"We expect inflation to be higher than originally forecasted, but we also see continued strength in consumer demand, even above our original expectations," said Conagra Brands president and CEO Sean Connolly on the company's Q1 2022 earnings call last week.
The company expects gross inflation to be about 11% for FY2022, compared to its previous estimate of 9% at the end of FY2021.
"The bulk of the incremental inflation can be attributed to continued increases in the cost of proteins, edible fats and oils, grains, and steel cans since our Q4 call," said Connolly.
'Our pricing actions are not a blunt instrument'
Conagra started to take pricing actions across all three of its main retail segments (snacks, essentials, and frozen) in Q4 2021. However, those pricing actions have only just begun to hit the market, according to Connolly, who said that future price increases are not off the table.
"Given the heightened inflationary environment, however, we now expect to take incremental actions beyond those original plans. Many of these actions have already been communicated to our customers, and the benefits will be weighted toward the second-half of the fiscal year," said Connolly.
"It's important that we stress that our pricing actions are not a blunt instrument. We take a fact-based approach to pricing within the portfolio. We use a data-driven approach to elasticity, and thoughtfully execute actions to align with customer windows," he said.
Increased and sustained consumer demand
Despite increased prices of many of its products, Connolly said that the company's pricing actions to date have had little impact on consumer purchasing behavior and that in fact, it is experiencing elevated demand.
Connolly noted how the company's brand investments across its portfolio of snacks, baking mixes, and frozen food have jumpstarted consumer demand in the past quarter and unlocked future growth as Conagra continues its brand-building activities.
While net sales fell slightly (-1%) in Q1 2022 compared to Q4 2021, on a two-year basis net sales were up 5.3%.
Household penetration was slightly increased (0.7%) in Q1 2022 compared to the same period two years prior, while repeat purchase rates were up 2.8% on a two-year basis.
Its snacks business - which includes well-known brands such as Slim Jim, Duke's, Angie's BOOMCHICKAPOP, and ACT II popcorn - has registered nearly 10% since Q1 2020, followed by its frozen business (+8.7%), and staples (+3.3%).
"Another enduring trend is the growth of snacking, which has long been the fastest growing occasion in food and shows no signs of slowing down. We have a very strong $2bn ready to eat snacks business that spans multiple subcategories, where we either have the fastest growing brand, the largest brand, or both," said Connolly.
At-home eating, here to stay
Conagra expects this steady growth to continue, driven by a shift to at-home eating, which the company expects will persist into the future.
"The COVID-19 pandemic has only served to accelerate these existing trends and create additional long-term growth drivers. One of the primary drivers for more at-home eating is the shifting workplace dynamics that are meaningfully changing weekday eating behavior," added Connolly, noting that the rise of remote work has become permanent for many US adults.
"As we move beyond the pandemic... we believe that our brands are well positioned to become an even more regular part of their routines."
