ConAgra Foods makes some of the best-known packaged food brands around, including Chef Boyardee, Hebrew National, Orville Redenbacher’s and Slim Jim.
But these days, the money is in private grocery store labels. With its $6.8 billion purchase of Ralcorp Holdings, the largest producer of foods under in-store brands, ConAgra is making a play to dominate the growing market.
ConAgra will give Ralcorp stakeholders $90 per share in cash, a 28.2 percent premium on the closing price on Monday. The $5 billion deal, which with debt assumption is valued at $6.8 billion, cleared both companies’ boards unanimously.
Together, the businesses will bring in $18 billion in sales annually – $4.5 billion from private labels.
Ralcorp’s strength is in producing cereals, snacks, cookies, spreads, syrups and other items sold under grocery, drugstore and restaurant labels. With ConAgra’s existing $950 million private-label business, the unified entity will become the largest maker of in-store branded foods on the continent.
Some 98 percent of American households use private label products on a regular basis, according to research firm NPD Group.
Sales of in-store branded consumables grew 5 percent each year between 2007 and 2011, compared with less than 1 percent for national brands, according to Ralcorp.
Retailers are increasingly turning to private brands because of their attractive profit margins, while customers like their affordability.