|After years of struggle, company moves to adjust to changing environment.|
In recent years, Campbell Soup Co. in an effort to accelerate growth has acquired three companies with annual combined revenues in excess of $1 billion and growth rates well above Campbell’s modest average. Still, the newly acquired businesses — Bolthouse Farms, Plum Organics and Kelsen Group — account for less than 15% of Campbell’s annual revenues.
How the company plans to use the acquisitions as elements in its plan to restore Camden, N.J.-based Campbell Soup growth to its long-term targets was a central element of a recent 3½-hour investor day meeting with Wall Street analysts. Top Campbell executives, beginning with Denise M. Morrison, president and chief executive officer, described steps the company said it would take in a process aimed at profitably raising annual sales to $10 billion within five years. The actions include the introduction of more than 200 new products in the 2015 fiscal year that began July 28.
Setting the backdrop for the presentations, Ms. Morrison said Campbell Soup will be trying to accelerate growth during a “period of major transition” for the food industry in which “there will be winners and losers” (see Food Business News of July 29, Page 12). She warned that food companies are struggling to adjust to an economic environment in which consumers are anxious and “food purchasing behavior reflects their caution and uncertainty about the future.”
Using its new acquisitions as vehicles for breakthrough innovation will be key if Campbell Soup is going to end up among the winners, but Ms. Morrison and other company executives also acknowledged the importance of improving the performance of the company’s soup business. In her introductory comments, she highlighted one opportunity in this category.
“We will build our position in premium soups, a $750 million retail segment of the soup category that is growing 12% annually,” she said. “Our innovation in this premium space next year will include the launch of our first Campbell’s organic soups.”
As part of articulating a strategic vision that will carry the company forward, Ms. Morrison appeared to distance the company further from a major, unsuccessful 2000s initiative premised principally on reducing sodium content of the company’s soups. She summarized the company’s purpose as “real food that matters for life’s moments.” She said the company was uncompromisingly committed to selling food that is “delicious, accessible and affordable,” calling this standard a “compass” to guide the company and “serve as a filter for daily decision-making.”
Expanding on the recent acquisitions, Ms. Morrison said the moves have diversified Campbell “beyond our historic center store product lines in traditional mass and grocery channels.”
“A step at a time we have been building our presence in packaged fresh and other faster growing spaces, in strategically important geographies outside our developed markets and in channels that make our products available everywhere that consumers shop now and will shop in the future,” she said.
Noting that the packaged fresh foods business has $18.6 billion in annual sales and that Bolthouse Farms is a leader in the category, Ms. Morrison said the company “will also pursue opportunities to expand fresh branded offerings across our portfolio.” The acquisition of Kelsen, a maker of sweet biscuits, offers Campbell an avenue for growth in developing markets in Asia and Latin America.
“We see lots of headroom for growth in China and opportunities to expand our biscuit business in other developing markets and build Kelsen’s and Tim Tam into thriving multi-national icon brands,” she said.
Bolthouse considers snacks
Capitalizing on the health and wellness credentials native to the fresh produce-related product line of Bolthouse Farms will be a key going forward, said Jeff Dunn, Bolthouse president.
While adults are moving toward healthier snacks and have been willing to pay up for these choices, Mr. Dunn said children generally have been left behind when it comes to the healthy trend. He cited research indicating children would snack healthier if given appealing alternatives to current favorites such as chips and ice cream.
With that in mind, the Bakersfield, Calif.-based company, acquired by Campbell Soup in 2012, will launch Bolthouse Farms Kids in mid-August. The line’s focus will be on millennial moms with children between the ages of 4 and 11.
“Each of these products, smoothies, fruit tubes and veggie ‘snackers’ were formulated with mom’s needs in mind,” Mr. Dunn said. “They are all fruit and veggie focused. None of what we call no-no ingredients that mom is trying to avoid such as added sugar, high-fructose corn syrup.”
Non-dairy options will be offered both within the smoothies and fruit tubes lines.
Mr. Dunn offered an ambitious vision of the presence of Bolthouse Farms Kids will achieve in retail outlets.
“To create scale in the produce section, where these will be merchandised and an easier shopping experience for moms, we will be installing a healthy snacking merchandising solution, which will create kid’s snacking destination in produce,” he said. “This section is intended to not only include Bolthouse Farms Kids products but other like-minded products from other manufacturers such as fruit cups, carrot dippers and others.”
He said initial customer response has been positive with certain retailers “taking the concept further and redesigning their entire produce snacking section.”
Pushing Plum forward
Another new brand Campbell Soup sees broadening considerably ahead is Plum Organics, an Emeryville, Calif.-based company acquired by Campbell Soup in June 2013. The company was acquired to allow Campbell a foothold into the organic baby food business (it is the No. 2 brand in the segment).
“We see a tremendous opportunity in the long term to develop the brand into a broad Simple Meals, healthy beverages and snacks business for babies, tots and kids,” said Mark Alexander, senior vice-president and president of Campbell North America. “During the coming year, we will utilize the resources of Campbell to drive scale and profitable sustainable growth across the portfolio.”
The Plum Organics brand was hit with a product recall in late 2013, and Mr. Alexander said Campbell’s “global quality standards” were being adopted at Plum.
Over the next 12 months, 22 new products will be launched “many of which will be for older toddlers and young children as we work to extend the brand’s appeal beyond baby food.”
He said marketing spending will be increased as distribution expands with an objective to “drive awareness and deepen connections with parents across America.”
Fixing soup is complicated
Commenting further on the company’s flagship product line, Mr. Alexander recalled a 2012 recognition that a “return to basics” would be needed to “fix soup.” At the time, only a small number of the company’s soup varieties were considered by consumers to be “superior to competition,” he said.
“This simply wasn’t good enough,” Mr. Alexander said, describing a major reformulation initiative he said is “well on the way” to reaching the company’s objective.
More than 50 soup varieties have been “significantly improved” over the past three years, said Ed Carolan, president of U.S. Retail. Another 25 enhancements will be forthcoming.
In addition to making existing product better, Campbell Soup is launching nearly 70 new items targeting “higher growth space,” Mr. Carolan said. The products will gravitate around three platforms, including premium (divided into indulgent or health and wellness); “taste adventure,” capitalizing on interest in ethnic and regional cuisines; and convenience. Under the health and wellness category will be the company’s first Campbell-branded certified organic soups.
“The selection of six varieties are packaged in fresh-looking, contemporary cartons and include flavors such as chicken tortilla, garden vegetable and tomato and basil,” Mr. Carolan said. “The new line will be shelved in the soup aisle right alongside the Campbell portfolio.
“During the past year, retail sales of the condensed Healthy Request line have grown 4% and will continue to drive performance by launching new flavors inspired by international recipes and regional American favorites.”
Adventurous flavors also will be offered in the Chunky brand pub-inspired soups and Homestyle lines.
Cooking shortcuts represent another platform of innovation at Campbell, said Darren Serrao, senior vice-president and general manager of innovation and new business development. When it comes to millennials, food companies should take advantage of the opportunity to bridge the generation’s attraction to adventurous eating with their limited time and culinary skill, he said.
“For instance, only 33% of dinners eaten at home are made from scratch and nearly 70% are so rushed that they are planned within an hour of eating,” Mr. Serrao said. “As a result, consumers are relying more heavily on assembly cooking, leveraging kits or whatever means necessary just to get dinner on the table quickly and easily.”
Products Campbell offers in the category include skillet sauces and slow cooker sauces. Offered in pouch packaging, the products allow consumers to prepare meals with only a few ingredients, including a protein such as beef or chicken.
“We are pursuing further growth in this category by launching Campbell’s Oven Sauces in September,” Mr. Serrao said. Targeting those looking for “the comfort of oven-baked dinners,” he said the line is designed to allow consumers to make meals with five minutes of prep time and three ingredients or fewer.
For making inroads in the competitive but rapidly expanding market for healthy bars and shakes, Mr. Serrao identified another heritage Campbell Soup brand as the company’s racehorse of choice.
“Based on our insights, we will launch V8 protein bars and shakes to enter the fast-growing $4.6 billion adult on-the-go nutrition category in the U.S.,” he said. “V8 has strong brand equity in health and wellness.”
Three varieties of shakes and three different bars will be offered beginning in September. Ingredients will include vegetable and honey.
Ms. Morrison set the plans against steps the company has taken since she took the company helm in June 2011.
“In the last three years, you have seen a great deal of change at this company,” she said. “We have been taking decisive action to reshape our portfolio and alter our growth trajectory and you will see more of it in the future.”
Near-term financial challenges remain
Even as the Campbell Soup Co. pursues fundamental change in its business approach, significantly improved financial results will not be immediately forthcoming, said Anthony DiSilvestro, senior vice-president and chief financial officer. The company’s long-term targets include annual sales growth of 3% to 4%, EBIT growth of 4% to 6% and earnings per share growth of 5% to 7%. Mr. Silvestro described the targets as “appropriate,” but with a qualifier.
“When we first set these targets, many of the categories in which we compete were experiencing higher growth rates than today,” he said during the company’s July 21 investor day. “Also we did not anticipate the challenges we have had in U.S. beverages and in Australia. We believe that success against the dual mandate, strengthening the core, including the turnaround of U.S. beverages and Arnott’s and expanding into higher growth spaces, will improve our financial performance.
“However, in the current environment, further portfolio reconfiguration, including value creating acquisitions and further cost management may be required to achieve our long-term growth targets.”
Sales and earnings growth in 2015 “will be short of our long-term targets,” he said. Specific guidance will be issued with earnings in early August.