It looks like the packaged food industry is going through an interesting phase. As people are becoming increasingly health conscious, the demand for natural and organic food is increasing. Hence, consumers are moving away from packaged food products. Though this change in preferences paves the way for a great opportunity for the packaged food providers, many of them are unable to cash in on it.

For example, ConAgra Foods (NYSE:CAG) is one of those food players that is finding it difficult to attract customers and maintain volumes. Its recently posted quarterly results that were below the Street's expectations, leading to a decline in its stock price.

The miss
Driven by the benefits of the Ralcorp acquisition, ConAgra's revenue grew 27% over last year to $4.2 billion. However, this was below analysts' estimates of $4.29 billion. Adjusted earnings per share for the quarter were $0.37 per share, a 16% decline over the last year . This drop in earnings was mainly due to higher costs incurred by the company.

The lackluster performance of the Consumer Foods segment was mainly due to lower volumes as consumers shifted to organic options available in the market. Moreover, the increase in product prices was also one of the reasons why fewer customers were willing to buy ConAgra's products.

However,General Mills (NYSE:GIS) was able to post a decent quarter with a revenue increase of 8% and earnings jump of 6% to $0.70 per share. The numbers met the Street's expectations as the company benefited from its acquisitions of Yoki Alimentos and Yoplait International last year.

General Mills did not stick to its regular offerings and expanded its product portfolio to add organic food. Its Greek yogurts attracted health-conscious customers, driving revenue higher. Also, Pillsbury gluten-free refrigerated dough products added to the increase in sales. General Mills plans to strengthen its marketing efforts in order to sell more of its Greek yogurts, as well as its cereals.

Stock price comparison
Hence, General Mills benefited from the shift in tastes and preferences of customers, since it expanded its offerings at the right time, while ConAgra's focus on packaged foods could not attract many customers. These companies' stock prices reflect their performance. A comparison of ConAgra's stock price against those of General Mills and the natural and organic food company Annie's (NYSE:BNNY) is shown in the chart below:

CAG Chart

CAG data by YCharts

Clearly, Annie's has performed very well with a 45.9% return to its investors since the beginning of the year. Its focus on providing products that are made of natural and organic ingredients attracted customers to Annie's products.

Annie's recent quarter was a great one, too. Driven by increased sales of snacks for the period, revenue was up 13.8% to $39 million over last year's quarter. Its adjusted earnings surged 5% to $0.13 per share. The company's good performance enabled it to reaffirm its guidance for the year, and it is expecting a top line increase of 18% to 20% and bottom line growth of 21% to 26%. Annie's future looks even better with its launch of frozen products, which will drive revenue even higher.

On the other hand, ConAgra has yielded the lowest return of 2% to its investors during the same period. General Mills has been able to sustain mainly because of its new products, which cater to health-conscious customers.

What next
Though ConAgra's quarter was a lackluster one, the company plans to work on its pricing and promotional strategies for its branded products, which might give a boost to its consumer segment's sales. The food retailer has already started to spend more to market its Pam cooking spray.

On the other hand, it sold its Lightlife brand this month to a private-equity firm. Lightlife provided meat alternatives such as soy-based hotdogs, hamburger, etc. The company believes that it cannot focus on that segment. Hence, it decided to divest the business.

Final thoughts
The divestiture will affect the retailer's revenue, and increasing promotional activities will increase its costs further. Moreover, the company has lowered its outlook for the year. ConAgra is unable to manage its costs efficiently and is unable to attract customers to its packaged foods. Its underperformance has been affecting its stock price as investors are losing interest in the food retailer. The company will face greater problems if it does not expand its offerings as per customer tastes and preferences. I believe investing in this company will not be rewarding at this moment.

Pratik Thacker has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.