Hormel owned their results, they made clear decisions on what they will do (protein) and most importantly, what they won’t do (confectionary).
Make No Small Plans
The CPG industry is tough right now. Watching both public companies and emerging brands navigate this, it is the case that optics and positivity are often deployed to shield the absence of actual planning.
We see these patterns play out on LinkedIn with startups every day. We all know that social media isn’t what it seems. Sometimes, it's Smucker's playbook at smaller scale: talking about sequential improvement while the fundamentals don’t exist.
I am drawn to the brands who take Hormel's approach. Own the problems. Name the problems. Only then can you focus on the problems.
Because in CPG - whether you're doing $12 billion or $12 million - being self-aware as an entrepreneur leads to clarity as a leader. And clarity is transformative, so long as you are willing to go where it is pointing.
How Tariffs are Reshaping Pricing and Product Innovation in 2025
One theme finally popping up in earnings reports: tariff-related pricing. Three strategies to deal with it are emerging, none are great. Let’s start with retail because it’s closest to the consumer.
Retailers with scale (Amazon, Walmart) are absorbing or deflecting costs to maintain share. Walmart's "25% cheaper" Thanksgiving meal is the poster child, even though it's 15 items instead of 21, with more private label. Companies like IKEA just raise prices and point to tariffs. In discretionary categories, brands eat it. At an 18% effective tariff rate, most businesses are still absorbing costs, but that's shifting.
It's hitting during the holidays:
1) Container volumes are down 8% in September. According to Reuters, fewer containers are making port. You can't sell what you don't have, and what you do have costs more.
2) The "always on" promo season is killing impulse shopping. According to PwC, 80% of holiday shopping is expected before Cyber Monday. Gone are the gameified Black Friday bumps that always get me to spend more, replaced by drawn-out indecision.
3) Gift cards will pop. Less supply for goods & services, too pricy to ship them, and your kids’ student loans resumes – gift cards are wealth transfers, not consumption. And the trick we learned at Kroger is that more than 10% of balances go unredeemed.
What General Mills Is Doing
For challenger brands, this environment is brutal. You don't have Walmart's leverage to deflect costs or General Mills' scale to absorb them. But there are always lessons in how the big players are adapting.
General Mills dropped a 177-slide deck at investor day last month. There was no shortage of cool pet food strategies, but the human food insights were more interesting for me. They're not waiting for conditions to improve, they're adjusting the strategy now because Mills needs share and volume at their scale:
Know your price cliffs. Mills identified specific purchase behavior thresholds and surgically worked two-thirds of their portfolio to narrow gaps with competitors. They're not cutting prices across the board, it’s truly pack/price tradeoffs.
Make packs do more work. Larger sizes to drive volume, but priced to be less expensive per ounce for the consumer.
Improve the product in obvious ways. Brick-to-the-forehead clarity in the value they are giving consumers. More cheese in Annie's Mac, more chicken in Old El Paso Soup. They're not overthinking GLP-1 concerns, they are just adding protein and fiber and moving forward.
For Challenger Brands
Environments like this suck for cool, expensive, emerging brands with gloss-matte packaging. You're facing the same cost pressures without the scale to absorb them or the leverage to push them downstream. But there are moves:
Know your price cliffs and pressure test surgically, because you can't afford broad discounting. I used to love indexing to the category, but I think it’s easier, more sustainable, and better consumer psychology to say “we just won’t be over $4.99”. You’ll still want to index to cat/comp, but this makes it easier for busy teams to digest and manage to.
Make innovation obvious - Consumers need to see or taste it immediately
Don’t just broadly discount, that’s bad for brand. Instead, segment pack architecture for different wallets in the same purchase cycle, we’re going to see wider social stratification in the haves and have-nots.
I wish tariffs were the least of our concerns, and we didn’t have BLS job numbers this month, but reports are not positive. Last year, Expo West was about package innovation. If brands can react quickly, we might see a shift toward helping consumers weather the storm through more value. Consumers need that new hope.
The Doors of Perception
Last week was rough for Celsius.
Stock price dropped 25% after earnings despite revenue jumping 173% from the Alani Nu acquisition. The biggest issue was their inventory change over issues going into the Pepsi DSD integration.
But I think it's overblown.
For all of our clients, we set up a Competitive Intelligence Hub. We blend hindsight, insight, and foresight to track what's happening inside their business and across the competitive landscape.
Celsius is on that list. And what they've done in the last year is eye-opening, not just for them, but also to the entire energy category.
HINDSIGHT – This has happened before.
Q3 2024: Celsius went through an inventory optimization with their largest distributors.
Inventory as % of sales spiked. Inventory turnover dropped.
But COGS stayed stable. They executed the transition gracefully and investors didn’t blink.
INSIGHT – So what's different this time?
The balance sheet tells a similar story, that inventory is elevated as % of sales. But this time, inventory turnover is actually increasing. That inventory velocity growth is a good sign for now.
The bigger difference is timing and the macroeconomic headwinds.
On timing: It’s like changing gears while riding your bike – you want to do it while in motion. Making this change while experiencing organic growth is going to lessen the impacts and allow them to allocate supply more easily.
On the economy: In 2025, logistics costs are up, so what matters most now is three things:
1) Minimizing returns from the old network (probably through markdowns)
2) Optimizing freight lanes with one-day hauls (a must for heavy products)
3) Managing dual-distribution network costs while exiting gracefully (anyone who has changed a co-packer, flipped an account from distributor to direct, or moved to a re-distributor like DOT Foods can attest to this, and Celsius is doing this on a grand scale)
FORESIGHT – The part that nobody is talking about this quarter: PepsiCo's DSD network.
You can’t build a moat without attracting a few alligators. Monster + Coca-Cola showed us how impactful DSD is for this cutthroat category. With Celsius, there will be short-term pain and Wall Street will freak out: working capital is tied up, margins are compressed during a cutover, dual distribution costs raise SG&A. We’ll have to wait and see on this.
But the long-term benefits: 250k+ DSD doors that would make Mike Wazowski jealous, better shelf velocity as a result of almost daily hand-touched merchandising, and their first every supply chain moat (more critical now than ever). These are enduring advantages, and it takes effort to built that moat.
Bonus thought on what’s to come:
The February Alani Nu acquisition over-valued Celsius stock, but it’s still a great angle
1) It is focused on women in a historically male-dominated subcategory. Positioned as helping consumers complete their last rep or their next handstand, but the reality is people use it to get through the workday.
2) That said – the LTOs like Pumpkin Cream are brilliant, especially during a cold workday.
3) With the power of a DSD networking behind it, the merchandising alone gives this brand serious potential.
Perception is not reality Celsius was over-valued post-Alani Nu, but with a newly right-sized share price, I'm watching closely to see what they accomplish in 2026.
BTW, none of this is investment advice.