ConAgra-Ralcorp deal speaks volumes

The brand-name food company buys the private label maker because it must -- the trend is too powerful not to.

By Jim Cramer Nov 28, 2012 10:10AM

TheStreet LOGO

Katrina Wittkamp Lifesize Getty ImagesSome decisions, some transactions say more about the U.S. economy than all of the Labor Department, Commerce Department and Agriculture Department combined. The decision by ConAgra (CAG) to buy Ralcorp (RAH) for $5 billion is one of those decisions.


ConAgra is a pretty good food company with lots of different household brands cobbled together over time that take advantage of an excellent supply chain and good relations with both supermarkets and restaurants -- read: McDonald's (MCD) -- alike. Its brands are known to you: Healthy Choice, Orville Redenbacher, Slim Jim, Hebrew National, Marie Callendar, Hunts, Wesson, Swiss Miss, Pam, Chef Boyardee. They are brands that were in your mom's cabinets, and they will be brands that are going to be in your kids' cabinets.


But something happened to brands in the Great Recession. Many of them have lost their cachet -- in part because the makers of the brands have taken price up year after year after year to please stockholders and in part because the big supermarket chains haven't been able to make as much selling them as they once did.


The combination of the endless jacking up of selling prices, and the smaller profit margins for the stores that sell them has led to a situation in which the consumer feels pinched and the supermarket feels priced out.


Enter private label.


At one point, private label came in black and white cans. The supermarkets tried to adopt the equivalent of the pipe and rack outlet store for a Filene's or a Loehmann's or maybe a Marshall's. The idea was to say, "Look at me, I am cheaper than the other stuff. Buy me."


Instead it had another connotation when it came to the register, "Look at me, I am out of work, and I am struggling." Further, when it came home, your family said, "This doesn't taste as good as the brands, but you get what you pay for."


Along the way, though, we got an evolution of thinking. First, the shopping club concept emerged, Costco (COST) being the prime example. The company, which announced a $7 special dividend Wednesday, has been at the vanguard of providing a private-label brand that is no longer questioned as being inferior to the branded product. In fact, I am sure that, judging by how few people balked at paying higher club member prices, the Kirkland brand might be considered superior to the big-time branded products. Plus, they are more lucrative to the store itself because the gross margins are gigantic vs. the heavily advertised packaged good product.

Then came a recognition that if the store bought product that just looked more like the heavily promoted product, a la Perrigo, in the drug store, it would become more popular given its reduced price tag.


The final evolution? Supermarkets now try to outdo the branded product in packaging not just price. When you get to the checkout counter, you now look smarter than the other guy, and very few believe there is a compromise in terms of quality.


Given a world where 47 million of the people in this country are on food stamps, up dramatically from just a few years ago, a world where value-buying is now considered a necessity for many and clever by everyone else, having a private-label brand has become the most important way to grow your company if you are still in the consumer packaged goods business.


ConAgra's new hybrid model addresses this new world head on. You have some branded in the categories you are certain can't be knocked off easily. And you have superior quality private label in places as widespread as Wal-Mart (WMT), the dollar stores, Costco and Trader Joe's, because the gulf in this country between rich and poor demands it for survival's stake.


So ConAgra buys Ralcorp because it must buy Ralcorp. The trend's too powerful not to. Because the world we live in is more of a Tale of Two Cities than we realize, and both cities are fed up with paying more for the same exact product simply for well-known labels. It's an irreversible pattern and CEO Gary Rodkin, perhaps the most perceptive of the branded execs, knows all too well that you capitalize on it or you eventually fade away.


Jim Cramer face


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.   



More from

Nov 28, 2012 5:12PM
Thanks for suggesting nap.....Think I will....No drinky until maybe later??
Nov 28, 2012 5:11PM

Hate to mention it but last time I looked we had a 200+ pt. SWING on the DOW,not too shabby..


Down here in the Pits, we got the call to accelerate the buying at appx. 10:00 hour...

We put the pedal to the metal and never looked....back.

We ran over 7-10 scumbags running for the doors....

All the Manipulators were hiding in the Women's bathroom...

Barack called us brave souls on the "big speakerphone", saying thanks guys..Job well done..

We hung out the banner "MISSION ACCOMPLISHED"..

More later...

Nov 28, 2012 4:46PM

WHAT  did we see at noon...GQ ranked Romney, #1 "unfavorable person" in the U.S.   ???

something like that


Well Gollllllie gee whiz...

And he's getting invited to Lunch at the Casa Blanco...

What the hell for, to punch him the face.....Or rub his nose on the wall..??

Nov 28, 2012 2:51PM
"Rice went to Capitol Hill Wednesday for a second consecutive day of meetings with skeptical GOP senators, meeting on with Susan Collins of Maine and Bob Corker of Tennessee, who is slated to become the ranking Republican on the Senate Foreign Relations Committee and would have a key role in the confirmation hearing for a secretary of state nominee."

Corker is being a pain in the butt because he can't deal with a woman in a power role. The witch in Maine is a pain because she doesn't have enough name recognition yet. the nation suffers and GOP just keep playing games.
Nov 28, 2012 2:06PM
 I notice entire Asian families are starting to work at the local Wal mart..$9 an hour times 6 equals $54 an hour household income. Not too shabby! Kind of like a convenience store with a white owner but at least Mom gets to be the floor supervisor. AND everybody qualifies for food stamps!
Nov 28, 2012 2:02PM
Who is more looked down on by the GOP? The unemployed or a part time Wal Mart worker. Both are living in poverty and sucking on the govt dole

Nov 28, 2012 1:56PM
 Do not most people get food stamps because companies like Wal Mart pay poverty level wages? How is that their fault-- or Obama's.----- Besides not being able to afford an education either
Nov 28, 2012 1:46PM

Classic Lady

Ya Obama met with McCain after the previous election as well, very tense meeting, accomplished nothing.  I expect the same here.

Nov 28, 2012 1:36PM


Bush and Robme are no longer relevant.  Obama will have had 8 years, blaming Bush no longer matters.  Robme is now a nobody, well a rich nobody.

Nov 28, 2012 1:32PM

Obama this and Obama that...Looks like ya'll gave up on Bush and Robme...

What happened to those guys??

Nov 28, 2012 1:31PM
To add to what SteveG says .....not cooking your own food and eating pre-packed stuff is also extremely detrimental to your health ....thus kids who grow up eating this stuff will be obese and diabetic and probably unable to work past 40 ........also when they figure out a way to manufacture this "food" in China for half the cost they will .......just pay off enough of the crooked politicians to change the law and make it legal and you will be eating 10 year old frozen food from the 3rd world in a few years.

Remember also big pharma does not really wants to cure you just wants to get you to a point where you HAVE to consume their products over a long period - don't die but don't get better either.

Not sure where it will all end ....probably with much smaller countries/communities around the world.

Nov 28, 2012 1:29PM

Buy Dawn dish soap.....That's all I'm gonna say about dat.


They are very Eco-conscience.....I like dat.

Nov 28, 2012 1:24PM

CL. Obama owns what lock stock and barrel ? Polls show the public will overwhelmingly blame the GOP if we go over the cliff and Middle Class taxes go up. That would not bode well for 2014. You can no longer hate Obama out of office, 2016 will not be about him
 And my neighbor can blame Cantor and Ryan for his defense contract layoff. Cantor INSISTED on automatic cuts as part of the debt ceiling deal of 2011 and so here we are-- or rather my neighbor is
Nov 28, 2012 1:24PM
CLASSIC......You been running from the Law?....Hard to track you on those Library computers.
Nov 28, 2012 1:17PM

If you wash your dishes down at the river, you can save a lot; The sand is good for the grit and plenty of water to rinse them with....Sun and air dried saves on the auto dishwasher and electric.


5PM....Working in the paper biz  about 50 years ago..TP has change a lot, smaller and narrower rolls, think the cores have gotten larger ??

Sheet amounts have changed....And the layers in the paper are thinner...Much thinner.

And now we can buy 80 paks..Seems like we get more when we don't, and 3,000 brands.

Guess it beats the shidt out of Sear's Catalogues....Or it wipes it out..?



Nov 28, 2012 1:16PM

 On the revenue side, simply ELIMINATE any and all deductions taken by the Upper Class, maybe even the deductions for self and dependents. If that isn't enough, raise the Capital gains tax back up to the level it was under the Boom Years of the Clinton Era-- 28%
Nov 28, 2012 1:16PM
A 120 point swing on a game of "hot potato". Repubs tossed it to the Dems. Around and around it goes where it blows nobody knows.
Nov 28, 2012 1:12PM



He owns half of it.  Congress owns the other half.  Let's see if they can strike a deal... the suspense is killing me.

Nov 28, 2012 1:10PM

 My compromise on Medicare?? A damned MEANS TEST for starts so that the taxpayer is not paying for Warren Buffet's prostate cancer treatment
 And if you want to notch up the eligibility age a year or two over 20 years , fine by me
Increase the payroll deduction by 10%
 Problem solved
Nov 28, 2012 1:05PM

Slow down Tumbles....I can't keep up with you...


Think "Great Value" is Walmart's brand.....Sneaky huh?  And "Catchy" too.

We(she) buy all our pet food there...And sometimes a couple "loss leaders."

Including my Twinkies....Well, guess I'm fugged there?  Damn Walmart.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
266 rated 2
485 rated 3
660 rated 4
586 rated 5
652 rated 6
640 rated 7
504 rated 8
289 rated 9
159 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.