ConAgra gobbles up store brands with Ralcorp deal
NEW YORK (AP) — ConAgra Foods is set to become the nation's biggest maker of store-brand foods, with a $5 billion purchase of Ralcorp that expands its stake in the growing market for cereals, crackers and other packaged foods sold under private labels.
The deal announced Tuesday caps a year of acquisitions for ConAgra, which makes brands including Banquet, Chef Boyardee and Marie Callender's. The company, based in Omaha, Neb., also made multiple attempts to buy Ralcorp last year.
The latest bid for Ralcorp comes at a time when private-label brands — also known as store brands or house brands — are gaining popularity with price-conscious shoppers. Supermarkets and drug stores have also been working to improve the image of their brands as a way to control the rising costs for name brands.
In a conference call with analysts, ConAgra CEO Gary Rodkin noted that private-label products are growing at twice the rate of name brands and now account for 18 percent of the overall packaged food market.
In a new report this week, however, market researcher SymphonyIRI wrote that the growth of private label products has ebbed and "hit a proverbial glass ceiling." It also said that the private-label market has entered a phase of "pockets of growth" among categories, rather than a general expansion. Separately on Tuesday, Ralcorp attributed an 8 percent increase in net sales to acquisitions and higher prices, which offset lower volumes.
Like many other packaged food companies, ConAgra already made private-label products along with name-brand foods that include Slim Jim, Healthy Choice and Hebrew National. With the Ralcorp purchase, about a quarter of the combined company's $18 billion in sales will now come from private labels. Ralcorp, based in St. Louis, makes products for a wide range of companies including Wal-Mart Stores Inc., Kroger Co. and McDonald's Corp.
Rather than merely mimicking name brands, Rodkin said that retailers increasingly want to cultivate customer loyalty by offering unique products. He cited CostCo and Trader Joe's as companies that are significantly developing their store brands.
"The private-label industry for the most part has been more emulation oriented," Rodkin said in a conference call with analysts. He said ConAgra would use its experience with name brands to innovate private label products.
Kevin Hunt, CEO of Ralcorp, noted the private-label business is about $100 billion but that the industry is very fragmented, meaning there's "a lot of opportunity" for further consolidation.