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.
Some 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.
- Also see: Morning market stir
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 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 TheStreet.com
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"..
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..??
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.
Ya Obama met with McCain after the previous election as well, very tense meeting, accomplished nothing. I expect the same here.
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.
Obama this and Obama that...Looks like ya'll gave up on Bush and Robme...
What happened to those guys??
Buy Dawn dish soap.....That's all I'm gonna say about dat.
They are very Eco-conscience.....I like dat.
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
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..?
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%
>>>HE OWNS IT,,,LOCK, STOCK, AND BARREL. <<<
He owns half of it. Congress owns the other half. Let's see if they can strike a deal... the suspense is killing me.
My compromise on Medicare?? A damned MEANS TEST for starts so that the taxpayer is not paying for Warren Buffet's prostate cancer treatment
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.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
VIDEO ON MSN MONEY
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.