Campbell: How to Keep the Soup Simmering

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In 1869, Abram Anderson, an icebox manufacturer, and Joseph Campbell, a fruit merchant, founded a canning and preserving business. After Anderson left the partnership in 1876, the company was named the Joseph A. Campbell Preserve Company. Today, the company is known as the Campbell Soup Company, often known as just Campbell’s. They are headquartered in Camden, New Jersey, and their business has expanded substantially, with a multitude of offerings than just soup in a can. 

Campbell has become a staple household brand with the classic red-and-white can design, and according to their website, 95.8 % of U.S. households have at least one Campbell product. In addition, Campbell’s products are sold in over 100 countries around the world, with annual sales exceeding $8 billion, along with operations in countries including but not only, Australia, Belgium, China, Germany, and Sweden. Due to the size and international presence of the company, their organizational structure is comprised of three categories: America’s Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.

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To sustain their dominance as one of the largest processed food companies in the United States, Campbell’s presence in international markets is imperative to their longevity and success for the future. They must continually brainstorm and implement strategies to expand the availability of their products in existing markets as well as finding new markets and emerging channels around the world. However, in the past couple years, Campbell has experienced a decline in their financials, specifically sales and revenue. This can be attributed to consumers seeking more convenient meal options, such as eating out or having the luxury of more food options delivered to the front door, with the introduction of food delivery services including UberEATS, Grubhub, and Postmates.

In order for Campbell to compete effectively with top competitors in the food producing industry, especially against General Mills’ sector of the Progresso brand, Campbell has experimented and implemented different methods and strategies to improve the quality and convenience of their products. In today’s society, we are seeing a transformation in consumers’ food preferences as well as their expectations from food manufacturers. Issues concerning where and how their food is grown, and a greater emphasis on diet and health, has led to Campbell prioritizing on being more attractive to their health-conscious consumers. 

To respond to this shift in consumer tastes and preferences for fresh food, Campbell created a fresh food division called “Campbell Fresh,” which sold fresh vegetables and related products such as hummus and salad dressings. Unfortunately, management’s expectation of sales and revenue were lackluster, which CEO Morrison blamed due to unsuitable weather conditions. Additionally, Campbell’s largest acquisition in company history occurred in 2017, when they bought out Bolthouse Farms, a California based company that specializes in juice-and-carrot products. Despite Campbell’s efforts to revitalize their product line through acquisitions and their shift of focus to the wants of consumers, their financial statements were not in accordance to their expectations of success.

In the international market, Campbell has been pursuing strategies to capitalize on opportunities in emerging channels and markets, but along with great potential comes difficult challenges. Their experience and history in the industry, coupled with the research of demographics concerning soup consumption, led to their attempt at entering the Russian and Chinese markets. Campbell stated that they “have an unrivaled understanding of consumers’ soup consumption behavior,” which they proceeded to create a production line specifically catered for the Russian market. 

According to their research, they learned that Russians consume soup more than five times a week, compared to the American average of once a week. The reasoning behind pursuing this opportunity was that consumption of soup in Russia and China is a lot higher than that in the United States, but the direct challenge they faced was that in both countries, the majority of soup consumed was homemade. Similarly to Campbell Fresh, Campbell was unsuccessful in Russia even after changing their recipes to conform to Russian tastes and preferences. They exited the market after four years due to underwhelming results, due to them underestimating that Russian consumers valued the quality and sentiment of soup.

The final reason why Campbell has been struggling is a result from the decisions upper management has made, led by CEO Denise Morrison. Former CEO Douglas Conant made many successful reforms during his time at Campbell, driven by Campbell’s mission of “building the world’s most extraordinary food company by nourishing people’s lives everywhere, every day.” He invested heavily in improving Campbell’s product quality, packaging, and marketing, which resulted in an improvement in financials, a more efficient and complex supply chain, enhanced employee engagement, and shareholder satisfaction. 

One year before Conant stepped down, he started the salt-reduction push due to the problems of obesity and high blood pressure in the U.S. market, which became one of the biggest initiatives Campbell made to appeal to the health-conscious consumers. When Morrison succeeded Conant, she immediately shifted focus towards accelerating the rate of innovation. Questionable decisions she made included adding back the salt and investing in the development of an iPhone application to appeal to the younger generation, Years after diverging off the path that Conant was successful on, analysts were still doubtful in Morrison’s ability to lead the company, backed by declining earnings from operations in 2016, even after increasing their product prices.

To better understand Campbell’s current situation and their path for the future, analysis must be done. Utilizing Porter’s Five Forces, management can analyze Campbell’s competition to gain a competitive advantage or sustain an advantage they currently hold. Starting with the threat of new entrants, Campbell should not view this as a priority as it is quite low because they compete with companies like Nestle, General Mills, The Kraft Heinz Company, all of which are world food leaders in sales or certain categories of food that they specialize in. Thus, it is difficult for a new entrant to enter due to limited market share as well as the high cost of capital involving supply chain and transportation logistics. 

On the other hand, the bargaining power of buyers is high. Customers are demanding the best offering available while wanting to pay the lowest price possible, which is why the processed food industry faces high competition and low profit margins. This puts pressure on Campbell’s profitability in the long run, but there are ways to overcome this difficulty. One way is by building a large base of customers with different needs and wants, which will reduce their reliance on existing customers. Another solution is by rapidly innovating new products to customers, limiting the bargaining power of buyers and their ability to seek increasing discounts and offers. Likewise of the buyers, the bargaining power of suppliers is also high. Most companies in the Processed & Packaged Goods industry buy their raw materials from numerous suppliers. With that being said, suppliers can use their negotiating power to extract higher prices from Campbell, and this ultimately affects the overall profitability of Campbell. 

One strategic option can be to form long-term relationships with suppliers, so both are better off, and a mutually beneficial relationship can lead to more flexibility for both parties. Previously, it was mentioned that one of Campbell’s top competitors, Progresso, influences Campbell to innovate in order to sustain their share of market power. This ties in directly with a high threat of substitutes. For example, direct rivals like Progresso can easily attract the same customers that buy products from Campbell. 

This threat of substitutes pertains to Campbell’s ability to differentiate and focus on new products or strategies such as marketing to give them a competitive advantage over competitors. The last force is the intensity of rivals, which is very high for the processed food and snack industry. Because rivalry is so competitive and intense, it drives down prices of their products and decreases the overall profitability of the entire industry. To overcome such adversities, it is crucial for Campbell to build a sustainable plan for the company’s future, such as exploring emerging channels and markets to diversify their focuses.

By applying the SWOT analysis to Campbell, strategic decisions will become clearer regarding what they do well and what some of their weaknesses are. To begin the SWOT analysis, the internal strategic factors will demonstrate the advantages and disadvantages that occur within the company. Campbell has many strengths that other companies aspire to have, such as their history of reliable suppliers that pairs well with their strong and reliable distribution network. One example is their agreement with Coca-Cola, which serves as the transportation network for Campbell’s refrigerated single-serve beverages in North America. 

Other strengths include strong-brand recognition, easily recognized by many Americans by the red and white logo, which allows Campbell to expand into new product categories with their established publicity. Campbell also invests huge resources in their training and development for their employees, creating a highly skilled workforce. Conversely, Campbell’s weaknesses cause the overarching problem -- profitability. Like many companies in their industry, there is high turnover in the workforce, which is a contributing factor to their financial statements; their profitability ratio and net contribution percentage are below industry average. 

With the domestic market becoming more saturated, Campbell needs investment in new technologies to increase their scale of expansion in different markets around the world, which is a race against competitors on who can do it first, but ultimately better. Also, their lack of tactical marketing and securing their market share in niche categories is a weakness for Campbell, with one example being their unsuccessful attempt entering Russia. Moving on to the external strategic factors, there are a variety of opportunities that Campbell should consider that can help them overcome some of their weaknesses. 

For example, Campbell can invest in new technologies such as increased marketing to appeal to technologically savvy or the millennial generation consumers, which can increase engagement and sales through digital and e-commerce. Another opportunity is to invest more into research and development before expanding into foreign regions, reducing the risk of a failed attempt. Lastly, Campbell’s threats are an external strategic factor that they need to be cautious when making decision for the future. With their expansion of product variety, Campbell must keep in mind that demand of highly profitable products may be seasonal in nature, which could impact profitability in the short term. This is a threat because executives may feel inclined to terminate certain product offerings when in fact, they need to balance and perfect the rotation of their seasonal products. In addition, a threat that affects not only Campbell, but also the rest of the industry is the rising raw material costs. This is a threat as it indicates higher expenses, which Campbell is already struggling balancing their financials in recent years.

The last analysis tool that would benefit Campbell is Value Chain Analysis, a strategy tool that analyzes the internal firm activities. The two most important primary activities are their operations and outbound logistics. First, their operations, which includes both manufacturing and service operations, is imperative to their success due to the low profit margins in the industry. By maximizing efficiency and increasing the productivity in machining, packing, assembling and testing, Campbell will be able to cut costs in hopes to salvage their financial statements. Outbound logistics, which include material handling, warehousing, scheduling, order processing, transporting, and delivering to the destination, are of upmost importance due to the swift changes in trends as well as the concern for their perishable goods. 

Campbell should focus on managing their inventory and delivering their shipments to the end customer as quickly as possible. It should be noted that Campbell’s inbound logistics is one of their competitive advantages, with 140 years of experience and knowledge. They are very effective at using forecasting technology to predict the domestic demand for their products, which can be utilized to improve overall stock quality in the outbound logistics. This relates to Campbell’s efficient distribution methods, which they are able to be effective due to their production facilities around the world. Regarding the secondary activities, technology development is crucial to becoming more efficient while being cost effective. 

Technological integration in many functions of the business will allow Campbell to increase their economies of scale. Some examples are automation software, technology-supported customer service, product design research and data analytics. By integrating technology into Campbell’s activities, there will be more time and resources that can be invested into new projects and ideas, which robots and software are not able to do. Lastly, the procurement in value chain implies the processes involved in purchasing the inputs that may range from equipment, machinery, raw material, supplies, raw material and other items necessary for producing the finished product. Campbell should carefully consider its procurement activities, in order to optimize the primary activities such as the inbound, operational and outbound value chains.

Looking forward, the first strategic option for Campbell’s Soup is the decision to go from a publicly traded company to private. With Morrison constantly chasing growth, such as creating an abundance of new products with little to no return, or the rush to expand internationally without having done enough research, Campbell may be able to avoid such costly mistakes. Campbell’s difficulties and weaknesses can be largely attributed to their need for growth, which is ultimately a decision to appease public investors. Although sales are declining, their soup sales in 2017 contributed to approximately $600 million in cash, as well as an impressive 30 percent profit margins for soups alone. Their iconic brand and history say enough and by focusing on their expertise, risk can be mitigated. 

By becoming a private company, Campbell would be able to focus on investing in their operations and supply chain, while avoiding costly acquisitions. Examples include Bolthouse farms, which cost them $1.55 billion or Snyder’s, which Campbell acquired in 2016 for $6.2 billion, not to mention this acquisition tripled Campbell’s long-term debt. If Campbell decides to go private, this would not mean that there would be no growth. Instead, slow growth would be the most optimal, while not being under pressure to deliver quarterly results. In the long-term Campbell has the cash flow to sustain and develop their non-soup acquisitions, while being able to focus their efforts in marketing and improving their soup production line, such as healthier, condensed soups with less sodium or their Chunky soups that cater more towards individuals looking for a “heartier” meal.

Campbell’s efforts to enter the fresh food and snacks business have been lackluster, which is a huge factor of their debt and declining financial statements. The second strategic option is to consolidate their financial statements, which focuses on erasing the debt they have accumulated. According to Forbes, industry bankers expect that if Campbell sells its fresh food and international snacks business, they will be able to generate between $2 billion and $3 billion cash. In this situation, Campbell can remain public as a significant decrease in debt will incentivize investors, due to decreased risk of being unable to pay their long-term debt. More so, the company can then invest their resources and utilize their excess cash flows into increased marketing expenses. This prompts growth for multiple target audiences, such as catering their soups more towards children on television advertisements or advertising their Chunky soups towards men during NFL broadcasts.

In addition to the constant transformation in consumer preferences, namely the recent trend of healthier options, technology and the demographics in the United States are also changing, which offers a domestic opportunity. The rise in the Latino population, now more than 50 million in the United States, and the change to an increasing number of single-person or adult-only households, alters the way consumers shop. In addition, e-commerce is making its way into the food industry. One prominent example is Whole Foods, which diverges from how traditional families used to grocery shop and the way business is done for traditional retailers. 

This emerging channel can allow Campbell to differentiate from its competitors by creating partnerships with online retailers. Without having their customers go to the grocery store, customers may feel inclined by factor of convenience. For example, with a Campbell online delivery app, customers can order snacks, frozen foods, and soups, to be delivered to their doorstep at a scheduled time. Campbell already has the logistics to transport quantities in mass, but this requires a partnership to effectively deliver to individual houses. Finally, with additional efforts in marketing to a younger audience, Campbell could transform their company to appeal especially towards the millennial generation. As the millennial generation develops, there will be increased brand loyalty and offers a more sustainable plan for long-term growth.

Once just a soup company, Campbell has faced adversity in expanding both internationally as well as their product offerings. Although their financial statements have dwindled the past couple years, they still have their competitive advantage of doing what they do best: soups. Also, because of their economies of scale, their outbound logistics and operations are efficient. It appears that Campbell is attempting to expand and develop growth faster than they can handle. One option for Campbell is to make their company private, so that they can still focus on growth but at a more moderate pace. On the other hand, another strategy would be to develop their technological influence with the targeted audience of changing demographics specifically in the United States. The overall factors when considering the future for Campbell is by mitigating their losses in the short term and to not lose sight of their expertise.      

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