Even as Conagra Is Poised for Margin Improvement, We Don't Think It's Amassed a Competitive Edge

When CEO Sean Connolly was brought in to turn around a struggling Conagra in 2015, he implemented a new brand building strategy referred to as the Conagra Way. The process calls for using data to identify product attributes that are driving growth and designing products to reflect those traits. The strategy also increases the productivity of marketing investments by shifting spend to the more efficient digital channel and to higher potential brands. In addition, the firm has significantly reshaped its portfolio inorganically, shedding non-branded or noncore businesses and acquiring brands that enhance the firm’s growth and/or profit margins. As a result, in recent years, sales have inflected from declines to growth, and from market share losses to modest gains. We think the pandemic, which resulted in four and a half years of incremental new buyers and saved the firm hundreds of millions of dollars in customer acquisition costs, will accelerate the benefits Conagra is reaping from these efforts, as many new consumers have been exposed to its new fare. Once the food retail market normalizes post-pandemic, we think Conagra can realize 2% annual organic sales growth. In addition, Conagra has identified over $1 billion in supply chain savings to be realized by fiscal 2025, which should result in operating margins that reach 18% over the long term, up from the 15.4% metric realized in fiscal 2019, before the pandemic and its aftershocks disrupted the market.