PepsiCo, Others Bet Hummus Can Be the Next Salsa

PepsiCo, Others Bet Hummus Can Be the Next Salsa

By Duane Stanford on July 18, 2013

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For most guys looking for a quick bite, salted snacks reign supreme. But Ronen Zohar wants man caves everywhere to give hummus a place of honor, right up there with salsa and beer. The chief executive officer of PepsiCo’s (PEP) Sabra Dipping venture recently launched its first national television commercials. One instructs consumers to “dip life to the fullest” by dunking all-American staples—think chicken wings and potato chips—into the mashed chickpea paste. And Sabra soon will kick off as the National Football League’s official dips sponsor, putting the brand squarely in the sights of male fans for whom snacking is also a national pastime.

While the goal is to make the Middle Eastern dip accessible to Middle America, Zohar faces a lot of work to make it a fixture at Super Bowl parties. Annual U.S. salsa sales are about $1.1 billion, more than twice those of flavored spreads like hummus. Still, the spreads are growing at a 14 percent pace as Sabra and its main rivals, Nestlè’s (NSRGY) part-owned Tribe and Kraft Foods Group’s (KRFT) Athenos, appeal to Americans’ desire to eat healthier. “Most of the people in the U.S. never tasted hummus,” the Israeli-born Zohar says. “You have to change their mind-set that even if the name is strange and the brown color of the hummus is not as appetizing, it tastes wonderful.”Hummus is made by blending steamed chickpeas with a paste called tahini made from shelled sesame seeds. The mixture is generally flavored with olive oil, lemon juice, and garlic. New flavors such as roasted red pepper and wasabi edamame have helped drive demand, says Sarah Schmansky, director of retail programs for researcher Nielsen Perishables Group.

Zohar figures that expanding the hummus category will come in three stages. First, get people to dip it. Next, get them to spread it, like on toast. (Recent TV spots show it as a mayo substitute on a cold-cut sandwich.) The final step: hummus as side dish, the way it’s eaten in the Middle East. “We are only now at the first stage,” Zohar says. “It’s only an issue of time.”

About 18 percent of U.S. households have bought hummus, according to Nielsen. Sales of Sabra are concentrated in the Northeast, which is dipping in earnest and will be ready to spread within a few years, Zohar predicts. The western U.S., however, is only now turning on to hummus, with weekly supermarket sales just half those of stores in the Northeast, says Nielsen.

Sabra has refashioned the grainy hummus found in the Middle East to a smoother version Americans seem to like better. They also favor a less nutty flavor, so Tribe keeps the percentage of tahini below 20 percent, says CEO Adam Carr. The company has even rolled out a limited-run flavor called Everything to appeal to bagel lovers. Manufacturers are targeting kids, too, with single-serve packs for snacking and lunchboxes even as they promote hummus as a vegetarian option for schools.

Sabra, a joint venture between PepsiCo and Tel Aviv-based Strauss Group (STRS:IT), controls about 60 percent of the U.S. refrigerated flavored spreads market, having grown almost 20 percent in the 12 months ended May 19, according to market researcher IRI. The next three competitors—Tribe, Athenos, and Cedar’s Mediterranean Foods—together held nearly 20 percent.

That wasn’t always the case. Kraft’s Athenos led the category seven years ago with a 31 percent share. At the time, Sabra held 10 percent, behind Tribe and Cedar’s. Sabra took over the market one consumer at a time, handing out millions of samples a year from roving trucks, while Zohar used PepsiCo’s clout with retailers to help take up residence in the grocery deli section.

The sales surge has wakened Tribe, which is looking to “leapfrog” from its current No. 2 position, says Carr, who was hired away from PepsiCo a year ago. Carr says he’ll promote Tribe’s lack of preservatives and fully recyclable packaging. “Sabra’s done a good job building the category,” he says. “We would tell all the other competitors to watch out.”

Athenos, meanwhile, has concentrated its recent advertising on its market-leading feta cheese, taking a holistic approach to the Mediterranean foods trend, says Gwen Gray, Kraft’s senior director of dairy snacking. “While we haven’t grown at the rate of the category, our sales remain strong,” she says.

Cedar Chief Financial Officer Chris Gaudette says his small private company doesn’t have deep pockets and retail power to compete chickpea to chickpea with Sabra, so it’s concentrating on hyping its all-natural hummus. Grocery chains are also joining the fray, boosting sales of private-label refrigerated flavored spreads 21 percent in the past year, to 9 percent of the segment.

To defend its turf, Sabra is doubling what it says is already the world’s largest hummus plant, in Virginia, and working with farmers to ensure U.S. chickpea supplies. Contests and NFL-centered promotions will come in the fall. “When people taste hummus,” Zohar says, “they change their mind about it.”

The bottom line: Makers of hummus, which has about half of salsa’s $1.1 billion in U.S. sales, are tweaking recipes to suit American tastes.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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