The business of selling food is among those businesses which never go out of vogue, and for obvious reasons. But of course, no business can escape ups and downs in its lifetime. However, a company which is engaged in the business of feeding the ever growing population of a country is quite well placed to tide over short term hiccups. An example of such a company is ConAgra Foods (CAG, Financial), which posted a weak quarter recently. But there’s more to ConAgra than what meets the eye.
A closer look
The Omaha-based company witnessed a good quarter due to its list of acquisitions made during the year. It acquired frozen breakfast maker Odom’s Tenessee Pride, fruit and vegetable seller Del Monte Inc. and Kangaroo Brand’s pita chip business – all of which focus on different food segments. ConAgra admitted that an eye on organic growth and operational synergies has instigated the recent buyouts, and these would probably deliver value to investors going forward.
Apart from the acquisitions, the company also benefited from price hikes, a step taken to fight cost inflation. These benefits were evident in the performance of its Consumer foods segment which constitutes almost 63% of ConAgra’s universe. This segment performed pretty well and is expected to continue its growth trajectory, building on the 6% improvement witnessed in the previous quarter.
The results are actually commendable since not all food retailers are being able to manage cost inflation efficiently. Even the other segment, Commercial Foods unit, did well with a 7% rise in revenue. Along with the contribution from higher prices higher volumes played a very important role. The growth in units sold was mainly attributed to sales from Lamb Weston potato operations.
The way forward
ConAgra has tapped new potential in the food sector with a range of new products, especially the frozen breakfast line which is expected to go a long way for the company. It also plans to increase its marketing efforts, spending additional 10% in the coming months. ConAgra resorted to such strategies since the consumers are so very cautious about their spending habits, refraining from buying anything more than what’s needed.
They are trying to stick to their budget as much as possible. To lure them is the biggest challenge for the food chains and this is where ConAgra is focusing on since it expects consumers to take a little more time to come out of the price hike shock.
Conclusion
The food retailer has a chain of strategies in place to fight the economic headwinds, especially cost inflation. With productivity improvements, cost savings program and stabilizing input prices ConAgra is set to go a long way in future. Also, it has been looking for more acquisitions in order to grow organically as well as smartly. It’s expected that benefits from the snacks business and the frozen breakfast business is about to give a boost to the company’s top line in a big way, paving the way for a bright future.
