ConAgra sees 'long runway ahead' for private brands
Feb. 20, 2013
by Eric Schroeder
BOCA RATON, FLA. — ConAgra Foods has “great conviction” about the potential for long-term private brand growth and believes there is “a long runway ahead” for the products, particularly in the United States, said Gary Rodkin, chief executive officer of the Omaha-based company. Mr. Rodkin delved into the key elements of private brand growth — an area ConAgra has stepped up its presence in with the recent acquisition of Ralcorp — at the Consumer Analyst Group of New York conference held Feb. 19 in Boca Raton.
“The U.S. is far from a mature market when it comes to private brands,” Mr. Rodkin said. “And we are extremely well-positioned to meet those growing demands from customers and consumers. This is a real differentiator for ConAgra Foods. A large part of the opportunity for growth is the fact that private brands provide great value and have come a long way in terms of quality and consumer appeal. These are not plain label generics. And the reason we’ve started to call them private brands is because that’s exactly what they are. They are retailer-centric equities that are carefully managed and run to complement branded products and help grow categories.”
While some people may still view private brands as cheap generics, Mr. Rodkin said that is “absolutely not” the way ConAgra views such products. Instead, the company is focused on high-quality products that retailers can call their own, as well as products that help differentiate the store’s brand equity. Other ways companies may use private brands to stand out include the development of products that expand category appeal or that help grow a customer’s top and bottom lines, Mr. Rodkin said.
“We’ve been building our own private brand offerings for quite some time,” he explained. “Our private brands’ footprint was nearly $1 billion before adding Ralcorp. Now, adding Ralcorp, we are the largest private brand maker in North America, with annualized sales of $4.5 billion.”
Mr. Rodkin described ConAgra as being “unique within our peer set.” With Ralcorp in the fold, the company’s portfolio is made up of about 45% branded, 30% commercial or food service, and 25% private brands. The breakdown gives ConAgra “significant growth opportunities across many platforms and channels,” he said.
“As a C.P.G. company with a proven track record of managing a strong private brands business, we continue to believe that we are in an advantageous position of having the capabilities to bring this unique product mix to the market in a way that drives accelerated and sustainable profitable growth,” Mr. Rodkin said. “We continue to be laser-focused on growth and growth opportunities as part of the necessary work to create a company that continually drives shareholder value.”
Looking specifically at the role Ralcorp will play in the broader ConAgra portfolio, Mr. Rodkin pointed to Ralcorp’s “big presence in meaningful spaces with a lot of upside potential.”
“The business brings leading assets in big product segments, from pasta making to refrigerated dough expertise, to more than 100 years of experience in the cereal business,” he said.
He also pointed to a low overlap between the two companies portfolios, a feature he said made it more compelling to purchase good private label assets that do not compete with ConAgra’s branded products.
The two companies will be able to share and synergize input costs, leveraging expertise and scale on ingredients, he said. As an example, he cited ConAgra’s position as one of the largest flour millers in North America.
“Flour is a very big ingredient in the Ralcorp portfolio, leading to significant efficiencies,” he said. “We believe in the synergies and complementary nature of these businesses, while keeping us strong — appreciation for the differences from a cost structure and marketplace perspective, and having a portfolio with very little overlap between private brands and consumer brands in terms of the categories in which we compete — makes for the right mix.
“We’re comfortable that these platforms can live together within the same company when managed correctly. And by that, we mean keeping the functions that need to be separate, separate; and the functions that can be combined, combined.”
Mr. Rodkin said adding Ralcorp to joint business planning will bring a greater sense of top-to-top strategic partnerships with key customers. In some cases, ConAgra plans to combine its presence with Ralcorp’s presence to make “one plus one equals three.”
“One example, a very large quick-serve restaurant chain — there, Ralcorp provides a significant number of the breakfast items; and through our Lamb Weston business, a mainstay, particularly on the lunch menu,” he said. “So while you might not consider french toast and french fries in the same thought, some of our customers do. It’s coming together as one large strategic partner with innovation and service capabilities across a wide variety of products that will help us grow faster.”