CEO Sean Connolly, who took the helm of ConAgra in April following the departure of Gary Rodkin, said the firm had pumped too much time and money into the private label business, and was not seeing a good return.
He added: “As I have intensely studied the situation in our Private Brands operations over the last few months, it has become clear that the time and energy the company is devoting to the Private Brands turnaround represent a suboptimal use of our resources.
“To prevent further distraction, we are pursuing the divestiture of our Private Brands operations…We expect to offer operating details of our plans as well as long-term financial expectations at an investor event later this year.”
We believe there will be significant interest from potential buyers
Speaking on a call with analysts this morning, he added: "This business has real potential and the Private Brands segment of the retail class of trade continuous to grow. But we have to come to conclusion that this asset will be more valuable outside of ConAgra Foods... We believe there will be significant interest from potential buyers to support a transaction that is acceptable in terms of value and structure."
Additional M&A activity to reshape the portfolio at ConAgra - which recently acquired natural and organic frozen meal maker Blake’s All Natural Foods - was also on the cards, he said:
“We expect to continually refine our portfolio with prudent divestitures and acquisitions... And when it comes to innovation our focus needs to be squarely on three on trend areas: Premium natural, ultra convenience and alternate channels."
Speaking at the Consumer Analyst Group of New York (CAGNY) conference in February 2014, former CEO Gary Rodkin said he remained confident about the prospects for private label, although growth rates had stalled, adding:
“The retailers who have prioritized private brand have enjoyed growth that is dramatically better than the rest of the retail fields. Specifically, the customers with the heaviest focus on private brand are growing almost twice as fast as the rest of the top-30 retailers. Retailers are clearly looking for growth in a very competitive marketplace and are trying to differentiate however they can.
“Private brand is going to continue to be a big growth vector in this industry. I am absolutely confident of that.”
Private label penetration rates have not budged since 2011
In its January 2015 report Private Label & National Brands: Dialing in on Core Shoppers Chicago-based market research firm IRI said that private label penetration rates had not really budged since 2011, remaining stubbornly at around 16-17% of CPG dollar sales and 19-20% of unit sales.
However, packaging and product quality had continued to improve, and consumers are taking notice, with most agreeing that retail brands offer as good or better quality compared to their national brand counterparts, said the report.
Several retailers are also viewing private label much more strategically, noted IRI.
“Target, for instance, has been focused on differentiation and newness, adding assortment to its upscale beauty selection. The retailer is also looking to solidify its status as a one-stop shop, providing greater selection of dry, dairy and frozen foods, particularly in its P-Fresh format.”
Retailers are also exploring new growth opportunities via multi-tiered private label strategies, experimenting with opening price point products as well as more exclusive premium offerings, said the report.
In general, private label products are around 28% cheaper than their national brand counterparts, although the gap can vary from 10% to 50%, said IRI.
However, it doesn’t follow that the wider the gap, the better they perform.
In fact, during the past year, noted IRI, “Eight of the 10 private label categories where private label share dropped most precipitously actually widened their average price gap versus nationally branded products… Price plays a role in purchase decisions, but it is generally not a top consideration.”
ConAgra Foods Q4 and full-year results
ConAgra Foods' revenue rose 3.7% in the fourth quarter to $4.1bn (full year revenues declined 0.1% to $15.8bn), driven by growth in its commercial and consumer food businesses. Sales at its private-label unit dropped 3.1% in the fourth quarter and full-year.
The private-label arm also dented operating profit, which was down 82.2% to $181.5m in the full year.