How A New Boss Got Conagra Cooking Again

Less than a year after taking over as chief executive officer of ConAgra Inc., Philip B. Fletcher faced a critical dilemma. To soothe anxious shareholders, directors had asked Fletcher's revered predecessor, Charles M. Harper, to stay on as chairman. But while investors were happy, a survey of managers revealed that executives at the Omaha-based food giant weren't sure who was in charge. Time for a showdown? Not exactly. Harper told his protege that the question of command at Con-Agra would soon be moot: "I'm going to be chairman and CEO of RJR Nabisco." Fletcher stared in disbelief. "I kept waiting for the punch line," he recalls.

Nowadays, there's little doubt about who's the boss at ConAgra. In the year since Harper left to run RJR, the 61-year-old Fletcher is applying a stricter regimen of top-down cost controls to ConAgra's 60-plus operating units, while forcing its independent fiefdoms to cooperate on everything from purchasing supplies to warehousing products. Fletcher is also reversing the slide in ConAgra's frozen-food unit with new recipes and stepped-up advertising for its Healthy Choice and Banquet brands. He's even talking of borrowing a page from Harper's expansionist strategy, using ConAgra's $800 million in annual cash flow for new acquisitions.

Fletcher's approach is producing results. In an era of declining brand loyalty, with food companies battling for consumers, ConAgra announced on July 6 that its earnings rose 12% in the fiscal year ended June 30, to $437 million. Sales rose 9%, to $23.5 billion. And since Jan. 1, ConAgra's share price has climbed 13%, to about 30, while the Standard & Poor's index of the top 14 food companies has dropped 4% (chart). Thanks to those returns, Fletcher is finally out of Harper's shadow. "He's been a stronger leader than I thought he would be," says former Agriculture Secretary Clayton K. Yeutter, a director since 1992.

A good thing, too. Fletcher reached the top just as ConAgra was sagging. Harper had spent his 18-year tenure as CEO transforming ConAgra from a sorry collection of flour mills into a consumer- goods powerhouse, using acquisitions such as the $1.3 billion purchase of Beatrice Co. in 1990. But he insisted that each unit remain independent and nimble enough to respond to competition and changing consumer tastes. That worked fine until high commodity prices stung ConAgra's meat-processing businesses, which account for almost a third of total sales. A vicious frozen-food price war added to the company's woes, squeezing margins. In fiscal 1993, ConAgra's operating profits were unchanged at $979 million on a paltry 1% revenue gain, to $22 billion.

After Harper's resignation in May, 1993, Fletcher stepped up his campaign to wring efficiencies from ConAgra's companies. A veteran of Heinz, Campbell Soup, and Heublein, Fletcher joined ConAgra as president of its Banquet Foods unit in 1982. As a front-line manager, he reveled in the company's loose, entrepreneurial culture. But as CEO, Fletcher saw the downside of ConAgra's organizational chart: poor communication and high costs. For example, ConAgra's two popcorn makers, Golden Valley and Orville Redenbacher, were buying plastic packaging from the same vendor. But Golden Valley was paying 15% more, while buying four times as much.

NETWORKS. Fletcher still wants ConAgra's operating units to remain independent. But he has also created executive councils where division heads meet periodically to discuss how they can pool their resources to reduce purchasing, warehousing, and transportation costs. He's also introducing a computerized network that shows how much suppliers charge each ConAgra unit. And to ensure that executives fully embrace ConAgra's new ethos of cooperation and efficiency, Fletcher has tied 25% of their bonuses directly to savings targets. He called the program "Get the Family Money" to encourage executives to act as a single family. Division heads saved $100 million in the fiscal year just ended. Fletcher hopes to do even better this year. Thanks in part to the tighter rein on costs, NatWest Securities Corp. analyst David Nelson estimates that ConAgra's operating margin could widen to 4.7% this year, compared with 3.9% in 1990.

Along with improved efficiencies, Fletcher is also restoring ConAgra's competitiveness in the freezer case. As the price war subsided earlier this year, the company scrambled to broaden its share of the frozen-entree market. Although it won't provide exact figures, ConAgra says it boosted frozen-food advertising by a third, including its first TV ads for Banquet in seven years. Company cooks also came up with tastier recipes. The result: Healthy Choice, Con-Agra's biggest brand, expanded its share of the frozen dinner market a full percentage point last year, to 12.5%, according to Information Resources Inc. In all, NatWest's Nelson estimates that ConAgra's frozen-food sales rose 2% in fiscal 1994, to $1.2 billion, after a 12% slide in 1993.

ConAgra also revamped the recipes of some of the dry and refrigerated goods that carry the Healthy Choice logo. A year ago, analysts felt the mega-brand Harper launched five years ago had peaked. But last year, the combined supermarket sales for the 200-odd Healthy Choice products rose 16%, to $889 million, estimates IRI.

GLOBAL LIGHTWEIGHT. Now that ConAgra has finally digested Beatrice, Fletcher is searching for new acquisitions. Con-Agra's long-term debt is down to less than 30% of its capital, from more than 40% just after the huge Beatrice deal. "Now, it's a matter of: Where is there a sizable piece that makes sense from an economic point of view?" Fletcher says.

He may find the answer abroad. Con-Agra remains a global lightweight. Just 10% of its sales come from overseas operations, vs. 63% for rival CPC International Inc. To build foreign sales, Fletcher has closed ConAgra International, the unit created by Harper to lead the company's push abroad through joint ventures. Instead, he's leaning on his individual companies, which best know their own businesses, to expand overseas.

To be sure, there's still work to be done at home. Hunt-Wesson sales will rise just 2% to 3% this year--on target for a grocery unit with mature brands such as Peter Pan peanut butter, but hardly exciting. And competitors aren't standing still. Campbell Soup Co., for one, has slowed Healthy Choice's new soup entries with its Healthy Request line.

Still, Fletcher hasn't given shareholders any reason to miss Harper. Even Harper acknowledges his successor's new stature. "He's making more money than I did with the company," says ConAgra's ex-chief. With all the problems he faces at RJR Nabisco these days, Harper may want to take a few pointers from his old protege.

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