Conagra Brands

Conagra shows sometimes it's better to be a big fish in a small pond

Conagra Brands has pulled off premiumization in frozen foods--a once forgotten category.
Eric Gardner 2 min read
Conagra shows sometimes it's better to be a big fish in a small pond
Source: Conagra Brands

Conagra Brands, the frozen foods giant behind Healthy Choice, Hungry-Man, and Banquet, grew sales by nearly 10% in the first quarter of 2023—primarily due to raising prices. Sales at the Chicago-based manufacturer are up 24% compared to the same quarter three years ago. One of the biggest surprises is that the company hasn't experienced much drop-off in volume. "The elasticity coefficients just haven't budged." CEO Sean Connolly told investors, "I mean, they are flat as a pancake."

Conagra Brands Investor Day Presentation

As you can see, compared to peers (which includes companies like General Mills, Kraft Heinz, and Kellogg's), elasticities at Conagra have been somewhat lower.

Elasticities are fairly confusing, but generally, the chart means that for every 1% increase in price, volume changes by the number in the circle.

For Conagra, it means that right now, it's losing .53% of volume; for every 1% the company increases prices.

Not bad.

It's really impressive when you consider that Conagra has done it all with limited promotions.

Conagra does not depend on promotions despite being what I'd consider a value brand. Canned foods and frozen meals typically don't get to command a price premium. Promotions are a great way for consumer goods companies to boost sales. A buy-one-get-one-free is a turbo booster for most companies. The downside is that companies can become addicted to promoting and promotions eat into a company's operating margin.

That means that two things are probably driving the company's low elasticities. Management would claim it's their strong brands—which is certainly defensible--and runs counter to my earlier point.

I'd argue that just as important is where it chooses to compete. Conagra controls a de facto monopoly in single-serve frozen meals.

COO Thomas McGough talked about its efforts during this summer's investor conference.

We are the leader in frozen single-serve meals, a $6 billion category, where we have absolutely excelled, growing nearly 5 share points over the last 4 years, primarily from Nestlé and Kraft Heinz. Private label is almost nonexistent within the category, but we have taken share from them as well.
For many years, this category was underperforming, and many question whether frozen food was still relevant. Our view was it wasn't frozen that was broken, but it was a food.

Conagra has done an incredible job premiumizing frozen food, which is itself a somewhat boring category. It holds about 45% of the single-serve subcategory, with limited competition from others. In an era when most brands migrated towards healthy and fresh Conagra management pushed the average cost of Healthy Choice from $2.5 to $4.50. Banquet, the bargain brand, has gone from $1 to $3. So the brands were once weak, and now they're strong.

Nearly two years ago I wrote:

Their innovation initiatives have seemingly worked, but they’re also within the existing framework. I question if it’s a real moat. Nearly all cited examples are more incremental brand extensions than transformative ideas. Frozen foods seem to be incompatible with the long-term grocery trend towards health and freshness.

Right now, it looks like I was wrong.

Sometimes it's better to be a big fish in a small pound.

Even if it's a seemingly boring pond.

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