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The sudden exit two weeks ago of Campbell Soup Company’s CEO Denise Morrison brings the firm the opportunity to review and reset its strategies. Essentially, it means revisiting its portfolio of products and market positions, weighing acquisitions and dispositions of existing assets, and potentially even putting itself up for sale. “Everything is on the table. There are no sacred cows,” interim CEO Keith McLoughlin told analysts after its third-quarter earnings announcement, which was on the same day Morrison quit.
Campbell Soup still has a lot going for it, and with the right strategies and execution, it could bounce back to good health, according to experts at Wharton and the University of Michigan.
As it happens, Campbell Soup is America’s 10th most-loved brand and fifth in the foods category, according to the 2018 Morning Consult rankings. “There are still plenty of consumers who care about it and love it,” said Wharton marketing lecturer Jason Riis.
However, “the brand is not quite as strong among millennials as it is among Gen Xers and baby boomers,” said Riis. “The company has tried to respond to preferences that generation seems to have for knowing where its ingredients come from and looking for more fresh foods, and it ran into both executional and possibly strategy problems as well in trying to make that switch.”
Erik Gordon, professor at the University of Michigan’s Ross School of Business, saw a bright outlook for soup products. While the latest data from research services firm Euromonitor showed a 2% drop in overall soup sales last year in the U.S., select segments such as chilled soup have shown growth, he noted. “Soup is good food,” he said.
Riis and Gordon discussed the options for Campbell Soup on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Shifting Consumer Preferences
The years since 2011 when Morrison took over as Campbell Soup’s CEO have seen dramatic shifts in the competitive landscape for the company. The millennial generation does not relish older food brands that members of their parents’ generation are still attached to. They want non-GMO foods without preservatives, preferably fresh, organic and with natural ingredients or ethnic variants, and those that come in environmentally friendly packaging.
Morrison, of course, had in good time sensed that those changes threaten Campbell Soup’s profits and share prices. Two years ago, the company launched its Well Yes! ready-to-serve soups that claimed to have “clean, simple and nutritious ingredients.” And last year, it bought Snyder’s-Lance, a snack foods maker, and Pacific Foods, which produces organic broths and soups, as well as plant-based meals and sides.
“To what extent do you go after a consumer who’s both potentially a moving target and a target that’s not even tracking the right things for what they supposedly care about, which is downstream health?”–Jason Riis
Not surprisingly, industry watchers have speculated that Morrison quit because her strategies for the company have not quite worked out as planned. The company’s CFO, Anthony DiSilvestro, stated that the company is “not satisfied” with its third-quarter financial performance. He blamed “execution-related and external challenges.”
Sales were up 15% to $2.12 billion during the latest quarter, but the company posted a net loss of $475 million. The company’s share price fell nearly 12% to about $34 after its latest earnings announcement. In mid-2016, it commanded nearly double that price at more than $66.
New executive appointments revealed a sense of where the company feels the need for more strength. Last week, it named Roberto Leopardi as president of its meals and beverages operations. He brings 24 years of experience at SC Johnson, a maker of household cleaning supplies, and is credited with having led its e-commerce strategies.
Reaching out to Millennials
Campbell Soup’s challenges begin with its classic red-and-white soup cans that are a fixture of the middle aisles of supermarkets, according to Gordon. “That [product] is full of high fructose corn syrup and stuff that young people hate,” Gordon said. “They need to get that executed correctly because that business is getting eaten alive by cheaper brands, store brands and non-labeled brands.” In 2015, the company announced that it plans to remove all artificial colors and flavors from its products made in North America by the end of 2018.
At the same time, the older generation that does not seem to have much of an issue with those ingredients would like lower prices, Gordon said. “So Campbell’s has to get it right with the younger people — its future — and with the people [in the older generation] that still are its bread and butter and the bulk of its sales. So far, it’s getting it wrong with everybody.”
Riis and Gordon empathized with Campbell Soup for its apparent disconnect with millennials, and concluded that it was not easy to build strategies around them. For example, many millennials prefer non-GMO foods, Riis noted. “However, GMO foods are not shown to be any less healthful than the non-GMO ones and yet consumers still crave then,” he said. “So to what extent do you go after a consumer who’s both potentially a moving target and a target that’s not even tracking the right things for what they supposedly care about, which is downstream health?”
Gordon said “the millennials are a funny market,” pointing to contradictions. While they seem concerned about health, “they will buy very expensive coffee from a very expensive coffee place … [and] it’s full of sugar,” he added. “You want to tune in, if you’re Campbell’s, to the millennials in a nuanced way.”
Another source of Campbell Soup’s woes is a long-running dispute with what the company has described in its earnings reports as “a key customer.” Morrison had hinted in February that a resolution was imminent in its issues with the customer, which she didn’t identify by name, according to a Fortune magazine report. However, there was no mention of progress on that front in the latest earnings announcement.
The press has widely speculated that the customer is Walmart, which has been devoting increasing shelf space to its own brands and reducing its Campbells Soup orders. “The last thing you want to do is get into a fight with Walmart,” Gordon said, noting that it accounts for a fifth of Campbell Soup’s overall sales. “That really helps shift sales away from Campbell’s that might or might not come back.”
“You have to have the right shelf space, and the right promotional coordination, or else you’re really dead.”–Erik Gordon
Forging strong retail partnerships is crucial to the company’s future, especially with the likes of Walmart and Kroger, as consolidation continues to occur at the distribution end, said Gordon. “It is Mass Marketing 101 that you have to keep those relationships right,” he said, adding that soup doesn’t have much of a future as a direct-to-consumer delivery item. “You have to have the right shelf space, and the right promotional coordination, or else you’re really dead.”
Campbell Soup also faces a threat from the omnipresent Amazon. Both companies have entered the market for ready-to-cook meal kits, and Campbell Soup is up against “very aggressive” pricing from Amazon in this space, said Riis.
In yet another threat, the makers of competing generic soup products have claimed the right to use on their cans the red and white colors that are most identified with Campbell Soup, Gordon noted.
Even as those problems loom, Riis and Gordon spotted openings for Campbell Soup to reclaim some lost ground.
Riis said the company could more aggressively promote soups as a weight-loss product than it has done in the past. “One of the biggest consumer concerns with respect to health and eating is weight loss, and there, soup is great, because calories by volume tend to be relatively low,” he added. “They could be more proactive in that health storytelling than they currently are, rather than just giving in to consumer whims.”
Both Riis and Gordon felt soup could also be promoted as a breakfast alternative, adding that they often have it as they begin their days. However, getting consumers to make that switch and change their breakfast habits is hard, said Riis. He also didn’t see he prospect of it being promoted as a full-meal alternative.
“You want to tune in, if you’re Campbell’s, to the millennials in a nuanced way.”–Erik Gordon
Gordon saw other potential market openings: “Single-pack soups that you can toss into a microwave are a great afternoon snack.”
Gordon also pointed out that although millennials might see cans as old fashioned packaging, “you can preserve things via the canning process without preservatives.” And that includes healthy foods without high fructose corn syrup or monosodium glutamate, he said.
Gordon added that while cans may be seen as environmentally unfriendly, and Campbell has innovated with aseptic packaging, it could do more with cardboard and other recyclable materials. In any event, the can is not as key to its brand as the red-and-white labeling, he added.
Riis noted that more and more people now claim to be following specific diets such as paleo, low-carb and intermittent fasting, and said Campbell Soup could try and work its way into those diets. Not surprisingly, in the latest quarter, sales of its ready-to-serve soups rose while those of condensed soups declined.
Getting the Execution Right
Creative ideas are aplenty for finding new markets for soup, “but you have to be very clever on the branding and positioning, and the promotion, because you’re trying to get people to see soup in a different way,” said Gordon. Consistent marketing is important, too. “You can’t promote it for 90 days and expect people to change. You have to really put people under siege to get them to change.”
On that front, while Campbell has done well with experimenting with new ideas, it fell short on other fronts such as back-end execution, cost management and effective marketing campaigns, he added.
What are other options for the company? The elephant in the room, of course, is the possibility of a company sale. “Campbell Soup could be an acquisition target of somebody like maybe Kraft-Heinz,” said Gordon. In such an eventuality, the new owner would “take a lot of costs out and make it a low-cost provider,” he added. “You could see a split where the red-and-white label [soup] goes to somebody like Kraft-Heinz, and … the other brands go somewhere else.”