Low-sodium effort fundamentally bolstering Campbell Soup future

by Josh Sosland
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SCOTTSDALE, ARIZ. — The launch by Campbell Soup Co. and the embrace by consumers of lower-sodium soups has placed the company "onto a new growth trajectory," Douglas R. Conant, president and chief executive officer, said. Sales of the better-for-you soups in 2006-07 have exceeded the company’s expectations, and a significant expansion of the initiative is planned for the 2007-08 soup season.

Mr. Conant offered an update on the company’s major sodium reduction program Feb. 21 at the Consumer Analyst Group of New York 2007 conference at the Hyatt Regency Scottsdale resort and spa at Gainey Ranch.

The low-sodium launch is "aligned with consumer wellness trends" and has helped bolster the company’s results in the fiscal year ending July 31, Mr. Conant said.

"I was pleased to be able to raise our guidance for Campbell’s earnings per share growth this year to 10% to 12%, up from our long-term guidance of 5% to7%," he said.

Products that fall clearly under the wellness banner have risen to a meaningfully large percentage of Campbell’s overall business, Mr. Conant said. At $970 million, annual sales of such products equate to 13% of the company’s total sales, up from only 9% in 2004.

"These products are accretive to gross margin," he said. "These wellness products are growing very rapidly. We’ve grown their net sales at about 25% annually for the past two years or some five times the rate of our overall growth. These wellness products have excellent momentum."

Recapping his observations from last year, Mr. Conant noted the level of sodium in Campbell’s soup has been a major barrier to consumption, with 40% of consumers citing this as a concern.

"Until this past year we’ve lacked the technology to lower sodium significantly and maintain good taste," he said. "There has just not been a good tasting way to reduce sodium. This has now changed."

Mr. Conant said the company made progress through a combined process that uses lower sodium natural sea salt with "advanced product design blending and flavor technology."

Campbell Soup is in the first part of a three-phase program in which the sodium levels of its soups will be progressively reduced.

The first phase is well under way, which offers a broadening line of products with reduced sodium while still maintaining a broad portfolio of products for consumers who are not concerned about sodium levels, Mr. Conant said.

In the second phase, additional proprietary tools under development will be used to reduce sodium content further, "within striking distance of the 480 mg threshold," Mr. Conant said. Until this threshold is reached, Campbell Soup is unable by federal rules to make claims about the nutrition and health benefits of its soups.

Progress has been made toward launching phase two, but Mr. Conant warned, "We have much more work to do, so we will not make predictions on timing or product plans."

If the final phase is successfully reached, Campbell Soup would "put to rest the sodium issue once and for all," Mr. Conant said. Working with outside partners on proprietary technology, sodium content "on the vast majority of our soups" would be lowered well below 480 mg "with no taste trade-off," Mr. Conant said.

"Now we still have a sizable journey ahead of us, but we’re undoubtedly off to a strong start," he said.

While only in phase one, Campbell already is "striking a deep chord with the consumer," Mr. Conant said. He cited a range of market research indicating consumers have been motivated to return to Campbell Soup because of the reduced sodium.

"Seventy-seven per cent of consumers rated Campbell’s lower-sodium soup as excellent or very good," he said.

Mr. Conant offered an exhaustive review of new and reformulated products with reduced sodium offered in the 2006-07 soup season. Thirty-two varieties of low-sodium soup included three icon varieties, seven new varieties of Healthy Request, nine reformulated varieties of Healthy Request, one Healthy Request Homestyle variety and 12 varieties of soups targeted at children.

"Though still early, retail sales of our lower-sodium product are very strong, with our whole program well ahead of our expectations at this point," Mr. Conant said. "Trial and repeat are exceeding our projections."

As an example, Mr. Conant said six month sales of Chunky Healthy Request exceeded what the company had forecast for the entire year. He predicted total sales of these soups of $300 million to $350 million in fiscal 2007.

In addition to the success achieved to date, Mr. Conant was optimistic about prospects for low-sodium soup because of overall strength in the better-for-you food category and because healthier versions of soup only account for 12% of sales, versus several other food categories in which healthier versions are 25% or higher.

Other reasons cited by Mr. Conant why the company is optimistic about prospects for its reduced-sodium initiative include:

• Consumer reaction has been "overwhelmingly positive," and there are clear indications that "consumer concerns about wellness are increasing and offer major growth opportunities."

• Results from a media test indicate the low-sodium initiative "has legs" and casts "a significant halo on Campbell’s overall soup business."

• Significant progress has been made technologically and further progress is anticipated in the months and years ahead.

• An aggressive program is planned for 2007-08, characterized by Mr. Conant as "more, better, faster."

For the 2007-08 season, about 40 new or reformulated soup items are planned, with a heavy emphasis on wellness, Mr. Conant said.



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