Ditching deep discounts on Banquet is a "recipe for disaster," warns CPG analytics expert

ConAgra Foods CEO: We can get a better bang for our trade spending bucks

By Elaine Watson contact

- Last updated on GMT

Sean Connolly: "Investment creates a virtuous cycle. Over time, stronger brands will lead the better pricing power and higher margins.”
Sean Connolly: "Investment creates a virtuous cycle. Over time, stronger brands will lead the better pricing power and higher margins.”

Related tags: Trade spending, Brand

ConAgra is adopting a “zero loss mindset” when it comes to analyzing trade spending, CEO Sean Connolly told analysts on the firm’s Q3 earnings call on Thursday, much of which was devoted to ensuring that not a single dollar is wasted on promotions that don’t deliver. 

If established tactics aren’t delivering, he said, they will be ditched: “We have a zero loss mindset when it comes to analyzing that spend and partnering with our customers on how to put a red circle around funds that we think are doing little for our customers or us, and then collaborating with our customers in terms of how do you redeploy that funding to continue to support our brands and our categories in ways that are better for overall volume trends and overall margins.

‘We’re going to be as aggressive as anybody in the industry in terms of getting after that waste…  If we’ve got a high ROI way of redeploying it, we will redeploy it; if we don’t have a high ROI way of redeploying it, we’ll drop it right to the bottom line.”

As to how ConAgra is measuring its ROI on trade spending, he said improved collaboration with retail partners and better tools was changing the game: “We go through literally event by event, hundreds if not thousands of events.

“We know what they’ve done in the past now. We’ve got visibility to it. We know what we want to get rid of. We know what we want to change. We know what we want to add. And we do that by customer and it’s making a meaningful difference.”

Retail customers '​understand that inefficiency isn’t helping anybody'

Asked how an estimated $100m in “efficiency benefits from enhancements to trade spend processes and tools”​ that ConAgra had identified last fall would be reallocated, he said:  “We’ve identified $100 million in trade spend that we don’t think does much to help us or our retailers.

“When we talk to our customers about being more efficient and impactful with that trade, they’re as interested in that as we are because it helps drive quality sales, it helps drive margins ... Our customers also value quality volume as much as we do. They understand that inefficiency isn’t helping anybody. So, if we can redeploy inefficiency into brand building, innovation or even more effective merchandising, everybody wins.”

We have a zero loss mindset when it comes to analyzing trade spend

One of the biggest changes in strategy has been on Banquet frozen meals, where ConAgra has reduced its reliance on deep discount promotions and raised the everyday shelf price above $1 – a move Connolly said had predictably dented volumes, but was the right thing to do strategically as part of ‘restaging’ the brand.

 “We’ve got to migrate to a higher quality consumer base over time because there were clearly plenty of consumers in that exact window year-ago who were in our franchise for one reason and one reason only, and that’s because we were basically doing giveaway pricing, or giveaway merchandising,” ​he claimed.

 “While we recognize it will take time to rebuild the buying rate among households that are long accustomed to $1 Banquet, we’re confident that the higher price points enable us to invest in product enhancements and higher quality A&P ​[advertising and promotions] that reeducates consumers about the brand. Not all consumers will transition with the brand and we’re okay with that. But given the higher quality, we expect to attract new consumers to the franchise in time.

“Over time, as we wean ourselves off of our historical overreliance on deep discount trade deals and rebuild our innovation pipeline supported by more effective marketing, you will see sales grow but in a much higher quality fashion.”

Brand building

When it came to brand-building, said Connolly, ConAgra had increased A&P spending 13% year-to-date: “We’ve been investing in brands with clear differentiators and relevant consumer benefits like Marie Callender’s, Hunt’s, RO*TEL, Reddi-wip, Slim Jim and PAM.

Bertolli was also undergoing a major renovation, he said, “We are stepping up our work to renovate our frozen skillet business and make the brand even more relevant to today’s shoppers. We’re expanding occasions through the addition of Family Size Skillets within our lineup. And looking ahead, we are embarking on major renovation investments in the Bertolli brand to upgrade proteins, such as all natural chicken and dramatically simplify the ingredient label.

“As we continue to renovate around the brand, we will support the product upgrades with increased marketing spend to drive profitable growth.”

ConAgra-basket-landscape

On GMO labeling: “For us to carve out inventories and think we can control what goes into Vermont ​[where new GMO labeling laws come into effect on July 1], is not pragmatic, it’s not really doable at least with any reasonable cost. So we are in a position where we’ve got to do what we’ve got to do.”  

Sean Connolly, CEO, ConAgra Foods 

Dr Kurt Jetta: Consumers can't be 'trained' to purchase off deal

So what do CPG trade promotions experts make of Connolly's strategy?

Kurt Jetta landscape
Dr Kurt Jetta: "Consumers cannot be 'trained' to purchase off of deal because the products in their current form don’t have the value to warrant the full price to these people. That is the nature of promotions."

Dr Kurt Jetta, CEO of TABS Analytics, told FoodNavigator-USA that Connolly was wise to embark on an aggressive analysis of the company's trade spending, adding: "In our analysis of the industry the reduction or increased misallocation of trade spending over the past three years is the single largest factor in why tier 1 CPG companies are significantly lagging the industry and their smaller competitors."

However, he queried whether the strategy of 'weaning' Banquet customers off deals would work, adding: "As he says, there are millions of consumers that will only buy products at the lower price.

"They cannot be 'trained' to purchase off of deal because the products in their current form don’t have the value to warrant the full price to these people. That is the nature of promotions.

"We have tracked numerous CPG brands over many years, and what he is prescribing is a recipe for disaster if he intends to execute upon it."

Q3, 2016 results

Con-Agra-HQ-landscape

n the third quarter of 2016, ConAgra reported a profit of $204.6m compared with a year-ago loss of $954.1m, while revenues rose 0.6% to $2.92bn.

On a segmental basis, revenues at the Consumer Foods segment (Banquet, PAM, Bertolli, Slim Jim, Hunt’s etc) fell 2.4% to $1.85bn, while revenues at the Commercial Foods segment (the Lamb Weston foodservice business) increased 6.1% to $1.07bn, said the company, which is on track to separate these two businesses into two public companies in the fall.

The $2.7 billion sale of its private label business to TreeHouse Foods was completed in February.

Related topics: Prepared Foods, Manufacturers

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