Gary Rodkin Cooks Up a New Outlook for ConAgra

Photography by Vito Palmisano
ConAgra Foods Chief Executive Officer Gary Rodkin is proving the center aisles have plenty of room for growth.

With the company's recent acquisition of Unilever's Bertolli and P.F. Chang's Home Menu brands, the food giant better known for Banquet frozen entrees, Chef Boyardee canned pastas and Hunt's Tomato Ketchup is going after more sophisticated shoppers with higher-margin products, much to the delight of its retail partners. Rodkin's so-called Recipe for Growth also calls for the Omaha, Neb.-based company, with $13.3 billion in annual revenue and 26,000 employees, to tap its collective strength in consumer insights, supply chain management, innovation and sales distribution to spice up the often neglected center of the store.

"We need to work with our partners to get the traffic flow back through that center of the store and to get people to understand how much value is in that center of the store versus continuing to roll around the perimeters," Rodkin told Retail Leader in an exclusive interview. "We need to work together on that."

Part of Rodkin's five-year strategic plan involves the Customer Connect program, which makes collaboration with retailers a new focus. "We've gone through some really tough times, and retailers, I think, understand how important it is to get growth back in this industry and's going to take for us to work together to drive that growth rather than to fight over the last penny of margin," Rodkin says.

In its first fiscal 2013 quarter, ConAgra reported net earnings of $250.1 million, up from $93.8 million in the year-ago period, while revenue climbed 7 percent to $3.31 billion, exceeding analysts' expectations. The company boosted marketing spending 20 percent in the quarter and also completed the Unilever brands acquisition for $267 million. ConAgra's revenue also benefitted from the recent acquisitions of Odom's Tennessee Pride, Kangaroo Brand Pita Chips, Del Monte Canada and National Pretzel.

Acquisitions can be a double-edged sword, slicing away cash flow and potentially detracting from existing brands. The company's Consumer Foods segment reported $2.04 billion in first-quarter sales, an increase of 8 percent from the year-ago period, with acquisitions driving the gains. But organic volume declined 4 percent from a year ago.

The company passed along inflationary increases by boosting prices. For example, the company increased the price of Banquet frozen entrees to $1 from 88 cents, which it said was unsustainable. Banquet had experienced a 2 percent volume decline in the company's fiscal fourth quarter, according to a Davenport & Co. analysts' report.

Managing Cash Flow

Gimme Credit expects ConAgra's appetite for acquisitions to continue. "We would not be surprised to see another $100 million-plus over the next few quarters," which would exceed the company's free cash flow, Gimme Credit analyst Dave Novosel wrote in a Sept. 24 report that reiterates an underperform recommendation. ConAgra currently has a stable credit profile, he wrote, "But event risk remains, exemplified by the $635 million worth of acquisitions in fiscal 2012, and reflecting the company's desire to make further acquisitions." Novosel is among those speculating ConAgra might renew its offer for a "slimmed-down Ralcorp."

Still, other analysts say the smaller acquisitions ConAgra has made in lieu of the $5.2 billion bid for Ralcorp that was rebuffed repeatedly a year ago might prove easier to integrate. While ConAgra is extending its portfolio of private label, particularly in the area of cereal bars and snacks, Rodkin brought a clear focus on brands when he joined ConAgra Foods as CEO in October 2005, after serving as CEO of PepsiCo Beverages and Foods North America, responsible for Pepsi, Gatorade, Quaker Foods, and Tropicana brands. He also has experience at General Mills, where he was president of Yoplait yogurt in the 1990s.

Rodkin joined ConAgra because he saw the opportunity "to have an impact and really put my stamp on an organization." He brought with him four operating principles: simplicity, accountability, collaboration and imagination.

"I expect people to commit and deliver. We do that by being very specific. We try to make sure people understand the who, what, where, when and why."

"I expect people to commit and deliver. We do that by being very specific. We try to make sure people understand the who, what, where, when and why," Rodkin says, adding that he learned the importance of candor and directness from General Mills' former chairman and CEO Bruce Atwater.

Adding Value with Imagination

But Rodkin also allows employees the latitude to try new things. "Imagination doesn't necessarily mean you have to create the next new product or new ad campaign, but you come to work every day looking to add value doing something different so that when you leave something better is there," he says.

When Rodkin arrived at ConAgra, it was still regarded as a holding company of diverse brands, but he saw potential in unifying them with the vision statement: "One company, growing by nourishing lives and finding a better way bite at a time." In June 2011, ConAgra updated it to say, "We deliver everyday food in extraordinary ways."

ConAgra's parade of acquisitions over the years contributed to fragmented operations with many units working independently, but Rodkin has changed that. "Historically, for folks with long memories, we would go to market with dozens of different independent operating units. We were constructed with dozens and dozens of acquisitions," he says. But it created inefficiencies. Now, ConAgra has one consumer sales force that carries the entire product line, one research and development department to serve all brands and enterprisewide finance and human resources departments. "We had a lot of size before, but no scale. Now we actually have some scale," Rodkin says.

With a focus on innovation, Rodkin is convinced ConAgra can leverage its 93-year history as a food company to be a dominant force in high-margin, value-added foods. "Just relative to their peers, we've always maintained the opinion that ConAgra's portfolio maintains more second or third-tier brands, which is a challenging position," says Erin Lash, analyst at Morningstar in Chicago. "[Rodkin] has been working to reinvigorate the business, divesting of less profitable noncore brands and investing behind core brands. From that perspective, he has been working to improve the firm's competitive positioning."

While the acquisition of Unilever's Bertolli and P.F. Chang's brands will put ConAgra in reach of higher-income consumers, some analysts question the fit. "We were somewhat taken aback that that didn't fit one of those strategic initiatives [of private label or international expansion]," Lash says, adding that a push into private label would allow ConAgra to fully use its production capacity and enhance its relationship with retailers.

"I'd say we had quite a high priority put on internal innovation over the last six years or so, and it's paid big, big dividends."

The company has plans to add private label production, but Rodkin also believes the company, which revolutionized the frozen entree category with the launch of the Healthy Choice brand in 1988, is capable of transforming the freezer case again. "I'd say we had quite a high priority put on internal innovation over the last six years or so, and it's paid big, big dividends," he says. (In fact, the company in September increased its annual dividend to $1 per share from 96 cents.)

Rodkin points to the company's new Healthy Choice Greek Frozen Yogurt as one example, launched in September in four flavors at 100 calories per serving and stocked next to Healthy Choice frozen entrees. Its Healthy Choice Cafe Steamers, which take advantage of the company's expertise in steaming technology, have morphed into several ethnic categories. And Marie Callender's new single-serve cream pies are the latest extension to a brand that has achieved a 50 percent sales increase during the past three years, Rodkin told shareholders in September.

But the company won't launch new products just to prove it can. It's looking for sustainable innovations that can extend a category. "So we're into a fewer, bigger, better mentality. So you'll never see us extolling the virtues of launching 487 SKUs this quarter. That's not what we're into. We're into really focusing our efforts and doing things that will be sustainable, that will grow over time rather than what I would call boom splat," Rodkin says.

A Bite of Breakfast

With its April acquisition of Odom's Tennessee Pride, which leads the frozen breakfast sandwich category in the United States with $190 million in annual revenue, ConAgra bought a piece of the breakfast market. "But we've now sort of captured the frozen case, if you will, from...sunrise to sunset in the sense that we have it now at the breakfast occasion all the way through the dessert occasion. And we're looking at innovation across that entire lineup," Andre Hawaux, president of consumer foods, said during the first-quarter conference call.

Rodkin also has put new attention on global sales, with a goal of doubling international revenue in the next three to five years by building on existing operations. For example, it acquired a majority stake in Agro Tech Foods in India, and intends to add core products, such as peanut butter. ConAgra also acquired Del Monte Canada in March with plans to augment the success it has achieved with its market-leading Healthy Choice Gourmet Steamers products.

"We're starting from a position behind many of our peers because our forefathers chose to be primarily domestic," Rodkin says. "Today we're in the neighborhood of 11 to 12 percent outside the U.S. We are choosing to build from our strengths rather than choosing to plant flags everywhere."

ConAgra's strategy of acquiring local players is a way to short-cut the expansion process. "Gaining international markets can be challenging. Consumer tastes and preferences can differ in local markets," Lash says. "Teaming up with local players is a way to minimize the risks. To go it alone is more challenging."

Back in Omaha, Rodkin announced another goal last year as part of a five-year plan. He wanted the company to be listed on the Dow Jones Sustainability Index. To get there, ConAgra launched a contest across its entire supply chain. The result was $28 million in savings and a lot of shared ideas.

As an added bonus, the company did make it onto the Dow Jones Sustainability Index, which Rodkin describes as "a pretty high bar. That was a five-year plan. We achieved it in year one, which was pretty amazing."

Freelance writer Ann Meyer serves as senior editor of Retail Leader. Pierce Hollingsworth is a vice president at Stagnito Media.