ConAgra Foods will become the largest own-label firm in the US with an acquisition of Ralcorp Holdings but there are concerns over whether it can manage brands and private label. There are also questions over the potential private label has for further growth in the US. Doug Knudsen, president of sales at ConAgra, tells Dean Best why the company is upbeat about the deal, its ability to grow brands and own label and the private label sector.
just-food: ConAgra’s plan to buy Ralcorp has prompted some concerns on Wall Street about whether the company can, in the long term, grow brands and private label. What would you say to the doubters?
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Knudsen: Let me just say this: we already have existing private-label and branded businesses and we’ve been successful. In most cases, we don’t have a lot of category overlap. As you look at this acquisition, it’s very similar in that respect. We feel very confident about that. Why we’ve had success in private label and branded together is we’ve taken a lot of our capability in consumer insight and category management and taken a consumer packaged goods approach and we think that’s advantageous to our customers. To be clear: we remain fully committed to our brands. It’s still the largest portfolio of our business but we have operated effectively for quite some time under a branded and private-label portfolio.
just-food: The sceptics would say brands need a laser focus on innovation while private label has traditionally centred on low costs and simple ranges. However, ConAgra seems a firm believer it can run both sides of the business well.
Knudsen: We would like to take private label though to another level – not just an emulation strategy but also providing innovation to our customers on their store-brand products. That’s something that hasn’t been going on in the industry and we have brought that to it. We have made branded and private-label acquisition and we have the same philosophy on both.
just-food: Building premium private label could be a way for ConAgra to use the consumer packaged goods capabilities you talk about across private label and brands.
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By GlobalDataKnudsen: We’re going to hopefully provide some of those capabilities that aren’t being provided today by private-label manufacturers and we anticipate that will be received very well. It has been by some of the existing customers we have.
just-food: Will the Ralcorp deal provide ConAgra with new retail customers?
Knudsen: I don’t see a lot of new retailers. There are some businesses that are more developed with certain retailers than they would have been with the existing ConAgra portfolio. We’re virtually in all channels with our businesses. There is a good opportunity for us with certain customers and there are some customers we will have a larger piece of their business but that was not the sole reason for buying the company.
just-food: One of the major benefits seems to be category expansion.
Knudsen: It puts us in categories where we don’t participate or play.
just-food: Are any of those categories particularly attractive?
Knudsen: There is a significant number of categories where they have one or two representation and that was very attractive to us. You can look at ready-to-eat cereals as number one, crackers number one and snack nuts number one.
just-food: Looking at cereal, Post Holdings has launched a range of low-priced branded cereals. What’s your take on competition in the cereal sector?
Knudsen: We think there’s still considerable opportunities in private label for growth and we think it’s going to be centred around some of our capabilities in innovation. We’ll go ahead, like in any other competitive category, and ensure we have something that differentiates us from our other competitors.
just-food: SymphonyIRI said last month private label in the US had hit a “glass ceiling”. What do you make of that?
Knudsen: In certain times, private label does have some slowdowns but, in general, if you look at the last 12 or 13 years, private label has grown double that of brands. We anticipate when you look at the private-label development as it relates to other parts of the world, even north of the border, there is still a lot of room for growth. The retailers with the fastest growth in the United States are more private-label oriented – Whole Foods Market, Trader Joe’s, Aldi etc.
just-food: ConAgra CEO Gary Rodkin said yesterday private label accounts for 18% of packaged food sales in the US. To what level could that reach in your mind?
Knudsen: That’s a hard one to speculate on. That varies by retailer. It depends by retailer and it would be a hard one to guess at. We certainly believe store brands have significant growth opportunity in the US market.
just-food: What are the main priorities for your branded business? One analyst said ConAgra has some small brands and argued the Ralcorp deal does not solve that.
Knudsen: Driving our core business and we do have some very significant businesses growing at fast rates. The second piece of it is looking at adjacencies and we have made acquisitions in the last year, with the Unilever products Bertolli and PF Chang’s and that’s really focused on the multi-serve segment, an adjacent segment to the single-serve segme which is our largest meal piece. Last year we bought American Pie and that gave us adjacency in desserts. This year we bought Odom’s Tennessee Pride and that gave us adjacency in breakfast. We are looking very hard to expand our business to adjacencies in some of our biggest categories.
just-food: Will there be further consolidation in the sector?
Knudsen: I can’t really speculate on that. It depends on timing and what the available opportunity is. It is fairly fragmented. This clearly puts the ConAgra-Ralcorp combination as the number one with US$4.5bn in sales. It’s hard to predict but I would think there would be opportunity for consolidation in the future.
just-food: Will you take a breather from major acquisitions? Some analysts have touted ConAgra as a suitor for TreeHouse Foods.
Knudsen: I can’t comment on that. This is a big acquisition for us and we are going to take some time to digest it and integrate it and work together and we’re excited about it. I can’t look forward at this point.
