ConAgra's ill-fated price hike for Banquet dinners prompts creative cost-cutting and marketing moves
Gary M. Rodkin found out the hard way the perils of pushing up the price of a Banquet frozen dinner. When the chief executive of ConAgra Foods tried to recoup high commodity costs by hiking the list price of Banquet products in September, many retailers began charging up to $1.25 a meal. The response from shoppers used to pay $1? The cold shoulder.
A chastened Rodkin soon discovered why Banquet had become an $800 million brand for the $12 billion-a-year Omaha food company. "The key component for Banquet dinners--the key attribute--is you've got to be at $1," he says. "Everything else pales in comparison to that."
The resulting sales drop forced ConAgra to peddle excess dinners to discounters and contributed to a 40% drop in its stock price in 2008. It also prompted Rodkin, 56, to move ConAgra further into austerity mode. He expects to cut $250 million in costs this fiscal year, which ends in May and trim close to the same amount next year. Some of the savings will come from moves such as centralizing purchasing and shipping. But Rodkin is also pushing for creative ways to hold down costs in ConAgra's 37 brands, which include Chef Boyardee, Marie Callender's, Hunt's, and Healthy Choice.
Rodkin's priority: bringing the cost of Banquet dinners back to a buck. ConAgra first tossed out pricey items such as barbecued chicken and country-fried pork in favor of grilled meat patties and rice and beans. It also shrank portion sizes while swapping in cheaper ingredients, such as mashed potatoes for brownies. What Rodkin didn't sacrifice was variety, with close to 100 Banquet-branded products.
ConAgra has made other moves on the cheap. It's reducing the number of can sizes in lines such as Hunt's and Van Camp's to save on manufacturing costs. The company is cutting investment in mature brands such as Egg Beaters and Hebrew National to free up money for growing lines such as Orville Redenbacher's popcorn. It has innovated at low cost by adapting the packaging of the hit line Healthy Choice Cafe Steamers for Marie Callender's frozen meals. And it has increased the nutritional value of food products rarely hyped for health benefits, such as Chef Boyardee, by switching to "white whole wheat pasta"--at no extra expense. Andre Hawaux, who heads the consumer foods unit, says customers want better food, but they're not willing to pay more.
For Rodkin, who came from PepsiCo in 2005, managing ConAgra has been a rocky affair. Less than a year after he arrived, his Peter Pan line sickened hundreds of people with salmonella, leading to a massive recall. (Peter Pan is not implicated in the latest episode of tainted peanut butter.) Critics say he hasn't moved fast enough to ditch marginal brands such as Crunch 'n Munch, Andy Capp's fries, and Patio Mexican foods. Gimme Credit analyst B. Craig Hutson notes the stock has shrunk by a third under Rodkin, calling his performance "disappointing despite many promises of a turnaround."
At least customers are now responding to Rodkin's efforts to keep down the cost of Banquet dinners. Citigroup analyst David Driscoll says ConAgra is well-positioned now. "Where else can you find dinner for 99 cents?"
PHOTO (COLOR): Rodkin shrank portions and cut ingredient costs; now buyers are coming back
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By Joseph Weber
2. Read the article "Over a Buck for Dinner? Outrageous" (Business Week March 9, 2009, p. 57) and apply S&D analysis to answer the following questions.
a. The "sales drop" described in the third paragraph refers to a decrease in ____________________ (D/Qd). The "excess dinners" that ConAgra had to peddle to discounters (3rd paragraph) refers to a ______________________ (shortage / surplus).
b. Rodkin's "priority" described in the 4th paragraph is intended to shift which side of his market: S? or D? And which way: right? or left?
c. Boxed meals and canned soup are they normal goods, or inferior? Explain. When the economy expands, will it be a boost to the makers of these items or a drag?
