netrashetty
Netra Shetty
ConAgra Foods (NYSE: CAG) is a major manufacturer, packager, and distributor of consumer and commercial food products. It owns and operates brands such as Healthy Choice, Chef Boyardee, Hunt’s, Orville Redenbacher’s, Reddi-Wip, Slim Jim, and Hebrew National.[1]
ConAgra holds a portfolio of well-recognized brands, and is increasing sales of these items through an increased advertising budget. With high brand awareness, ConAgra products command a large percentage of shelf space at both traditional and low-cost retailers, which further drives recognition and sales. The company earned $12 billion in revenue and $726 million in net income in 2010.[2]
However, many of these brands are high-fat or snack foods, and ConAgra will have to address shifts in consumer commodities.
Company Overview
ConAgra's products fall into the following categories:[3]
Consumer Foods (66% of net sales)
Manufacturing, marketing and packaging of consumer goods makes up over half of ConAgra's sales. Half of this business comes from the sales of meals and entrees, with the other half from condiments and desserts. Notable brands include Egg Beaters, Healthy Choice, Hunt's, Reddi-wip and Orville Redenbacher's.
Commercial Products (33% of net sales)
Responsible for over a third of ConAgra's sales, the production and marketing of goods used by the food service industry and other commercial customers is essential to ConAgra's business.
International Foods
Contributing only five percent to total sales, ConAgra sells many brands in the global market. The majority of international sales come from Canada and Mexico.
Contents
1 Company Overview
1.1 Consumer Foods (66% of net sales)
1.2 Commercial Products (33% of net sales)
1.3 International Foods
1.4 Ongoing Changes to ConAgra's Business Plan
1.4.1 Divestitures
1.4.2 Cost Savings
1.4.3 Advertising
1.5 Brand Awareness
2 Business Growth
2.1 FY 2010 (ended May 30, 2010)[2]
3 Trends and Force
3.1 Dietary Trends
3.2 Public Perceptions and Health Scares
4 Competitors
5 References
Ongoing Changes to ConAgra's Business Plan
In 2003, ConAgra introduced a plan to integrate its businesses and improve profitability. As a large, cohesive company, ConAgra would be more efficient and better able to compete with competitors who are integrated packagers.
The following are what this strategic plan consists of:
Divestitures
ConAgra sold all businesses that were either too complex to integrate with the core businesses or did not achieve a profit margin greater then ConAgra's benchmark margin rate. Notable spin-offs include: Butterball, Armour, LunchMakers, and Louis Kemp Seafood.
Cost Savings
ConAgra plans to cut costs in these areas:
Fixed manufacturing. 22 plants are to be eliminated and current plants are to be operated at a higher capacity.
Manufacturing variable costs. With less plants there will be less equipment to run and maintain.
Through integration, the company should be able to leverage its scale by expanding its network of shippers and receivers. This will allow for fewer inventories and more shipping directly from plants.
Advertising
The company plans on spending more on advertising in general to elevate sales. ConAgra will prioritize advertising funds on the brands that make-up the largest portions of sales, which have not seen strong advertisement campaigns in years. On the other hand, this directional move in advertisement will take dollars away from the less well-known brands and sales will drop amongst those products.
Brand Awareness
In ConAgra's consumer goods business, there is no one factor more important then brand awareness. How well do customers recognize your brand? If a customer recognizes your brand they are more likely to buy it, increasing that product's sales. Products are shelved in stores according to their popularity among customers (the most sales). If your product is selling for the stores, it will be placed in areas where even more customers will see and buy it. In addition, when you change a product, if your product is well placed within stores, that change will be more quickly recognized by the customers.
In recent years, ConAgra has focused much of its marketing campaign on their lower priority (less well-known) brands in order to gain brand awareness in those products' audiences. This strategy proved to not be as profitable as ConAgra had hoped and let higher priority brands lose brand awareness as marketing dollars were taken away from them. The market sentiment is that ConAgra needs to develop new, innovative products in order to maintain its position in the market amongst this audience.
ConAgra's new advertising campaign should increase brand awareness amongst their products and get products better placement in the stores. This is especially the case for brands that have lost shelf space in previous years while ConAgra has been focusing on its smaller brands.
It should be noted that overall many of ConAgra's products are not within the top three known brands in their product category, but when it come to[value-oriented customers they are the most recognizable. Hence, they have the highest sales numbers and best shelf placement in stores like Wal-Mart.
Business Growth
FY 2010 (ended May 30, 2010)[2]
Net sales fell 3% to $12 billion. The company attributes the decline as a continuation from fiscal 2009 as well as lower flour milling net sales due to lower underlying wheat costs passed on to customers.
Net income fell 26% to $726 million.
Trends and Force
Dietary Trends
To read a more detailed discussion of consumer health trends, see also Health and wellness.
Dietary trends in the United States are becoming healthier and a social push for increased health consciousness is apparent. Most of ConAgra's products are not considered healthy, with many falling in the categories of snack food, high-fat, high sugar and highly processed. Many believe this may be an issue for ConAgra in terms of staying competitive in the long-term.
Some of ConAgra's research and development is focused on this ongoing trend. They have already made some changes, i.e. offering "light" versions of some snacks. In a recent paper ConAgra self-reported that it has made improvements regarding transfats, sugar, and salt in its brands.
Public Perceptions and Health Scares
Food companies are very sensitive to contamination issues because these issues can scare the public and damage consumer loyalty and trust. However, it should be noted that this might be less of the case with ConAgra because they market their products under individual brand names.
Competitors
ConAgra has a strong position amongst its competitors in terms of market share. In this chart the proxy for this number is the total number of sales by the company in the last twelve months (TTM Total Sales). ConAgra has less market share then Kraft, more then Hormel Foods, and about the same as General Mills. Some may consider this impressive because ConAgra has yet to gain market share in the international market while Kraft and others have.
ConAgra's margin, the percentage of each sale that becomes profits, is relatively low when compared to competitors. Margin is known as a good measure of profitability but could also be a signal about who ConAgra's customers are, i.e. they may be looking for the best deal and, by taking less of a profit, ConAgra attracts them to their products.
ConAgra holds a portfolio of well-recognized brands, and is increasing sales of these items through an increased advertising budget. With high brand awareness, ConAgra products command a large percentage of shelf space at both traditional and low-cost retailers, which further drives recognition and sales. The company earned $12 billion in revenue and $726 million in net income in 2010.[2]
However, many of these brands are high-fat or snack foods, and ConAgra will have to address shifts in consumer commodities.
Company Overview
ConAgra's products fall into the following categories:[3]
Consumer Foods (66% of net sales)
Manufacturing, marketing and packaging of consumer goods makes up over half of ConAgra's sales. Half of this business comes from the sales of meals and entrees, with the other half from condiments and desserts. Notable brands include Egg Beaters, Healthy Choice, Hunt's, Reddi-wip and Orville Redenbacher's.
Commercial Products (33% of net sales)
Responsible for over a third of ConAgra's sales, the production and marketing of goods used by the food service industry and other commercial customers is essential to ConAgra's business.
International Foods
Contributing only five percent to total sales, ConAgra sells many brands in the global market. The majority of international sales come from Canada and Mexico.
Contents
1 Company Overview
1.1 Consumer Foods (66% of net sales)
1.2 Commercial Products (33% of net sales)
1.3 International Foods
1.4 Ongoing Changes to ConAgra's Business Plan
1.4.1 Divestitures
1.4.2 Cost Savings
1.4.3 Advertising
1.5 Brand Awareness
2 Business Growth
2.1 FY 2010 (ended May 30, 2010)[2]
3 Trends and Force
3.1 Dietary Trends
3.2 Public Perceptions and Health Scares
4 Competitors
5 References
Ongoing Changes to ConAgra's Business Plan
In 2003, ConAgra introduced a plan to integrate its businesses and improve profitability. As a large, cohesive company, ConAgra would be more efficient and better able to compete with competitors who are integrated packagers.
The following are what this strategic plan consists of:
Divestitures
ConAgra sold all businesses that were either too complex to integrate with the core businesses or did not achieve a profit margin greater then ConAgra's benchmark margin rate. Notable spin-offs include: Butterball, Armour, LunchMakers, and Louis Kemp Seafood.
Cost Savings
ConAgra plans to cut costs in these areas:
Fixed manufacturing. 22 plants are to be eliminated and current plants are to be operated at a higher capacity.
Manufacturing variable costs. With less plants there will be less equipment to run and maintain.
Through integration, the company should be able to leverage its scale by expanding its network of shippers and receivers. This will allow for fewer inventories and more shipping directly from plants.
Advertising
The company plans on spending more on advertising in general to elevate sales. ConAgra will prioritize advertising funds on the brands that make-up the largest portions of sales, which have not seen strong advertisement campaigns in years. On the other hand, this directional move in advertisement will take dollars away from the less well-known brands and sales will drop amongst those products.
Brand Awareness
In ConAgra's consumer goods business, there is no one factor more important then brand awareness. How well do customers recognize your brand? If a customer recognizes your brand they are more likely to buy it, increasing that product's sales. Products are shelved in stores according to their popularity among customers (the most sales). If your product is selling for the stores, it will be placed in areas where even more customers will see and buy it. In addition, when you change a product, if your product is well placed within stores, that change will be more quickly recognized by the customers.
In recent years, ConAgra has focused much of its marketing campaign on their lower priority (less well-known) brands in order to gain brand awareness in those products' audiences. This strategy proved to not be as profitable as ConAgra had hoped and let higher priority brands lose brand awareness as marketing dollars were taken away from them. The market sentiment is that ConAgra needs to develop new, innovative products in order to maintain its position in the market amongst this audience.
ConAgra's new advertising campaign should increase brand awareness amongst their products and get products better placement in the stores. This is especially the case for brands that have lost shelf space in previous years while ConAgra has been focusing on its smaller brands.
It should be noted that overall many of ConAgra's products are not within the top three known brands in their product category, but when it come to[value-oriented customers they are the most recognizable. Hence, they have the highest sales numbers and best shelf placement in stores like Wal-Mart.
Business Growth
FY 2010 (ended May 30, 2010)[2]
Net sales fell 3% to $12 billion. The company attributes the decline as a continuation from fiscal 2009 as well as lower flour milling net sales due to lower underlying wheat costs passed on to customers.
Net income fell 26% to $726 million.
Trends and Force
Dietary Trends
To read a more detailed discussion of consumer health trends, see also Health and wellness.
Dietary trends in the United States are becoming healthier and a social push for increased health consciousness is apparent. Most of ConAgra's products are not considered healthy, with many falling in the categories of snack food, high-fat, high sugar and highly processed. Many believe this may be an issue for ConAgra in terms of staying competitive in the long-term.
Some of ConAgra's research and development is focused on this ongoing trend. They have already made some changes, i.e. offering "light" versions of some snacks. In a recent paper ConAgra self-reported that it has made improvements regarding transfats, sugar, and salt in its brands.
Public Perceptions and Health Scares
Food companies are very sensitive to contamination issues because these issues can scare the public and damage consumer loyalty and trust. However, it should be noted that this might be less of the case with ConAgra because they market their products under individual brand names.
Competitors
ConAgra has a strong position amongst its competitors in terms of market share. In this chart the proxy for this number is the total number of sales by the company in the last twelve months (TTM Total Sales). ConAgra has less market share then Kraft, more then Hormel Foods, and about the same as General Mills. Some may consider this impressive because ConAgra has yet to gain market share in the international market while Kraft and others have.
ConAgra's margin, the percentage of each sale that becomes profits, is relatively low when compared to competitors. Margin is known as a good measure of profitability but could also be a signal about who ConAgra's customers are, i.e. they may be looking for the best deal and, by taking less of a profit, ConAgra attracts them to their products.