ConAgra Foods' decision to split into two companies should allow the packaged food business to further focus on its branding plans, though it is too early to tell what the latest shakeup from the maker of Pam spray and Slim Jim snacks means for the marketing community.
On Wednesday, ConAgra CEO Sean Connolly unveiled the latest part of his strategy to liven up the Omaha-based food maker he joined in April. In a few short months, activist investor Jana Partners added public pressure to the company; it set plans to sell its private-label business to TreeHouse Foods; and it announced plans to cut 1,500 jobs and pull a large part of the organization into Chicago. In its latest move, ConAgra will narrow itself into a $9 billion branded food company, including sales to consumers as well as foodservice.
Its Lamb Weston unit, which is known for potato products and sells its food to restaurant chains such as Wendy's, is set to become its own public company with about $2.9 billion in annual sales.
"On the branded business, let's face it, we've been a large, diverse corporation," Mr. Connolly said during a call with analysts to discuss the plan. "And we are absolutely convinced that by operating the consumer business, the Conagra Brands business, as a pure-play, we will have enhanced focus."
A renewed focus on creating value by building brands should be good for those agencies still working with Conagra "when the dust settles," said one agency source familiar with the brand.
In June, Mr. Connolly noted that he was planning to spend more on marketing, while at the same time being "surgical and extremely disciplined." ConAgra spent $103 million on measured media last year in the U.S, down from $176 million in 2013, according to Kantar Media. Omnicom's DDB does a lot of work for ConAgra, while other agencies also work on certain projects.
An improved brand focus is something packaged foods makers have been emphasizing for some time, trying to stand out as consumers increasingly bypass the center of the store to focus more of their buying on produce and freshly-prepared items. Kraft Foods went through a somewhat similar split in 2012, when it changed its name to Mondelez International and spun-off its North American grocery business, Kraft Foods Group. Kraft Foods Group, in turn, was acquired by H.J. Heinz earlier this year, and Kraft Heinz is now working on its own branding and marketing improvements.
The separation could also help Lamb Weston, as it can operate on its own, rather than being dragged into the consumer brand reinventions or any "chaos," as one agency source said, that may occur in the coming months as the company restructures itself and moves to Chicago. Even though ConAgra has a foodservice business, it has generally operated separately from Lamb Weston, even before Wednesday's announcement, sources said. Lamb Weston's brand work has largely been handled out of Idaho, not Omaha or ConAgra's current suburban Chicago office, another agency source noted.
Mr. Connolly so far has trimmed off areas that no longer appeared to be strategic brand plays. However, acquisitions are also possible. On the call, he said the company could do "a far better job" with its consumer business, and his expectations include better brand building and what he called "smart M&A."
The comments on Wednesday were more focused on the deal, not on the future Conagra Brands business, which is planning its own investor day in the future. That business will include brands such as Marie Callender's, Hunt's, Rotel, Reddi-wip, Slim Jim, Pam, Chef Boyardee, Orville Redenbacher's, P.
Some people suggested Mr. Connolly is trying to redo what he did with Hillshire Brands, where an intense focus on brands and cost cutting ultimately attracted bidders for the company, which was sold to Tyson Foods in 2014.
"However, we're skeptical these efforts will improve ConAgra's weaker competitive positioning relative to its closest peers," Morningstar analyst Erin Lash said.
She noted that Hillshire's brands were leaders in their meat category, while ConAgra has a number of second- and third-tier brands "which lack pricing power." She said there could be divestitures in the future, possibly including its "languishing" frozen foods business, and noted as other have suggested, that the company look to acquisitions, perhaps in the natural and organics space.
The moves are set to be complete by fall 2016. Shareholders applauded the announcement, sending shares of ConAgra up nearly 4%.