The head of Conagra Brands on Thursday revealed a “likely temporary” behavioral shift the company has observed from grocery shoppers in recent months.
During Conagra’s fourth-quarter earnings call, CEO Sean Connolly noted that some consumers were “hunkering down” and “buying fewer items overall,” a move they had done rather than engaging in “trading down” to a less-expensive brand. He did so while he described some headwinds that the food giant expected for the beginning of its fiscal 2024 year.
“Food companies are starting to wrap pricing in the year-ago period, and dollar sales are coming down as expected, but the rate of improvement in volume recovery is lagging. That suggests new consumer behavior shifts beyond the initial elasticity effects that occurred when pricing actions were initially taken,” he told analysts and investors. “We have seen this dynamic since just after Easter, and it has been broad-based across many categories and competitors.”
Connolly pointed to consumers trying to make their overall financial budgets go further as a likely driver of the “hunkering down” behavior.
In June, the price of food overall as measured by the Consumer Price Index experienced a 0.1% increase from May and a 5.7% one over the past 12 months. For food at home, inflation stayed the same month-over-month but has gone up 4.7% year-over-year, according to the Bureau of Labor Statistics.
The summer “being more travel-intensive” than 2022’s was one potential explanation that the Conagra CEO mentioned on the call for the consumer behavior shift.
Two summer holiday weekends, Memorial Day and Fourth of July, were projected by AAA to see huge numbers of people traveling, with the organization estimating over 45 million for the former and about 50.7 million for the latter.
“Overall, we view this dynamic as a likely temporary behavior shift for consumers to stretch their budgets, but we have captured it as a near-term headwind in our outlook,” Connolly went on to say.
He noted later in the call that people hadn’t reduced how much they were eating.
Another “very limited” headwind the company identified was some “single ingredient” brands experiencing deflation, requiring price adjustments, according to Connolly. He said comparatively lower pension income and contributions from joint venture Ardent Mills will also pose a headwind for the year.
For fiscal year 2024, Conagra Brands projected that organic net sales would see an approximately 1% increase year-over-year. Earnings per share will land somewhere in the $2.70-2.75 range, it also predicted.
Conagra Brands expects fiscal 2024 to mark a “transition toward a more normalized operating environment,” Connolly told analysts and investors.
The Chicago-based food giant reported an over 2% year-over-year jump in net sales for the fourth quarter, reaching $2.97 billion. Its quarterly net income, meanwhile, was $37.5 million, a decline from the $158.9 million it reported in the same period last year.
Brands in Conagra’s large portfolio include Marie Callendar’s, Swiss Miss, Orville Redenbacher’s, Slim Jim, Healthy Choice and Gardein.