Conagra Brands CEO Sean Connolly downplayed the benefits of splitting up the maker of Marie Callender’s and Snack Pack, calling the CPG company’s size a valuable asset in deepening its presence in snacking and frozen foods.
“We’ve done that in the past, where it makes sense” to spin off or sell a large business, Connolly told Food Dive on the sidelines of the annual Consumer Analyst Group of New York conference in Florida. “But we are a U.S.-centric business, and we believe our scale and our scope are assets.”
Conagra is no stranger to sizable divestitures, provided they make sense for the company and the segment hived off.
In 2015, Conagra sold its private label unit to TreeHouse Foods for $2.7 billion and a year later spun off frozen potato maker Lamb Weston. But in the case of snacking, frozen and even its plant-based meat brand Gardein, the CPG benefits from stronger cash flow, greater negotiating power with retailers and deeper margins that could be weakened if the divisions were separated.
A sweeping move, Connolly warned, risks “destroying value” in the long run.
Breaking up is not so hard to do
Large-scale breakups are not unheard of in food.
A decade ago, Kraft Foods separated its North American grocery business now called Kraft Heinz with its faster-growing global snack operations. The new company, which includes Oreo, Triscuit and Ritz brands, took on the name Mondelēz International.
More recently, Kellogg announced plans in June to split into three companies — cereal, plant-based foods and snacking — to unlock value by creating smaller, more nimble businesses. (Kellogg said last month it will not split off its plant-based brands after all amid stagnating sales in the category.)
Once a fast-growing business, sales at supermarkets of frozen meat alternatives saw growth slow during the last year to 5.8% for the week ended Jan. 29, 2023, according to IRI OmniMarket Integrated Fresh, due to the company’s high price compared to similar animal-based counterparts, lengthy ingredients lists and questions over the quality of certain products that have reportedly turned off meat eaters.
Refrigerated offerings were hit especially hard, posting a sharp drop of 15.5%.
Slacking sales have prompted some companies to exit the plant-based category or scale back innovation, while others such as Beyond Meat, Impossible Foods and Maple Leaf Foods have cut employees.
A major reason Gardein remains strong while competing brands have languished, Connolly said, is that Conagra has prioritized bringing plant-based meat to frozen foods in retail, oftentimes incorporating them directly into other brands in its portfolio. At the same time, Conagra’s competitors have targeted food service and the meat counter, which have been more prone to a slowdown in sales.
Connolly said Conagra is committed to the plant-based business with its Gardein brand and has not pulled back on spending to innovate in the segment. He pointed to the debut of “new innovations and new adjacencies,” such as the upcoming launch of Gardein Ultimate bowls to capture a chunk of the fast-growing frozen bowl space as recent proof of the company’s enthusiasm in the category.
Gardein sales have jumped $40 million from Conagra’s 2019 fiscal year to $151 million last year. It is now the second-largest brand in plant-based meat alternatives space in the grocery store, according to the company.
Since taking the helm of Conagra in 2015, Connolly has moved aggressively to expand the CPG company’s presence in the fast-growing snacking category through acquisitions such as Angie’s Boomchickapop popcorn and Duke’s meat snacks.
Connolly also overhauled once sleepy frozen brands such as Banquet and Healthy Choice. He added trendy offerings that were high in protein and gluten-free, contained premium ingredient combinations, including grilled chicken pesto with vegetables, and incorporated new packaging formats, such as bowls.
Conagra doubled down on frozen food through the $10.9 billion takeover of Pinnacle Foods in 2018, which added Birds Eye, Hungry-Man and Gardein to the fold.
The strategy has paid off, with Conagra generating about 70% of its $12 billion in annual sales from frozen and snacking where the company is the largest and eighth-biggest player in those categories, respectively.
Conagra’s growth in frozen, where it has been gradually gaining market share during the last several years, and in snacking, have both outpaced the broader categories, according to company data. During the last three years, three-quarters of the CPG company’s portfolio growth at retail has come from these two categories.
Despite recent success, Connolly said there are significant adjacencies to bring into its frozen brands, such as Healthy Choice, Marie Callender’s and Banquet. Additional growth exists in snacking, too, especially through meat snacks, such as Slim Jim and Duke’s, and popcorn offerings, including Angie’s and Orville Redenbacher, as well as other top-performing brands, like Swiss Miss and Snack Pack.
While Conagra would be open to a deal that creates value for shareholders, Connolly stressed the company’s priority right now remains paying down debt and improving the balance sheet following the Pinnacle deal, which was one of the largest in the company’s history.
“We haven’t been focused on adding additional things,” Connolly said. “We wouldn’t say no to it if it was the right thing to do for our value-creation agenda, particularly smaller things, but I can’t envision anything bigger while we’re focused on paying down debt.”