As more consumers shift their grocery shopping from the center of the store toward the perimeter in search of fresh products perceived as healthier, food and beverage companies traditionally ensconced among the aisles at the heart of the store are following. Several recent episodes illustrate the challenges companies accustomed to managing a traditionally shelf-stable supply chain may face when making the transition to the perimeter.
For the Campbell Soup Co., Camden, N.J., the development of a business unit built around fresh products has been a cornerstone of future growth. The company made significant investments in Bolthouse Farms and Garden Fresh Gourmet, and those businesses along with Campbell Soup’s refrigerated soup portfolio comprise its Campbell Fresh, or C-Fresh, business unit.
In a Feb. 17 conference call with financial analysts to discuss first-quarter results, Denise Morrison, president and chief executive officer of Campbell Soup, said Campbell Fresh performed below the company’s expectations and addressed the challenges the company has faced, most notably around the perishability and fragility of fresh foods.
Specific issues driving poor financial results in Campbell Fresh include poor carrot quality, which is central to the company’s Bolthouse Farms business. Ms. Morrison said “there is no roof over the carrot fields” necessary to supply Bolthouse Farms and the company experienced record drought as well as record levels of rainfall in the period it has owned the business, both of which have affected quality.
Campbell Fresh management also has been challenged to take Garden Fresh Gourmet, a predominantly regional brand, and grow its scale to national distribution. In addition to the supply chain issues, Garden Fresh Gourmet managers are attempting to adapt the product to appeal to the flavor preferences of regions beyond the businesses’ original Midwestern core.
The Campbell Soup Co. is not the only company experiencing issues in the fresh segment. The Earthbound Farms business of WhiteWave Foods, Denver, is facing challenges as well. The company recently said the Earthbound business, which markets fresh salads, recently faced elevated supply chain costs and lower-than-expected volumes in its fresh foods platform.
In a somewhat related occurrence, TreeHouse Foods, Inc., Oak Brook., Ill., recently took a non-cash impairment charge against its Flagstone Foods business, which is a purveyor of snack nuts. Company management said the drought in California led to a spike in almond prices that impacted the business during the past few years, and a sunflower seed recall impeded the business unit’s financial performance.
It does not take much research to identify the multitude of challenges facing fresh food manufacturers. In the recent past, outbreaks of Avian Influenza wreaked havoc on the turkey and egg industries.
Weather poses risks throughout the food business, but in fresh foods the stakes are higher because of the need for a consistent, positive climate. The rewards are great when things go well, and there is little doubt those consumer packaged goods companies who enter the fresh category will successfully transition into the segment. Still, recent experiences show the learning curve is sometimes steep.