Business Strategies / Processor of the Year

2013 Processor of the Year: ConAgra Foods

The former grain miller turned branded marketer evolves into what it considers the ideal balance with the acquisition of Ralcorp.

By Dave Fusaro, Editor in Chief

ConAgra Foods Inc. has undergone several transformations in its 94-year history. It was simply a grain miller, Nebraska Consolidated Mills, until 1971 when a visionary CEO charted a new course for the company, changed its name and began acquiring branded products. The new ConAgra defined the better-for-you products category when it created the Healthy Choice brand in 1988. With the acquisition earlier this year of Ralcorp, ConAgra Foods is transforming again, into the nation's largest private brand manufacturer – without neglecting the more than 45 brands that have brought it to this point.

When you consider CEO Gary Rodkin's vision for the company – "creating everyday food in extraordinary ways" – the new acquisition fits perfectly. Nothing fancy, just the everyday stuff. But done well.

It will be interesting to see how this new chapter in ConAgra Foods' life plays out. But that will take years. Rather than wait to see how it all settles, we decided to stop the clock at this juncture, to honor more of what ConAgra has been and to use that as the lens through which we peek at the evolving ConAgra. ConAgra Foods becomes our ninth Processor of the Year.

Evolving through acquisitions

Former CEO Mike Harper's brand-buying spree began in the 1970s and culminated in the acquisition of Beatrice Foods in 1990. That one deal doubled ConAgra's sales, making it a $17 billion company and brought the Hunt's, La Choy, Orville Redenbacher's, Snack Pack, Wesson, Swiss Miss and Reddi-wip brands. But ConAgra also became a disparate collection of brands and products ranging from meats to peanut butter and popcorn to frozen meals. The portfolio had mass but no unifying identity.

The current transformation appears to be the culmination of the plan brought in by Gary Rodkin when he joined the company as CEO in 2005. He had been chairman and CEO of PepsiCo Beverages and Foods North America.

"This was a diverse business with considerable untapped potential," Rodkin says of his first impressions. "There were a number of things going well, but those things were happening in particular areas, not necessarily across the entire company as a standard way of working. So the opportunity was to build one operating company and begin to leverage the scale of ConAgra Foods."

To leverage, yes, but also to focus. A year after Rodkin's arrival, the meat, seafood and cheese businesses were sold (including brands Armour, Butterball, Eckrich, Louis Kemp and Swissrose). A year after that, the trading and merchandising operations were jettisoned. In 2010, it was the Gilroy Foods & Flavors dehydrated and vegetable product operations.

On the other hand, there have been acquisitions. Key ones in Rodkin's tenure have been Lincoln Snacks, Alexia Foods and a number of private label manufacturers. In 2012, the company bought the popular P.F. Chang's Home Menu and Bertolli frozen meals businesses from Unilever, as well as Odom's Tennessee Pride in the growing frozen breakfast category.

"What we mean by 'creating everyday food in extraordinary ways' is that we make food that people trust and turn to each day," Rodkin continues. "Being able to provide food that is a true part of peoples' lives is privilege that we always need to work hard to uphold. Extraordinary ways refers to innovation, creative thinking, going the extra step for a customer or a consumer. While we believe we currently make everyday food in extraordinary ways, it's an ongoing quest to continue to improve."

In early 2011 – a challenging late-recession year for all food & beverage companies – Rodkin wrote in the annual report: "We understand how consumer behavior is changing … We know that people want great-tasting, everyday food for every dollar they spend. And we don't think this particular consumer mindset is going away – value is here to stay. We sell more than 140 high-quality meals for $3 or less and are staking our claim as the value leader in a variety of core categories.

"Initially, the industry reacted slowly to this sea change in consumer behavior, thinking that things would go back to normal as the economy improved," he continued. "But it soon became apparent there was a ‘new normal,' and we realized we were at that proverbial fork in the road."

In its fiscal 2012 (ConAgra Foods' fiscal year ends around May 31), Rodkin & Co. introduced the "Recipe for Growth," a "comprehensive, aggressive, five-year strategy following years of foundational work in which we improved our capabilities, operations, internal wiring and culture, and refocused our portfolio." It identifies five cornerstones:

  • Core/Adjacencies – "Growing our core means continuing to leverage innovation and marketing to grow our existing businesses organically while expanding into faster-growing adjacent categories. Think of [Marie Callender's] frozen desserts as an adjacency to frozen meals, and sweet potato fries as an adjacency to french fries."
  • International – "Today [2012], our international business is about 10 percent of our sales, and we plan to increase that significantly over the next few years in both our Commercial Foods and Consumer Foods segments." The Lamb Weston potato business is leading the company in this initiative, with significant success in China.
  • Private Label – In fiscal 2012, store brands netted $632 million, about 8 percent of Consumer Foods' total net sales. Obviously, the company has taken a leap with the acquisition of Ralcorp; the overwhelming majority of the acquisition's $4.3 billion in sales is in private brands. Combining that with what already was a significant private brand business, ConAgra Foods now claims to be North America's largest private brand manufacturer, with FY2013 sales of $4.5 billion.
  • People – In addition to improving the skills of its employees, especially in regard to food safety, Rodkin wants to track ConAgra Foods' people success via the Fortune 100 Best Places to Work list. "Our focus is not on making the list, but on what we can achieve with a culture of trust and empowerment," he says. The e2 ("extraordinary every day") recognition program, a peer-judged program created in 2011, this year gave more than 52,000 awards to 13,500 employees.
  • Citizenship – Ending child hunger has been a particularly dear cause, and the ConAgra Foods Foundation has been the main vehicle. The foundation has invested more than $50 million in nonprofit organizations dedicated to that cause and for 20 years has been a partner of Feeding America. In both 2011 and 2012, ConAgra donated enough products to Feeding America to provide the equivalent of 1 million meals a month. And the company encourages (and often organizes) employees to perform volunteer work in their communities.

That is indeed setting the table. Here's a look at the organization that now has to deliver the meal.

Unique organization

The Research, Quality and Innovation (RQI) team is a hub for research and development plus quality, nutrition, packaging and even sustainability. Each department has a vice president who reports to Executive Vice President Al Bolles – who, like Rodkin, came from PepsiCo.

"Before I got here, there was a very traditional organization, organized by business units," recalls Bolles, who has a Ph.D. in food science and who led worldwide research and development for PepsiCo Beverages and Foods.

Bolles, along with other functional leaders, such as those for marketing and human resources, report to Rodkin, as do the leaders of the company's three business segments – Consumer Foods, Commercial Foods and Private Brands – creating a matrixed organization.

"It was pretty clear to me ConAgra Foods didn't focus much on innovation. We needed to change the culture. So I came up with the name RQI and brought more focus on innovation." As an example, Bolles explains, "Frozen meals were nothing more than TV dinners. We wanted to make them better, like what you'd cook at home from scratch, only more convenient."

"We created space for people to have ideas, to get inspired and collaborate," adds Corey Berends, vice president of R&D. "We started doing things a different way. We put marketing and product development people together. We got input from the consumer insight folks, packaging and graphic design, too. We encouraged experimentation and rapid prototyping."

Proof they are succeeding are the two 2011 Edison Innovation Awards, given each year to the most innovative new products. Healthy Choice Top Chef Café Steamers came in first and Marie Callender's Bakes came in fourth. Both are examples of the cross-functional nature of ConAgra Foods product development, with packaging innovations playing as big a role as formulation. Another novelty (and award-winner) was the 2011 Orville Redenbacher's popcorn Pop Up Bowl.

A mission just as broad as that of RQI's is quality. Joan Menke heads the department that includes everything from 90 consumer affairs people answering phones to a toxicology team – and with the increased emphasis on private brands, she now adds relations with retailers to her to-do list.

"Quality for us is primarily meeting the specifications – if we do that, all goes well," she says. "The research and innovation people set the standard. We work with the plants to support those standards."

The toxicology team also assures that outside suppliers of ingredients and other products meet ConAgra Foods standards. "Almost all of our suppliers are certified to GFSI [Global Food Safety Initiative] standards, mostly SQF [Safe Quality Food Institute] and BRC [British Retail Consortium]. And we're working toward getting them all certified.

"One of the things we're very careful about is understanding where the ingredients come from," she continues. "When our people choose a supplier, we want to see for ourselves the plant where it's made."

The Ralcorp effect

In 2011, ConAgra Foods began to pursue Ralcorp. The private label company rebuffed all offers, and even spun off its Post cereals business to appease its own shareholders. But ConAgra Foods continued, and an agreement was reached in November 2012.

Perhaps the reason for the relentless pursuit was how Ralcorp fits into Rodkin's vision for the new ConAgra Foods. "The acquisition of Ralcorp is a transformational move for our company and a catalyst for growth," Rodkin says.

As Bolles explains it, "We believe value is here to stay. Private label is growing. [America] is catching up to Europe in terms of the proliferation of private brands in the marketplace. But consumers want high-quality and innovative products.

"ConAgra Foods was very much in tune with innovation for the consumer. Ralcorp will make us even more customer-focused," says Bolles, referring to retailers as customers. "Ralcorp was a fast follower. We want to move toward being an innovator," he says.

"Many of the things we do well at ConAgra Foods can be applied toward private brand. And you'll see some innovations coming as time goes on," says Bolles.

Ralcorp brings intimate retail relationships, as well as some new and interesting product categories – such as products for in-store bakeries, artisan breads, refrigerated dough and premium crackers.

There are more pieces to ConAgra Foods. Early this year, the company announced plans to contribute its ConAgra Mills flour milling business to a joint venture with Cargill and CHS, which already had Horizon Milling as a joint venture. The new business would be called Ardent Mills and will "bring innovative flour and grain products, services and solutions to the marketplace." ConAgra Foods also maintains an ingredient business in Spicetec Flavors & Seasonings. "We use that to our advantage and have found good growth synergies from our expertise in managing ingredients," says Rodkin.

Now, Rodkin and Bolles believe ConAgra Foods has all the pieces it needs for the foreseeable future. Which, of course, doesn't mean their work is done.

"We have to evolve and change as our customers, consumers and the competitive landscape changes, so the work is never done" says Rodkin. "This is a challenging time for food companies and retailers, competition is fierce and we need to be on top of our game to continuing driving sustainable, profitable growth."