- Grocers began building up holiday inventory early this year, keeping Conagra's shipments elevated despite a slight come-down in August grocery sales, executives said on a Thursday earnings call.
- Demand exceeds capacity in several of Conagra's categories, said CEO Connolly, namely pantry, snacks and refrigerated and frozen products. Conagra's net sales were up 12% YoY in the quarter ending Aug. 30, with 245 basis points in YoY margin growth.
- Chief Financial Officer Dave Marberger expects shipments to be more in line with consumption going forward. The company expects slower 6% to 8% YoY net sales growth in the current quarter.
After an inventory roller coaster in the spring and summer, Conagra executives painted a picture of retailers taking no chances with stock levels in the upcoming holiday season — altering the usual cadence of shipments through the end of the year for grocery suppliers.
Some of the continued demand last quarter came from retailers building up non-perishable stock of holiday staples in the run-up to Thanksgiving, CEO Sean Connolly said, specifically referring to Birds Eye frozen vegetables. "The supply constraints that you’re seeing on Birds Eye are not just those that we’ve had in terms of our ability to manufacture, but it’s also some retailers prioritizing preserving holiday inventory above, call it, late summer inventory," he said.
Demand for frozen foods has been elevated since late March and is maintaining at a higher level of YoY growth than groceries on the whole. Frozen fruits, vegetables and animal proteins have shown the most dramatic dips in availability according to the IRI CPG Supply Index.
Birds Eye fell especially behind on production after Conagra closed the brand's Darien, Wisconsin, plant for nearly two weeks in April and May due to a COVID-19 outbreak. The company also temporarily closed its Marshall, Missouri, frozen meals plant for roughly the same period due to a virus outbreak.
The early build-up of grocery inventory at stores means September through November may lack the dramatic uptick in demand grocery suppliers usually see — offering some demand stability for the first time in a long time. But that doesn't mean supply chains can relax.
Connolly said supply is still catching up to demand at the production level with much variation by category. And despite the early holiday shipments, there are plenty of wildcards that could spike demand again.
"[Demand is] not by any stretch normalized yet," said Connolly. "We’re going into a season where all the outdoor dining is going to go away in a lot of parts of the country and cold and flu season is upon us. So it’s plausible that demand can even lift from here."
Balancing demand with supplier, co-packer and internal manufacturing capacity remains a daily practice for Conagra, Marberger said.
"We’re manufacturing full out at all our manufacturing locations and we’re really working closely with our suppliers to make sure we understand where they are with their lead times on ingredients and packaging and all the things that are critical for us to be able to make a finished product," Marberger said.