Conagra Brands battles inflation with increased prices and continued innovation

14-Jul-2021 - Last updated on 14-Jul-2021 at 15:59 GMT

Part of Conagra's upcoming innovation includes adding to its Duncan Hines EPIC keto baking kits line. Photo Credit: Conagra

Related tags Conagra Frozen food Inflation

As grocery buying settles into a new, less-frenzied norm, many major food companies including Conagra Brands are dealing with the rising costs of doing business in an inflationary environment by raising the prices of their finished products.

Speaking on the company's Q4 2021 earnings call, president and CEO Sean Connolly answered the question weighing on the minds of many, "Will Conagra take list pricing increases? The short answer is, yes. In fact, we began implementing pricing actions on some of our products in the fourth quarter related to the initial inflation we experienced."

As a result, Conagra updated its full-year outlook for FY22, expecting sales to be flat compared to FY21.

"Although the substantial increase in inflation over the last few months has negatively impacted our profit guidance for the year, we remain confident in the underlying strength of the business," said Connolly.

Sales decline but remain elevated on a 2-year basis

Lapping the prior year's surge in at-home food consumption, Conagra reported a net sales decrease of -16.7% across its three main retail segments in its fourth quarter ending May 31, 2021, compared to Q4 2020.

In its grocery & snacks segment, net sales decreased -26.4% to $1.1bn for Q4 2021 compared to the same period last year. On a 2-year basis, however, Conagra grew its retail snacks business by 21% in FY21 led by increases of more than 25% across hot cocoa, microwave popcorn, ready-to-eat pudding and meat snacks.

Similarly, the company's staples retail sales increased 5.2% over the past two years spurred by consumers who have "increasingly rediscovered the joys of cooking last year, consumers reengaged with our staples products in a meaningful way. Shoppers are engaging or reengaging with our products now more than ever, creating a larger, high-quality consumer base," said Connolly.

Net sales for the refrigerated & frozen segment, which includes many well-known household names such as Healthy Choice, Gardein, and Birds Eye, decreased 12.0% to $1.2bn in the quarter compared to Q4 2020.

Impact of inflation: 'This is a year of inflation, which means a year of price [increases]'

Like many other large food companies, Conagra has been impacted heavily by inflation spurred by the rising costs of edible fats and oils, protein, packaging, and transportation, which have contributed approximately $255m in additional costs.

To offset these costs, Conagra has begun implementing price increases across its portfolio.

"This is a year of inflation, which means a year of price. As the fourth quarter unfolded, input cost inflation accelerated, and we now expect fiscal 2022 input cost inflation to be materially higher than we anticipated at the end of fiscal Q3," said Connolly.

"In response, we have further enhanced the aggressive and comprehensive action plan already being executed, which includes broad-based pricing."

Connolly noted how part of that action plan includes price increases to retail products across its portfolio, but said that the company is well positioned to navigate the inflationary environment.

"We believe our brands are healthier than ever and well positioned to manage through the current inflationary challenges," said Connolly, who believes its current and upcoming innovation will spur increased consumer trial.

"We have an excellent '22 innovation slate. Our '21 innovation slate still has a lot more trial yet to happen, and we will be adding back some very select and prudent promotion dollars because we have confidence that the sales they'll generate will be incremental," he said.

Robust innovation

Conagra has been updating and refreshing its legacy brands such as Birds Eye, Duncan Hines, Healthy Choice, and Marie Callender's, as well as investing in its emerging brands including Angie's BOOMCHICKAPOP, Duke's, Earth Balance, Gardein, and Frontera.

"Our performance on innovation launched and sold in fiscal '21 surpassed the record performance we set in fiscal '20. And importantly, our innovation outperformed the competition. This strong outperformance is why even during the height of the pandemic, customers continued to ask for our new products. This is a clear testament to the innovation engine at Conagra and the solid reputation we built with customers and consumers," said Connolly.

In frozen, Conagra has high expectations for its innovation slate which so far has included modernizing the Hungry Man brand, premiumizing Birds Eye with the launch of vegetable bakes and breaded vegetables, and continuing its successful Gardein and Marie Callender's co-branding strategy.

"We also continued to work on Duncan Hines with the Instagramable EPIC line of Baking Kits along with our keto-friendly mixes," added Connolly.

Upcoming innovation for FY22 will build upon the innovation rolled out in FY21 including additional products rolled out under Hungry Man, P.F. Chang's, and Gardein brand, and an expansion of Duncan Hines' EPIC baking mixes brands.