US – Conagra Brands, a US-based packaged foods company, is feeling the pinch of the recent inflation levels in the US and has warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated.
The U.S. is currently facing what financial experts refer to as a “transition inflation” that has seen consumer prices increase by the most percentage in 13 years.
According to Reuters, COVID-19 vaccinations, low-interest rates, and nearly US$6 trillion in government relief since the pandemic started last year are fueling demand for everything from cars to restaurant meals, straining the supply chain, creating labor shortages, and rising prices across the economy.
With inflation reaching its peak in June, Conagra has seen costs of edible fats and oils, proteins, packaging, and transportation rise, making the cost of production to be higher than earlier anticipated.
The company however revealed that a price-sensitive consumer made it difficult for the company to immediately transfer the increased cost of production.
“First, you don’t generally get a customer to accept inflation-justified pricing until they’re confident it’s not transitory inflation,” said Sean M. Connolly, Conagra Brand president and chief executive officer.
“So, it’s not the day it shows up. It’s after it’s clearly established. Once that happens, it’s around 90 days before you see the impact in the P&L.”
This means that Conagra will have to absorb most of the costs, eating into the company’s profits.
The company now expects adjusted operating margins to be about 16% for its fiscal year ending May 2022, compared with the 18% to 19% it expected earlier.
Other companies such as Unilever, General Mills have already been updating upwards their prices in reflection of the current inflation rate in the US.
PepsiCo also in its second-quarter financial release also noted that it would be updating its prices upwards in line with the rising inflation costs that have affected the cost of key raw materials for its products.
Despite the inflationary pressures, Mr. Connolly said Conagra Brands sees an opportunity ahead in fiscal 2022.
“We have a unique opportunity in fiscal ’22 to leverage our current momentum and maximize long-term value-creation potential,” he said.
“We plan to continue making investments in the physical and mental availability for our products to sustain the greater consumer engagement experienced during the pandemic.”
Some of the investments Conagra plans include building additional capacity to fulfill consumer demand making further strategic e-commerce investments and thoughtful marketing campaigns.
Conagra also plans to introduce new products including Hungry Man Double Chicken Bowls, Birds Eye Sheet Pan Meals, Marie Callender’s chicken pot pies with a cauliflower crust, Gardein plant-based chili, and P.F. Chang’s salad dressings and cooking sauces.
“We’re confident that the investments we’re making in product innovations across our portfolio will produce strong ROIs,” Mr. Connolly said.
“Ultimately, long-term brand health is dependent on the type of perpetual modernization that we’re committed to here at Conagra.”
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