'Our frozen business stands to benefit the most': Conagra Brands CEO

In this article:

Conagra Brands CEO Sean Connolly joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss how the coronavirus is impacting Conagra Brands and food supply chains.

Video Transcript

BRIAN SOZZI: I want to get right to Conagra brand's CEO, Sean Connolly. Sean, good to speak with you again here. In full and fair disclosure, about two weeks ago, I bought my first can of Chef Boyardee. It had to be over 15 years.

I imagine you're seeing that play out across the food space right now as people eat from home. But how sustainable is that? I have to be honest with you. I don't know if I would buy a can of Chef Boyardee at this point next year, but maybe I would.

SEAN CONNOLLY: Well, first of all, thank you for your purchase. I hope you enjoyed it. You definitely got a lot of protein in that lunch. But I think it depends upon the product category.

One of the categories that I actually believe stands to benefit the most is our frozen business because frozen meals have been completely overhauled by Conagra over the last five years. The product quality today is significantly higher than people will remember. So as people are sheltering in place, and eating at home-- breakfast, lunch, dinner, snacking-- as they experience products that have been overhauled so materially, like our frozen portfolio, based on previous experience, a lot of that should convert to repeat. And they should really enjoy the eating experience that they have.

ALEXIS CHRISTOFOROUS: Hey, Sean. I think you're right on that one. When I go to the market, the frozen food section-- right after I go to the paper section and see it's been wiped out, it's the frozen food section. Also because that stuff just holds up in our freezer if we're going to be sheltering in place for a while.

But I want to talk to you about what's happening with some other food companies and see if you're experiencing something similar. We heard, a couple of weeks ago, Tyson had to shut some plants because employees were becoming infected. Smithfield-- yesterday, saying the same thing. Are you experiencing that with your workforce? Have you had to shut down any plants? Do you plan to?

SEAN CONNOLLY: Well, first of all, it goes without saying that we take the health and safety of our employees-- as well as our communities-- very seriously. And we have stepped up our health and safety and cleanliness processes substantially, and that means beyond minimum FDA and CDC regulations and guidelines. So that includes social distancing within our plants, which-- we're not a meat company, so we don't have those kinds of situations.

We are able to implement social distancing. We did ratchet up our sanitation processes beyond normal processes. We are implementing a number of new procedures that encompass everything from hand washing, facility entry and exit procedures, how we handle deliveries from third parties, on and on and on.

That said, it doesn't mean that we are immune to this very contagious virus. Obviously, we are not. We have had a small number of employees test positive. We are able to quickly make sure we get those folks into quarantine. Anybody that they've been around can be put into quarantine. So we've had a small number.

And we have had one of our smaller facilities in Milwaukee where we've had two employees test positive for COVID-19. In that particular instance, we temporarily suspended operations for a few days. We have not had that situation elsewhere. So it's been manageable.

One of the things I will point out that's different about Conagra brands than some manufacturing companies is we don't operate just a small number of extremely large facilities that make all of our products. We actually have a fairly diversified network that includes many smaller facilities, none of which dominates a large part of our company. So in a way, that type of structure is more inherently hedged than having a few larger facilities.

That said, our attitude is, there's no room for complacency here. We need belt and suspenders, and that's what we're doing. And so far, we've been able to put up some pretty strong performance keeping up with this unprecedented demand.

HEIDI CHUNG: Hi, Sean. It's Heidi Chung here. I'm very curious to know what this means for your product innovation, just up until this breakout-- or outbreak, I should say. I know that, for instance, Gardein was really ramping things up to go head-to-head with the likes of Beyond Meat and Impossible Foods. But with everything that's going on, does that just put a wrench in all of those plans that you've had for this year?

SEAN CONNOLLY: Well, that's a great question. And the way I would encourage you to think about it is we have a tremendous amount of very new innovation that's in the marketplace right now-- stuff that we launched late last year, stuff that we launched early this year, certainly a lot of new things from Gardein and other brands. So consumers these days are experiencing not only our legacy products, like Brian and his Chef Boyardee, but also a lot of new products that have been introduced to the marketplace very recently.

Gardein is one of those businesses. It's a fairly new brand, overall. And the sales growth has just accelerated and accelerated. And these days, it's through the roof.

But with respect to next year's slate of innovation, it probably will come into the marketplace later. And the reason for that is because our sole focus right now is on keeping items in stock. It's all about unit volume right now and making sure that we are living up to our overarching purpose, which is to keep people fed, nourished, and comforted. And that means we need to maximize volume.

So we, other manufacturers, and retailers are very aligned in maximizing unit volume. That means fewer items, less variety at the store, longer manufacturing runs of the high-velocity movers, because it enables us to produce more. And therefore, we have fewer out-of-stocks and more people get fed.

So that's for now. But I'm very encouraged by the innovation pipeline that we have cued up, whether it's this summer or at the end of the summer, because it's probably the best innovation pipeline we've had yet. And we know consumers are going to love it.

BRIAN SOZZI: Sean, you're fresh off your earnings report. And you put up a pretty shocking graphic on your site. You noted, for the four weeks ended March 22, your retail sales were up 47.4%. I've never seen growth rates like that before for Conagra-- or, more broadly, in the food industry. Has that rate of growth continued into April?

SEAN CONNOLLY: So what we saw was, right around mid-March, the consumption just skyrocketed. And in some cases, it went over 100%. And what was happening there is you had consumers really starting to realize this was going to be a protracted situation and stocking their pantries, their freezers, and their refrigerators. So it has come down off that peak a bit.

Last week, we met with investors. So we published an AK with one week of scanner data. And I think that was through March 29. And our consumption was up over 30% that week, so not the peak we saw when it first broke, but still very significant gaudy consumption numbers. And I think one of the differences between what we're experiencing now and what we experienced early on is a lot of the early-on numbers were stock-up behavior.

But now you've had most of the country sheltering in place for weeks. And they've eaten, basically, all of their meals at home. So they're working down that inventory. And I think a lot of the consumption strength we see now is just a just-in-time replenishment of that inventory. So it has remained strong through the end of March. And I think I think it will remain elevated until people start leaving their home, because that's where all of these incremental eatings have come from, is really the shift in eating away from home which, in the United States, has historically been about 50% of dollars spent to, basically, almost 100% of eatings occurring at home.

BRIAN SOZZI: All right, let's leave it there. Conagra brand's CO, Sean Connolly-- always good to speak with you. And you definitely sold me on going out there and buying another kind of Chef Boyardee.

SEAN CONNOLLY: All right, thanks, Brian.

BRIAN SOZZI: All right, thanks, Sean.

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