No Match Found
“This is not for the faint of heart,” Conagra Brands’ CEO, Sean Connolly, told the Chicago Tribune in 2016. It was an aggressive plan, even looking back on it more than a year later.
Only two years before, then-named ConAgra Foods was a sprawling $18-billion conglomerate of private label and branded consumer products struggling to drive growth across diverse businesses. A complete company transformation was needed. Today, after that transformation, Conagra Brands is an $8-billion “pure-play” branded consumer products company. After selling a private label business, spinning off a vertically integrated potato business, relocating headquarters, resetting the cost structure, acquiring a few on-trend brands, and realigning its operating model, Conagra is much more focused, with stronger growth-oriented capabilities, a nimble organization, and a culture that doesn’t settle for mediocrity.
Integral to this effort, PwC’s strategy consulting business, Strategy&, helped build this 21st-century marketplace force out of a 100-year-old company. Connolly called Strategy& “a massive accelerant” in orchestrating his plan. Meanwhile, there was no question amongst the Strategy& team that this was one of the fastest moving client projects they had seen at this scale, requiring a remarkable clarity of vision from the CEO.
In 2015, competitors were circling, looking for corporate takeover targets in the consumer packaged goods (CPG) sector. Omaha-based ConAgra Foods was a big but underperforming player. Though they had fallen behind, there was tremendous dormant value in their storied, highly recognizable brands.
Hired in April 2015 to refocus the company’s mission, Connolly found ConAgra Foods’ many internal processes outdated. They had all the bureaucracy of a big company but little of the leverage. Plain and simple, it was costing them way too much to do business. After an initial review, it was clear ConAgra Foods needed to reach fighting weight quickly to survive.
Video interview with Conagra Brands CEO
Connolly knew the only solution was a drastic one: The company had to be honed into a pure play in the CPG sector. It needed to be more responsive to the market. Driving effective change across the company would require a cultural leap. ConAgra Foods’s employees had to become more entrepreneurial, as if they worked for a much smaller company. Connolly called the new approach “The Conagra Way.”
“We didn’t talk about cost-cutting as an end in and of itself, but instead as the means to free up fuel that can drive profitable growth and stronger brands. That was fundamentally essential,” Connolly said.
Only months after Connolly arrived, JANA Partners LLC, an activist investor hedge fund, took a 7 percent stake in ConAgra Foods. They drew the same conclusions as Connolly and began lobbying for change. While the overhaul was already in motion, their extra push affirmed the board’s support for the scope of change.
ConAgra Foods, however, was a big ship to turn. Strategy& dove into the project with a large team divided between the company’s many assets and work streams. The Strategy& team integrated seamlessly with ConAgra Foods’ senior and middle managers. Connolly saw the help as part–dispassionate, objective evaluator and part–taskmaster.
“You couldn't really tell as you got into the trenches who was the outside third party, who were the Conagra people. We really operated as one team.”
“The program management expertise kept us organized and made sure that every single week we tackled the biggest issues,” Connolly said. “We had clear follow-ups and single-point accountability. That skill set was instrumental in making sure that we not only got the job done, but that we got it done with exceptional speed.”
An aggressive zero-based review of costs began. The operative question was, “Does this drive differentiation, or does it keep the lights on?” If a cost was ‘lights-on,’ then the question became, “How can this be made better?” For other costs, the company was going to challenge how much value they added.
Every aspect and every cost to the company went through an objective “parking lot exercise.” “We made every single department take all their costs, put them out in the parking lot, and then we invited those costs back in and they had to be justified,” Connolly explained.
Three intensive months later, answers were in hand. The organizational structure was simplified, eliminating suboptimal spans of control. Important judgements about priorities were made regarding what had to be best-in-class versus what simply needed to be competitive; in so doing, it was determined that some technology and back-office functions could be outsourced for significant savings. As a byproduct, scalability was improved.
During this transformation, ConAgra Foods dramatically changed its manufacturing footprint and workforce — not only through job cuts, but also through significant businesses being sold and spun off, as well as selective outsourcing. Despite many employees moving to new positions through sales and spin-offs, some jobs were still affected. Connolly was emphatic that affected employees be treated generously and fairly.
“That is the most gut-wrenching piece of all of this,” Connolly said, “But if you step back and look at the big picture, the best thing we can do for our employees is create a company that is fully competitive in the long-term, and you have to make the tough decisions in order to do that.”
There was also a realization that the company would benefit from moving offices. As many functions already were working out of suburban Chicago offices, a centralized move of headquarters staff downtown made sense. In light of The Conagra Way, having everyone under one roof would bolster the new culture, tearing down silos.
“Suddenly, we were all together and working in real time. In the new offices, we’d see each other in the hallway and get business done in five minutes, rather than on a conference call five days later. Everything was recharged.”
Marketing and sales talent were also in greater supply in Chicago, a hub in this sector. But Omaha remained key, retaining significant operations, production, R&D, and support facilities.
With PwC’s assistance in developing and executing the divestiture, a private label food business was sold off. And a successful Idaho-located potato manufacturing and processing business, Lamb Weston, was spun off because it wasn’t aligned with the pure-play mission. The spin provided shareholders tremendous value, as the Lamb Weston business thrived as a stand-alone company. In November 2016, the remaining company was then renamed Conagra Brands to reflect the core focus on consumer brands.
Connolly and Strategy& knew building and expanding Conagra Brands’ core capabilities was key to success. By paring back excess operations and processes, the company could redirect resources to strengthen its highest-priority CPG business. Particular attention was paid to trade promotion and integrated margin management.
Conagra Brands made healthy annual investments in promoting its products in stores. But the incentives system was decades old, and an update would reap huge performance improvements. Strategy& completed the implementation of SAP Trade Management — one of the most advanced tools available for consumer products sales — while at the same time building revenue growth management capabilities. The overhauled approach incentivizes stores to increase sales volume through more effective pricing and promotions. The changes in this process make the stores more money and make the substantial Conagra Brands expenditure dramatically more effective.
Conagra Brands is now building momentum with a streamlined strategy and more contemporary portfolio. More than $200 million in SG&A cost savings resulted from the program that Strategy& supported. An additional $100 million was released from trade optimization. And Conagra Brands now ranks in the top quartile of efficiency among its peer group. The transformation helped the company to generate significant Total Shareholder Return — over 40% between May 2015 and May 2017. Conagra Brands’ new processes have also already created a new, more innovative line of products for the upcoming year, and charged sales are expected.
Most importantly, less than two years from when they initiated this effort with Strategy&, Conagra Brands is now an entirely different company. They’ve reignited their culture to reflect an ownership mentality on all levels. Working with Strategy&, the thoughtful evaluations and reengineering from top to bottom have created a company much better positioned in a highly competitive industry.
* Total Shareholder Return (TSR) between May 2015 and May 2017