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Current Position:Home » News » General News » Topic

Persistence pays for ConAgra

Zoom in font  Zoom out font Published: 2012-11-29  Authour: Josh Sosland  Views: 17
Core Tip: A growth rate over double that of branded foods is only one element of many making private label, and Ralcorp Holdings, Inc., a good fit at ConAgra Foods, Inc., said Gary Rodkin, president and chief executive officer. Over the past 14 years, the private l
A growth rate over double that of branded foods is only one element of many making private label, and Ralcorp Holdings, Inc., a good fit at ConAgra Foods, Inc., said Gary Rodkin, president and chief executive officer. Over the past 14 years, the private label food business has grown at double the rate of branded food.

In a Nov. 28 conference call with investment analysts, Mr. Rodkin said ConAgra’s successful earlier experiences with private label and its vision of making store brands more innovative are among reasons the company is optimistic that its $6.8 billion acquisition of Ralcorp will be successful.

Expanding its presence in private label is among three pillars of growth identified as areas of strategic interest at ConAgra. The pillars also include building the company through what ConAgra calls “high-growth adjacencies” as well as expanding the company’s footprint outside the United States.

The acquisition of Ralcorp follows an unsuccessful attempt to acquire the company in 2011. To whatever degree ConAgra’s previous attempt to acquire Ralcorp resulted in contentiousness between the companies, Kevin Hunt, president and c.e.o. of Ralcorp, said a cooperative spirit currently prevails.

“Our discussions with ConAgra Foods have not only been productive, but have been very positive in terms of the two teams getting to know each other and gaining an understanding of the commonalities we have,” Mr. Hunt said during the call. “We think this combination will be a great fit.”

The future success of private label will not depend on continued economic weakness, Mr. Rodkin said. To the contrary, a 14-year look back suggests the segment has done well both in good economic times and poor.

“We believe value is here to stay at the supermarket and in the food aisles,” he said. “We think private label is ideally positioned to capitalize on this long-term trend. That's why it’s been one of the three accelerated growth pillars in our recipe for growth strategy.

“Industry data shows that private label in the U.S. has grown market share regardless of the economic cycle. It has outperformed branded almost every year since 1998.”

During that period, branded product sales (in dollars) grew at a 3% compound annual rate, Mr. Rodkin said. Private label grew at a 6% rate over the same period.

“Relative to many economies in the developed world, we believe there’s a long runway ahead,” Mr. Rodkin said, noting that the 18% U.S. share of packaged foods for private label compares with 36% in the United Kingdom, 44% in Switzerland and 34% in Germany. “So we see significant upside over the long term,” he said.

Pivoting from his point about the attractiveness of private label in general, Mr. Rodkin said Ralcorp in particular is well positioned in the space.

“Of the many segments in which it participates, Ralcorp holds the No. 1 or No. 2 position in 85% of them,” he said. “There are 14 segments where Ralcorp is No. 1.”

Mr. Rodkin also did not shy from the difficult time Ralcorp has had generating growth over the past several months.

“We recognize they’ve faced some headwinds in recent quarters,” he said. “We understand the short-term challenges the business has worked through and are encouraged by the company’s business plans and initiatives going forward. We’re confident that this is a good business for the long term and with our combined experience, we expect the business to continue to grow.”

Even as he extolled Ralcorp's strengths as an independent company, Mr. Rodkin said other ConAgra Foods strengths will propel the Ralcorp business forward in coming years.

“The combined company will have a shopper and consumer insight driven approach, the partnerships that we have with our customers to drive growth,” he said.

A point of difference Mr. Rodkin said ConAgra Foods will offer in its private label business is a greater commitment and different approach to innovation.

“The private label industry, for the most part, has been more emulation oriented and certainly, that is a big piece of the business that will continue,” he said. “But as customers evolve, they clearly want to drive business with their own store brands and drive loyalty with their own store brands. We’ve got a great, not so little, test market of our own in the bar business where we have worked with several of our largest customers to create new, not just emulate product, but to create new lines for them. They are in the marketplace now and doing well. So we intend to very much leverage what I would call best-in-class innovation capabilities and bring that to private label.”

While this approach may be the same across much of its businesses, Mr. Rodkin said ConAgra Foods is “keenly aware” of differences between branded and private label business.

“We are already operating effectively today with both,” he said.

Going forward, ConAgra Foods sales are expected to be 43% branded, 32% to commercial and food service and 25% private label.

ConAgra’s pre-Ralcorp experience was a point of emphasis for Mr. Rodkin.

“We’ve got a $950 million private label business today,” he said. “We’ve been running that for years. We’ve made acquisitions. We have very, very little overlap between our branded products and our private label products. That’s our strategy. So we do not intend to go at a strategy that would have us in both branded and private label for the most part. That is not our strategy. So I think the most compelling evidence is, we run the business today. We know how to organize to do that. It’s really working backwards from what the customer needs, that comes first. We’ve been very successful at that. We’ve also been successful in integrating our recent private label acquisitions. So we think we’ve got our own very, very good and robust long-term test market for doing that.”

Among aspects of the merger that will benefit ConAgra is success Ralcorp has enjoyed in alternative channels beyond traditional supermarket customers, Mr. Rodkin said.

“It clearly is a big win for us from a channel standpoint,” he said. “Two examples I could cite off the top of my head where Ralcorp plays really big are Costco and Trader Joe’s, which are both right in the wheelhouse of that growth. This is a big win for us when we combine the companies in terms of our presence at growing channels.”
 
 
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