- Conagra has approached Pinnacle Foods to acquire the $7.2 billion packaged food company, according to sources interviewed by Reuters.
- The deal highlights the importance of consolidation in the packaged foods industry where sales continue to decline as consumers turn to healthier products.
- Conagra chief executive Sean Connolly previously made a bid for Pinnacle Foods in 2014 as the head of Hillshire Brands. The $4.3 billion deal was canceled after Tyson Foods bought Hillshire.
Ever since Conagra got out of the private-label business in 2015 with the $2.7 billion sale of Ralcorp, the company has sought to streamline its operations. Last year, the company spun off its $6.9 billion Lamb Weston frozen potato business, and just this week sold its Wesson oil brand to J.M. Smucker for $285 million.
Acquiring Pinnacle Foods — a move industry analysts have been expecting for months — would further reinforce Conagra’s focus on efficiency and growing categories. Together, the companies could see significant savings in sourcing, distribution and marketing. Pinnacle Foods, which owns legacy brands such as Bird’s Eye and Vlasic pickles, has been focusing on healthier products that are generating more consumer interest. Last year, the company paid $985 million for Boulder Brands, which makes the popular Udi’s Gluten Free Bread.
In addition, the management team at Conagra knows Pinnacle’s business. Three years ago, Conagra CEO Sean Connolly, who was then head of Hillshire Brands, made a bid for Pinnacle that would have gone through if Tyson hadn’t swooped in to buy Hillshire. Connolly has closely followed Pinnacle since then, and his due diligence may mean he and the ConAgra team already have growth strategies in place.
Market forces, however, have created a challenging environment that won’t let up soon for packaged food companies. The same private label capabilities Conagra gave up are creating headaches for well-known food manufacturers as retailers and consumers increasingly turn to store brands. Consumers also are rejecting canned and frozen foods in favor of fresh produce, meal kits and prepared foods. According to Nielsen data, volume sales of packaged foods and beverages fell 0.4% during the past year, while fresh meat and produce grew by around 2% and deli-prepared foods increased by 4%.
CPG companies like Conagra and Pinnacle are fighting hard to stay relevant. In addition to consolidation, they’re focusing on product reformulation, clever marketing, e-commerce sales, cost-cutting and working with retailers on creative promotions. It’ll be interesting to see if these efforts can stem their losses in the coming years, or if the declines will continue.