Conagra’s growth recovery should struggle with a lack of strong brands in competitive categories

Conagra’s business has evolved over the years from a conglomerate, strengthened by the acquisition of Ralcorp in 2012, which increased its position in private labels (later divested at half the purchase price), to its current focus on growth through build brands (rather than just boosting volume). However, food is competitive and we do not think the country has a portfolio of leading brands and deep-rooted relationships with retailers that can guarantee price power, which is a handicap compared to comparable brands. Additionally, significantly less is being spent on product development and marketing, and we are skeptical that better efficiency can close the gap. A small-scale portfolio without strong brands, combined with continued underspending, is likely to remain a sector laggard in our view.