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Module 7 Campbell In 2017, Campbell Soup neared the boiling…
Module 7 Campbell
In 2017, Campbell Soup neared the boiling point with numerous challenges. The most important challenge related to its intention of being attractive to health-conscious consumers, although there were others. The company had tried to turn its focus toward fresh food categories, in response to a shift in consumer tastes and preferences for fresh food, by capitalizing on its fresh food division “Campbell Fresh.” The company also acquired Garden Fresh Gourmet, one of the most popular refrigerated salsa brands in the U.S. Under the umbrella of its fresh food division, the company started selling fresh carrots, hummus, and salad dressings, but the sales did not meet the expectations of management. The company attributed Campbell Fresh’s lack of success to the shortage of carrots amid unsuitable weather conditions in California for carrot crops. The company’s CEO, Denise Morrison, said, “I am not pleased with the results of our fourth quarter, 2016. The performance of our Campbell Fresh business, driven predominantly by execution issues, is disappointing. However, we remain confident in our Campbell Fresh strategy and its ability to deliver long-term growth consistent with its portfolio role, as the business remains well-positioned to capitalize on the health and well-being consumer trend.” Denise Morrison, who formerly headed the company’s North American soup business, had taken over as CEO several years ago. The change at the top of the company received a lukewarm response from investors, who were watching to see what drastic changes Morrison might have in store. Analysts suggested that Campbell might have missed an opportunity by picking insider Denise Morrison to lead.
Company Background Known for its red-and-white soup cans, the Campbell Soup Company was founded in 1869 by Abram Anderson and Joseph Campbell as a canning and preserving business. Over 140 years later, Campbell offered a whole lot more than just soup in a can. In 2016 the company, headquartered in Camden, New Jersey, implemented a new product category structure by reducing from five categories to three: America’s Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh . In 2017 Campbell’s products were sold in over 100 countries around the world. The company had operations in the United States, Canada, Mexico, Australia, Belgium, China, France, Germany, Indonesia, Malaysia, and Sweden . The company had for a long time been pursuing strategies designed to expand the availability of its products in existing markets and to capitalize on opportunities in emerging channels and markets around the globe. As an early step, in 1994, Campbell Soup Company, synonymous with the all-American kitchen for 125 years, had acquired Pace Foods Ltd., the world’s largest producer of Mexican sauces. Frank Weise, CFO at that time, said that a major motivation for the purchase was to diversify Campbell to extend the Pace brand to other products. In addition, he said, the company saw a strong potential for Pace products internationally. Campbell also saw an overlap with its raw material purchasing operations, since peppers, onions, and tomatoes were already used in the company’s soups, V8 juice, barbecue sauce, and pasta sauces. To help reduce some of the price volatility for ingredients, the company used various commodity risk management tools for a number of its ingredients and commodities, such as natural gas, heating oil, wheat, soybean oil, cocoa, aluminum, and corn. A leading food producer in the United States, Campbell Soup had some presence in approximately 9 out of 10 U.S. households. However, in recent years, the company faced a slowdown in its soup sales, as consumers were seeking more convenient meal options, such as ready meals and dining out. To compete more effectively, especially against General Mills’ Progresso brand, Campbell had undertaken various efforts to improve the quality and convenience of its products.
China and Russia Historically, consumption of soup in Russia and China has far exceeded that in the United States, but in both countries nearly all of the soup is homemade. With their launch of products tailored to local tastes, trends, and eating habits, nevertheless, Campbell presumed that it had a chance to lead in soup commercialization in Russia and China. According to Campbell, “We have an unrivaled understanding of consumers’ soup consumption behavior and innovative technology capabilities within the Simple Meals category. The products we developed are designed to serve as a base for the soups and other meals Russian and Chinese consumers at home.” For about three years, in both Russia and China, Campbell sent its marketing teams to study the local markets. The main focus was on how Russians and Chinese ate soup and how Campbell could offer something new. As a result, Campbell came up with a production line specifically created for the local Russian market. Called “Domashnaya Klassika,” the line was a stock base for soups that contains pieces of mushrooms, beef, or chicken. Based on this broth, the main traditional Russian soup recipes could be prepared. But after just four short years, Campbell pulled out of the Russian market that it had thought would be a simmering new location for its products. Campbell’s chief operating officer and newly elected CEO Denise Morrison said results in Russia fell below what the company had expected. “We believe that opportunities currently under exploration in other emerging markets, notably China, offer stronger prospects for driving profitable growth within an acceptable time frame,” Morrison said. When the company entered Russia, Campbell knew that it would be challenging to persuade a country of homemadesoup eaters to adopt ready-made soups. When Campbell initially researched the overseas markets, it learned that Russians eat soup more than five times a week, on average, compared with once a week among Americans. This indicated that both the quality and sentiment of the soup meant a great deal to Russian consumerssomething that, despite its research, Campbell may have underestimated. As for China, a few years after Campbell infiltrated the market, CEO Denise Morrison was quoted by Global Entrepreneur as saying, “The Chinese market consumes roughly 300 billion servings of soup a year, compared with only 14 billion servings in the U.S.” When entering the Chinese market, Campbell had determined that if the company could capture at least 3 percent of the at-home consumption, the size of the business would equal that of its U.S. market share. “The numbers blow your hair back,” said Larry S. McWilliams, president of Campbell’s international group.10 While the company did successfully enter the market, it remained to be seen whether Campbell had the right offerings in place to capture such a market share or whether China’s homemade-soup culture would be as disinclined to change as Russia’s was. But amid the attention on salt-cutting, management focused less on other consumer needs, such as better tastes and exciting varieties,” said former CEO Douglas Conant. “I think we’ve addressed the sodium issue in a very satisfactory way. The challenge for us now is to create some taste adventure.”12 Campbell Soup Company began moving away from reducing salt in its products and focusing more on “taste adventure” as its U.S. soup business was turning cold. With Campbell reinventing its product offerings and revitalizing its soup line, Conant had decided that his work was done and it was time to retire. He stepped down as CEO in July 2011 at the age of 60. Denise Morrison, formerly president of the North America Soup division, took the reins as chief executive. At the time of her promotion, many were hesitant to accept her as the best candidate for the position. After all, the soup division, which had been her responsibility, had been losing steam and encountering declining sales under her tenure. Yet the company asserted confidence in her to do the job, and Morrison assured everyone that changes were on the way and a shift in focus was in the works. Morrison said that Campbell would bring both the “taste and adventure” back to its soups, with a new expanded product line offering unique flavors and “adding the taste back” by doing away with sodium reduction.
Firm Structure and Management Campbell Soup was controlled by the descendants of John T. Dorrance, the chemist who invented condensed soup more than a century ago. In struggling times, the Dorrance family had faced agonizing decisions: Should they sell the Campbell Soup Company, which had been in the family’s hands for three generations? Should they hire new management to revive flagging sales of its chicken noodle and tomato soups and Pepperidge Farm cookies? Or should Campbell perhaps become an acquirer itself? The company went public in 1954, when William Murphy was the president and CEO. Dorrance family members continued to hold a large portion of the shares. After CEO David Johnson left Campbell in 1998, the company weakened and lost customers,13 until Douglas Conant became CEO and transformed Campbell into one of the food industry’s best performers. Conant became CEO and director of Campbell Soup Company in January 2001. He joined the Campbell’s team with an extensive background in the processed and packaged-food industry. He had spent 10 years with General Mills, filled top management positions in marketing and strategy at Kraft Foods, and served as president of Nabisco Foods. Conant worked toward the goal of implementing the Campbell’s mission of “building the world’s most extraordinary food company by nourishing people’s lives everywhere, every day.” He was confident that the company had the people, the products, the capabilities, and the plans in place to actualize that mission. characterized by innovation. During his tenure, the company improved its financial profile, upgraded its supply chain system, developed a more positive relationship with its customers, and enhanced employee engagement. Conant focused on winning in both the marketplace and the workplace. His efforts produced an increase in net sales from $7.1 billion in fiscal 2005 to $7.67 billion in fiscal 2010.15 For Conant, the main targets for investment, following the divestiture of many brands, included simple meals, baked snacks, and vegetable-based beverages. In 2010, the baking and snacking segments sales increased 7 percent, primarily due to currency conditions. Pepperidge Farm sales were comparable to those a year earlier, as the additional sales from the acquisition of Ecce Panis, Inc., and volume gains were offset by increased promotional spending. Some of the reasons for this growth were the brand’s positioning, advertising investments, and improvements and additions in the distribution system. Conant also secured an agreement with Coca-Cola North America and Coca-Cola Enterprises Inc. for distribution of Campbell’s refrigerated single-serve beverages in the United States and Canada through the Coca-Cola bottler network.16 In fiscal year 2010, the company continued its focus on delivering superior long-term total shareowner returns by executing the following seven key strategies:17 In 2011, after 10 years leading the company, Conant retired. His successor, Denise Morrison, had worked for Conant for quite some time, not just at Campbell but at Nabisco as well earlier in their careers. In August 2011, on her first day as CEO, she was set on employing a new vision for the company: “Stabilize the soup and simple meals businesses, expand internationally, grow faster in healthy beverages and baked snacksand add back the salt.”19 With the younger generation now making up an increasingly large percentage of the population, Morrison knew that the company had to change in order to increase the appeal of its products. At that time, the U.S. population included 80 million people between the ages of 18 and 34, approximately 25 percent of the population. Early on in her role as chief executive, Morrison dispatched Campbell’s employees to hipster hubs including Austin, Texas; Portland, Oregon; London; and Paristo find out what these potential customers wanted.20 To build employee engagement, Campbell provided manager training across the organization. This training was just one part of the curriculum at Campbell University, the company’s internal employee learning and development program. Exemplary managers built strong engagement among their teams through consistent action planning. The company emphasized employees’ innovation capabilities, leadership behavior, workplace flexibility, and wellness.
Challenges Ahead In her new role, Morrison said she planned to “accelerate the rate of innovation” at the company. Morrison planned to grow the company’s brands through a combination of healthier food and beverage offerings, global expansion, and the use of technology to woo younger consumers. While innovation isn’t a term typically associated with the food-processing industry, Morrison said that innovation was a key to the company’s future success. As an example, she cited Campbell’s development of an iPhone application that provided consumers with Campbell’s Kitchen recipes. The company’s marketing team devised the plan as a way to appeal to technologically savvy, millennial-generation consumers, Morrison said. In fiscal year 2017, under the ongoing leadership of Morrison, the company continued its focus on unleashing the power of its overall potential and performance. The future plan was to focus on four key strategies to enhance the company’s growth:22 1. Elevate Trust Through Real Food, Transparency and Sustainability 2. Increase Engagement and Drive Sales Through Digital and E-Commerce 3. Continue to Diversify the Product Portfolio in Health and Well-Being 4. Expand the Company’s Presence in Developing Markets.
Competition Campbell operated in the highly competitive global food industry and experienced worldwide competition for all of its principal products. The principal areas of competition were brand recognition, quality, price, advertising, promotion, convenience, and service. Nestlé Nestlé was the world’s number-one food company in terms of sales, the world leader in coffee (Nescafé), one of the world’s largest bottled-water (Perrier) makers, and a top player in the pet food business (Ralston Purina). Its most well-known global brands included Buitoni, Friskies, Maggi, Nescafé, Nestea, and Nestlé. The company owned Gerber Products, Jenny Craig, about 75 percent of Alcon Inc. (ophthalmic drugs, contact-lens solutions, and equipment for ocular surgery), and almost 28 percent of L’Oréal.27 In July 2007 it purchased Novartis Medical Nutrition, and in August 2007 it purchased the Gerber business from Sandoz Ltd., with the goal of becoming a nutritional powerhouse. Furthermore, by adding Gerber baby foods to its baby formula business, Nestlé became a major player in the U.S. baby food sector. General Mills General Mills was the U.S. number-one cereal maker, behind Kellogg, fighting for the top spot on a consistent basis. Its brands included Cheerios, Chex, Total, Kix, and Wheaties. General Mills was also a brand leader in flour (Gold Medal), baking mixes (Betty Crocker, Bisquick), dinner mixes (Hamburger Helper), fruit snacks (Fruit Rollups), grain snacks (Chex Mix, Pop Secret), and yogurt (Colombo, Go-Gurt, and Yoplait). In 2001 it acquired Pillsbury from Diageo and doubled the company’s size, making General Mills one of the world’s largest food companies. Although most of its sales came from the United States, General Mills was trying to grow the reach and position of its brands around the world.28 The Kraft Heinz Company The Kraft Foods Group and H. J. Heinz Company closed a merger deal in July 2015. The combined company was called The Kraft Heinz Company, and became the third largest food company in North America and fifth largest in the world. Its most popular brands included Kraft cheeses, beverages (Maxwell House coffee, Kool-Aid drinks), convenient meals (Oscar Mayer meats and Kraft mac’n cheese), grocery fare (Cool Whip, Shake N’ Bake), and nuts (Planters). Kraft Foods Group was looking to resuscitate its business in North America.29 H. J. Heinz had thousands of products. Even prior to the merger, Heinz products enjoyed first or second place by market share in more than 50 countries. One of the world’s largest food producers, Heinz produced ketchup, condiments, sauces, frozen foods, beans, pasta meals, infant food, and other processed-food products.
Financials In the 2016 fiscal year, Campbell’s earnings from continuing operations decreased from $666 million to $563 million, due to disruptions in product availability for a period of time. Organic sales declined 1 percent, while adjusted earnings per share (EPS) from continuing operations decreased from $2.13 to $1.82. The larger pie of the sales came from the U.S. market, whereas about 19 percent of the company’s total sales were from international markets outside the U.S. With regard to financials, Morrison stated: For fiscal year 2017, the company’s sales for year ending 2016 declined by approximately 1 percent to $7.961 amid the negative impact of exchange rate volatility and decrease in organic sales. However, most of the adverse impacts were offset by the benefits achieved by acquiring Garden Fresh Gourmet. The decline in sales could be larger if company had not increased the selling prices in 2016 to offset the loss of sales by decrease in sales volume.31 Similarly, for America’s Simple Meals and Beverage division, Campbell’s sales decreased 2 percent amid the decline in V8 beverages and soup, but increased costs were up, wearing away margins. Also, the Global Biscuits and Snacks division sales decreased 3 percent but for the Campbell Fresh division sales increased 1 percent, which could be better if the company had not gone through the trouble of execution issues and crop destruction.
What’s Next? Campbell’s advertising campaign failed to assist the company much in gaining the expected traction in the ready-toserve soup business. Campbell was trying to correct this by introducing new products offering unique flavors into what many considered a rather ordinary product line. If the economy continued to improve would Campbell be successful in its international expansion, especially in lucrative emerging markets such as China? As the recession became a distant memory, would Campbell’s name still resonate with American consumers or would consumers venture back to restaurants? Would Campbell Fresh become a success or would it spoil? Would Campbell’s soup simmer to perfection, or would the company be in hot water?
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Case Study Template
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What is the Key issue you see in the case: __________________________
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What assumptions do you plan to make in your analysis: None is an acceptable answer
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You are writing the case from the perspective of which person or organization: ______________
What tools of Analysis would you use in this case: You only need to identify them and explain what information each will give you that you feel is important.
Based upon the above information – provide three alternatives.
Alternative 1 is the Status Quo or to do nothing different that the current situation.
Identify at least three arguments in favor and three against this approach.
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Alternative 2 ____________________________________________________
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Alternative 3 ______________________________________________
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Recommended Alternative
Given the information above select your recommended alternative and explain why you feel it is the best alternative: This should take five to seven paragraphs and be based upon the information presented in your case. The recommendation is made to the decision maker you identified. You need to justify why this is the best alternative. (I have no preselected alternative and what I am looking for is your ability to support a given recommendation.)
