Campbell seeks boost for beverage business
August 26, 2013
by Eric Schroeder
When Denise Morrison was named chief executive officer of The Campbell Soup Co. in June 2011, she identified three growth strategies she planned to pursue to build a global food company with superior consumer brand value.
First, the company needed to stabilize and then profitably grow North America soup and simple meals. The initiative has been achieved through improved execution and optimization of all drivers of demand. In a July 24 presentation as part of the company’s annual analyst meeting Ms. Morrison said fiscal 2013 is expected to be the first year in almost a decade in which Campbell has held its share in the U.S. soup business.
Second, Ms. Morrison said greater focus would be directed toward expanding the Camden, N.J.-based company’s international presence. This, too, has been achieved during the past few years. In early August, Campbell completed its acquisition of Kelsen Group A/S, a Danish producer of baked snacks, including the Kjeldsens and Royal Dansk brands.
But it is the third prong of the three-part strategy that has posed the most challenges for Campbell: driving growth in healthy beverages and baked snacks. Specifically, Campbell has struggled with its beverages business.
“In our U.S. Beverage business, we faced some challenges,” Ms. Morrison said during the analyst meeting. “Shelf stable juice is a large and important category in which we continue to see great potential. It remains a top 10 category in units and dollars. It is 90% household penetration. But in recent years, shelf stable juice has faced intensified competition from a proliferation of specialty beverages, including the dynamic growth of packaged fresh juices, both in the perimeter of the grocery store and in away-from-home channels.”
Ms. Morrison said consumers now have an abundance of beverage choices in addition to shelf stable products in the center store, and although Campbell has held its market share, she is disappointed with the performance of the beverage business, but stressed she is “not resigned to it.”
Strengthening the beverage business stands as one of Campbell’s top priorities in the next year, Ms. Morrison said. The company plans to bank on the credibility of the V8 brand to help lead the way.
“(V8) has matchless health and wellness credentials rooted in vegetable nutrition with great taste,” she said. “But we must put greater focus on improved execution against all the drivers of demand, and we will. We will strike the right balance between advertising, promotion and pricing. We will aggressively manage cost to strengthen our margins. We will accelerate consumer-focused innovation.
“For example, with the upcoming launch of V8 V-Fusion Refreshers, we’re providing a lighter fruit and vegetable beverage with a crisper, cleaner taste. And across our beverage business, we will continue to expand availability in faster-growing channels, increasing distribution, variety and innovation.”
Despite the competition in shelf stable beverages, Ms. Morrison said two products have been bright spots for Campbell during the past year: V8 Splash and V8 V-Fusion + Energy.
She said V8 Splash, which has become a $200 million brand, is expected to deliver its seventh consecutive year of growth, due in large part to its strong value proposition and flavors children love.
V8 V-Fusion + Energy, which is made with green tea extract, taps into the large and growing $8.6 billion energy drinks segment, Ms. Morrison said. Campbell plans to add two new diet varieties, strawberry lemonade and cranberry raspberry, to the line next year.
Overcoming declines in penetration
Mark Alexander, president of Campbell North America, dove deeper into challenges facing the company’s beverage business during the analyst meeting.
He said the company’s V8 100% vegetable juice and core V8 V-Fusion businesses suffered declines in household penetration as consumers switched to alternatives to shelf stable juices, such as super premium refrigerated beverages. He added the business also has been eroded by inflation in the cost of raw materials and higher merchandising expenses as Campbell looks to maintain competitiveness in the category.
“We know we have a lot of work to do to stabilize our V8 business,” he said. “We will rebuild it, through disciplined focus on the drivers of demand, continued expansion in the growth segments in the category, and relentless attention to cost management. We fully expect to improve both top- and bottom-line results in U.S. beverages in fiscal ‘14.
“The core consumers of our V8 100% vegetable juice are baby boomers, who are young at heart and love the taste of V8, and are trying to make better decisions about their health. We improved the taste of our original 100% juice last January, and we’ll do the same for the other products in the range next year.
“We’ll support the brand with appropriate merchandising, and we’re making packaging changes that will both drive down costs, as well as enhance the product image on the shelf. We’re going to push the line into new spaces, with the test of a new Bloody Mary mix in limited distribution, and with the introduction of a truly fabulous chilled execution, V8 Harvest.”
New products to make a splash
Campbell’s V8 V-Fusion brand has grown to a $270 million business since it was launched in 2006. It was the first juice blend offering a full serving of fruits, as well as a full serving of vegetables, targeted to women who want to promote healthy lifestyles for themselves and for their families. Mr. Alexander said comprehensive taste testing has assured Campbell that the products are delivering on consumers’ taste expectations.
The company plans to expand the core product line next year with the addition of two new varieties: black cherry and pineapple strawberry.
As for the V8 Splash line, Mr. Alexander said Campbell plans to introduce two new varieties that will close the remaining flavor gaps around lemon-flavored offerings.
Finally, V8 V-Fusion Kids Juice boxes, which launched last year, have given Campbell a foothold in the large specialty segment. Mr. Alexander said the company plans to build on its presence in the space with a new grape flavor, new variety packs and growth in distribution across channels.
Bolthouse provides ‘healthy’ spark
While Mark Alexander, president of Campbell North America, and his team focus on ways to strengthen the shelf stable beverage business at parent Campbell Soup Co., Jeff Dunn and his team at the company’s Bolthouse Farms subsidiary are building their healthy beverages platform.
Campbell acquired Bakersfield, Calif.-based Bolthouse Farms in August 2012 for $1.55 billion from a fund managed by Madison Dearborn Partners.
Bolthouse operates within four segments of the beverage industry: smoothies, 100% juices, protein drinks and cafes (primarily coffee and juice-based products).
“Our product line now has 31 different varieties to service a wide range of consumer needs, dates and occasions,” Mr. Dunn, president of Bolthouse Farms, said during the July 24 analyst meeting. “We execute against a three-package strategy with our 15-oz bottle serving as a single serve, and then we have two larger multi-serve packages, 32- and 52-oz bottles, which are more value oriented.
“We use single-serve to drive trial and then move people up into larger packages to deliver more value. Value is a key barrier. If you think about the last 10 years, to expand at household penetration and consumption, this was mostly a single-serve business. We were really the leader in quarters and 52-oz, and that’s been a key driver of enhanced consumption.
“Since our entry into the beverage business, we’ve consistently grown over the last 10 years. Now, (we’re) the measured channel leader with a 36% market share, and over the last 52 weeks, we have shown 26% growth. I do love the slope of that curve.”
Mr. Dunn said Bolthouse now is looking to drive volume and items per store, enhancing its in-store presence and fair share of shelf. He cited a “massive opportunity” to drive availability of existing products in new channels and new customers. Convenience stores are one such avenue of growth.
“We’re literally at the starting gate here,” he said. “We focused on grocery, mass and club over the past 10 years, built a very strong position there.”
But the company has made strides in the convenience channel over the past 12 months, and Mr. Dunn said the “take rate” has been good and consumption patterns have been positive.
Another opportunity for growth is in the grab-and-go sections of existing grocery stores and mass merchandise customers.
“We traditionally merchandised in the produce area of the grocery store, but we have test results that suggest our products make a healthy alternative to many other beverages in the customer checkout lanes,” he said. “When you’re in a checkout lane and you want something healthy other than a diet soda or water, there tends to not be a lot of variety there.
“We finished a successful test program with a major customer, and we believe that the results suggest there’s a huge unmet need at the checkout aisle for healthier options, and we’ll drive this. There’s currently about 150,000 current penetration of checkout aisles with beverages in them, so lots of room for us to grow.”