ConAgra Foods Inc. makes some of the best-known packaged food brands around, including Chef Boyardee, Hebrew National, Hunt's, Orville Redenbacher's, Reddi-wip and Slim Jim.
But these days, there is a big trend is toward private grocery store labels, such as Safeway's Open Nature line and Albertson's eponymous products.
ConAgra plans to pay $6.8 billion to get further into that market. It's buying Ralcorp Holdings Inc., the largest producer of foods sold under private labels. Ralcorp produces cereals, snacks, cookies, spreads, syrups, frozen baked goods and other items sold under grocery, drugstore and restaurant names.
ConAgra will give Ralcorp stakeholders $90 a share in cash, a 28.2% premium over the Monday closing price. The deal, which includes debt assumption, cleared both companies' boards unanimously.
Together, the businesses are projected to bring in $18 billion in sales annually — $4.5 billion from private labels — while supporting 36,000 employees.
On Tuesday, Omaha-based ConAgra increased $1.34, or 4.7%, to $29.63 a share, and St. Louis-based Ralcorp soared $18.57, or 26.4%, to $88.80 a share.
Some 98% of American households use private-label products on a regular basis, according to research firm NPD Group. Such goods made up 29% of food and beverages consumed in the country in the year ended February 2012, up from 20% a decade earlier.
Sales of in-store branded consumables grew 5% each year from 2007 to 2011, compared with less than 1% for national brands, according to Ralcorp.
Private brands don't come burdened with the advertising costs carried by most national brands, though they are often being produced and distributed on a similar scale. Retailers are increasingly turning to such products for their attractive profit margins, while customers flock to them for their affordability.