Slim Jim lovers may want to stock up on their favorite snack while they can. Conagra Brands Inc., the maker of Slim Jim jerky and Hunts tomato sauce, anticipates raising prices on more of its food products in the coming months, despite acknowledging that the price increase is beginning to hurt demand, reports Bloomberg.
To compensate for higher costs, the company announced on July 15 that it would impose additional price increases over the next two quarters. As a result of inflation-driven price hikes, the Chicago-based manufacturer’s sales rose in the three months ended May 29, but volume dropped by 6.4%.
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Conagra is trying to maintain a delicate balance to preserve margins in the face of the highest U.S. inflation in four decades. Since rate increases have not kept pace with surging costs, the business anticipates further price hikes in the coming year will significantly impact consumer demand.
The company’s earnings declined in the quarter ended February 27 due to higher-than-expected costs. “The environment isn’t getting much easier in the near term,” Chief Executive Sean Connolly told Wall Street Journal in April.
Conagra said higher market prices for meat and dairy were affecting its frozen- and refrigerated-foods and snacks businesses. Due to shortages of drivers and trucks and higher fuel prices after Russia’s invasion of Ukraine, transporting food has become more expensive.
Another factor is the ongoing labor shortages, worsened by the spread of the Omicron coronavirus variant earlier this year. “There’s nothing normal about the current environment,” Chief Financial Officer David Marberger told WSJ. “I’ve been in [the] food [industry] a long time, and I’ve never seen anything like that.”
Despite Conagra’s decision to charge more in grocery stores, Connolly said the company’s revenue has remained strong. “It’s still a superior value relative to eating out,” he said. According to him, Conagra’s innovations and modernization of its brands make consumers want to pay more for its products. “We’re not seeing that in a lot of our competitors’ products,” he said.
Analysts and retailers say consumers are beginning to switch to store brands or alternative cheaper food options in order to cut back on grocery staples. Conagra, however, expects earnings per share to rise 1% to 5% this fiscal year compared with the previous one. According to Bloomberg’s average estimate, analysts expected 8% growth.
“We’d expect investors to ask the question whether this guidance is prudently conservative or if the company is less well able than a number of its peers to handle the current challenging industry dynamics,” Bloomberg reported Barclays analyst Andrew Lazar said in a note to clients. More than 1 billion Slim Jims are produced by Conagra a year, with about 569 million of the cylindrical meat sticks made annually in at least 21 varieties.