Conagra Foods Case

ConAgra Foods started out as an Agribusiness company expanding its operations in grain milling, animal-feed, poultry-processing, and pet-supply operations. However, with the economic slowdown and the past growth in volatile commodities industries, CEO and Chairman, Bruce Rohde, understood that there was a need for ConAgra to change focus and transform itself from an agribusiness giant into an integrated branded food company. The challenge Rohde faced was "taking ConAgra past the internal culture and public image of the agricultural commodities company to reposition it as a food industry leader" and becoming America's Favorite Food Company.

ConAgra became a major player across the food chain by initiating an acquisition program. They acquired several companies in the packaged food industry that were on the downturn in hopes that they could turn them around. ConAgra had made 280 acquisitions in over 25 years. By the early 1990s, ConAgra was composed of nearly 90 independent operating companies. Rohde's plan was to have corporate headquarters play a significant role in establishing and maintaining a "central strategic "plan. However, corporate involvement had slowly diminished and consequently some of the key issues that ConAgra faced were,

1. Lack of synergy among the Independent Operating Companies (IOCs)

2. Lack of Corporate influence

3. Organizational Structure (Fragmented)

The analysis of this case will identify key issues ConAgra face, suggest some strategic alternatives that might help solve ConAgra's problems and finally recommend a solution for the company to consider.

Key Issue #1: Lack of Synergy among IOCs

ConAgra had grown rapidly through acquisitions, but its decentralized structure of its Independent Operating Companies was becoming a problem for Rohde. The idea behind this was each company would avoid bureaucratic traps and develop an entrepreneurial spirit. However, the lack of synergy began to create silos among the independent operating companies and everyone started to develop the mindset of every man for himself. The lack of synergy caused the company to operate inefficiently, have slow growth in sales and a continued increase in cost of sales. ConAgra's gross margin remained flat at around 14.0% from 1997 to 2002.

1997 1998 1999 2000A 2001A 2002E

Sales 24,002 23,841 24,844 25,535 27,110 27,630

Cost of Sales 20,442 20,162 21,541 21,960 23,312 23,532

Gross Margin 14.8% 15.4% 13.3% 14.0% 14.0% 14.8%

Key Issue #2: Lack of Corporate Influence

ConAgra's original strategy was to have corporate headquarters play a significant role in maintaining a central strategy for all IOCs. Under the ConAgra umbrella, they would be individual companies yet focusing on a common goal or vision. Corporate failed to execute the plan effectively. Instead the individual companies created their own goals that they were working toward.

Key Issue #3: Organizational Structure (Fragmented)

ConAgra's organizational structure primarily was individual companies operating with different sets of goals. All aspects of their business operations were performed independently which lead to higher expenses, slow growth, and being inefficient in their operations. ConAgra's success will depend on how well they can execute and implement "Operations Overdrive". Operations Overdrive was the "company's major strategic thrust to spur top line growth and reduce expenses to power premium earnings growth". ConAgra needs to realign their decentralized business structure in a way that will allow the company to leverage the strengths of each business, while simplifying their structure.

Strategic Alternatives

In the analysis of ConAgra Foods, there are several strategic alternatives to resolving the underlying problems of the company.

Strategic Alternative #1 - Vertical Integration

As the U.S. food industry becomes more and more consumer driven, the idea of vertical integration becomes increasingly important for ConAgra because it allows both the farmer business and food manufacturing business to manage and customize their production according to market needs.

With synergy ConAgra's IOCs can achieve more as a group than its parts could individually. Approximately 80 percent of ConAgra's revenues were derived from its retail and foodservice businesses. Responsible for the remaining 20 percent of sales were the company's agricultural products businesses, which are involved in the manufacturing and distribution of food ingredients, seeds, crop protection chemicals, and fertilizers, as well as in worldwide trading of bulk agricultural commodities.

Pros Cons

ConAgra can benefit by developing specialty products and selling them through their own retail outlets Product development and retail are distinct businesses and doing both can take a lot more