They’re building a better burrito in the basement of an office building in Orange.
The test kitchen at 333 S. Anita Drive is where MegaMex Foods LLC—a $600 million joint venture of Hormel Foods Corp. in Austin, Minn., and Herdez del Fuerte SA de CV in Mexico City—creates recipes for Mexican food primarily sold in the U.S.
MegaMex’s offices are on the 10th floor of the TriCentre Building, which is tucked into a corner formed by the Orange (57) and Santa Ana (I-5) freeways just north of the Orange Crush interchange and about 25 minutes from John Wayne Airport and its regular flights to Mexico.
“We have visits from Mexico at least quarterly and sometimes monthly,” said Jeff Frank, MegaMex president and chief executive and an 18-year Hormel veteran.
The 50/50 joint venture launched in 2009 in Chino, moved to Orange in 2011, and now employs about 65 there. There are about 3,500 workers companywide, including at production facilities in Dallas for U.S. sales and in Mexico and Chile for South American markets.
Early Relationship
Hormel had been distributing for Grupo Herdez in the U.S. since 1995. The 2009 partnership brought together brands including La Victoria salsas with about $200 million in sales at the time.
MegaMex through two acquisitions added products that included Don Miguel burritos and taquitos in 2010 and Wholly Guacamole in 2011.
The buys brought frozen and fresh items, respectively, to MegaMex’s product line, which previously focused on “shelf-stable” products—those that sell and can be stored at room temperature, such as sauces and tortillas.
Don Miguel products have roots dating back to 1906 in Anaheim, according to the brand’s website, and Wholly Guacamole is part of a line of refrigerated products founded by a Texas restaurateur.
The two buys added $250 million to $350 million to MegaMex’s sales (see box, this page).
MegaMex also makes products under the El Torito name, a chain owned by Cypress-based Real Mex Restaurants.
Small Slice of Mexican Pie
Sales have tripled in seven years to $600 million, with some estimates even higher, but Frank noted they’re still just a single-digit sliver of the roughly $11 billion in retail sales of Mexican food in the U.S.
Competitors include Old El Paso products, which is owned by General Mills Inc. in Golden Valley, Minn., and Pace, a line owned by Campbell Soup Co. in Camden, N.J.
Frank said 70% of MegaMex sales come through grocery stores and warehouse clubs; 10% to 15% through convenience stores; and the rest from food service, including restaurants. About 97% of sales are in the U.S.
One OC investment banker who has worked on Hormel acquisitions said the company “sees the Hispanic population growing and is committed to it” via the MegaMex venture.
MegaMex “benefits both parties,” the banker said, and Frank said the goal is to lengthen the venture’s reach.
“We understand the Mexican-American consumer,” he said.
Search for More Sales
One growth area involves the food testing and product development in Orange. MegaMex also studies Mexico’s six census regions and overlays that with where people with ties to those areas live in the U.S. to help decide where certain products are sold.
MegaMex found that people in the U.S. from different regions of Mexico—north, central and south—favor beef, chicken and fish respectively. Products that fit best with one protein or another might sell better in different U.S. markets.
Another effort: tapping growing demand for natural foods. Wholly Guacamole is fresh and refrigerated with few ingredients and has 43% market share—more than double its nearest competitor, Frank said.
A third is consumer sampling: MegaMex has spent $7 million on such research since the partnership started.
“You can be the leader in an area, but we want to respond to buyers,” Frank said.
Some brands are already popular outside of the venture’s main niche.
“Two-thirds of Herdez brand sales are to non-Hispanic buyers.”
Placement Puzzle
A big push is working with grocery stores to produce “sales lifts” by making it easier for shoppers to find and buy multiple MegaMex products in one shopping trip.
The span of its brands includes appetizers to entrees; items across a single meal’s multiple components—chips and salsa, for instance, or quesadillas and guacamole; and microwaveable meals for breakfast through dinner.
Frank said that presents an opportunity.
“The assortment and the composition are there.”
The items, though, are frequently in different parts of a store.
“We need to organize the flow and adjacency of products.”
Frank said he also sees opportunity for “channel expansion” in convenience stores, where consumers increasingly stop in for meals and look for new products.
“The sophistication in Mexican food continues,” he said. “We do a lot of testing.”
