CAMDEN, NJ — In the face of “tectonic generational shifts” and a rapidly changing competitive landscape in the food industry, Campbell Soup Co. is aggressively adapting to the new food business environment, said Denise Morrison, chairman and CEO.
During the company’s annual investor day July 20, Morrison offered the kind of futuristic view, both of Campbell Soup and the food industry, that has become a trademark of her yearly presentations. She touched on changes at the company and the industry ranging from the introduction of a “yes, yes” list of ingredients to recently passed legislation for GMO labeling.
Over the last several years, Campbell Soup has taken major steps to diversify further away from its mature soup business, making four major acquisitions — Bolthouse Farms, Plum Organics, Kelsen Group and Garden Fresh Gourmet. The four currently account for $1.2 billion in sales annually (about 15 percent of the company total).
“More importantly, they have provided us with platforms for growth and value creation,” Morrison said. “There are tectonic generational shifts under way as baby boomers give way to millennials and generation Z as the key influencers of societal and cultural norms. That’s why we’re intensely focused on attracting new consumers to our brands.”
Campbell Soup sales were under pressure in the company’s most recent quarter, and Morrison described a squeeze taking place in the food industry adversely affecting companies that don’t have just the right scale.
“It’s becoming clear that a new competitive landscape has developed in the food industry,” she said. “Big companies are getting bigger and more global while smaller challengers continue to fight to undo food. Disruptive business models are emerging at every step of the value chain.
“In this environment growth is elusive for large brands in center of store categories. More than 70 percent of the industry’s growth will come from small- and mid-size brands. Challenger brands are winning: they are winning with consumers, and they are winning with retailers. As a result, traditional retailers are responding in a variety of ways with small format and neighborhood stores, expanded shelf space for purpose-driven brands and private label offerings and increased presence in e-commerce. Meanwhile, consumers continue to gravitate toward value, demonstrated by the explosion of lower price retailers such as dollar stores.
“There is an asymmetry in the food industry today with smaller, more nimble competitors that fly under the radar unless you’re paying close attention. And we’re paying very close attention.”
This attention has been demonstrated with the shifts in Campbell Soup’s portfolio targeted with a move toward “a stable of smaller purpose-driven brands,” exemplified by the recent acquisitions, Morrison said.
- “Real food has roots. It should be made with recognizable, desirable ingredients from plants or animals.
- “Real food is prepared with care. It should be responsibly crafted and ethically sourced and sustainable in its practices that safeguard the natural resources we all share.
- “Real food should be accessible to all. It should always be delicious, safe and available at a fair price, all three without compromise.”
“These are the principles that guide our real food philosophy and to be true to ourselves and our beliefs we must strive to abide by all of these, not just those that are convenient,” Morrison said.
Steps the company is taking in shifting its existing portfolio toward “real food,” include commitments to go to cage-free eggs by 2025, and the ban of routine use of antibiotics by the company’s chicken suppliers.
The company also is introducing its “yes, yes list,” she said.
“It’s quite simple: yes to more vegetables and yes to more whole grains,” she explained. “Today Campbell products provide more than 11 billion servings of vegetables and 4 billion servings of whole grains per year to consumers and we’ll continue to find ways to add more servings across our entire portfolio.
“Transparency is the new coin of the realm. We get it and we’re doing it.”
Morrison noted 200 of the company’s products contain at least one full serving of vegetables and 220 are a good source of fiber.
A year ago, Campbell Soup launched the whatsinmyfood.com website for consumers to learn about the Campbell Soup food and ingredients. The website was “a good first step,” Morrison said, noting that since then the company became the first major food business to support mandatory national labeling of food with bioengineered ingredients. She expressed mixed feelings about legislation recently passed by Congress.
“We’re pleased to see the recent bipartisan legislation,” she said. “It’s not perfect, but we believe it’s an important step forward. It avoids the patchwork approach of different state laws and establishes a national mandatory labeling solution.”
Additional steps Campbell Soup will take going forward will be the disclosure of supply chain details for the company’s largest ingredients — tomatoes, carrots, poultry and wheat.
“This means providing visibility throughout the supply chain, including the partners we work with every day to grow and make our food,” Morrison said. “This is part of a longer journey to engage our suppliers in full sustainability, complete traceability and consistently ethical sourcing for these signature ingredients.
“Let’s face it. The truth is non-negotiable.”
Morrison described other ways the changing world is being incorporated into the changing business model of Campbell Soup. For example, digital marketing now accounts for 35 percent to 40 percent of the entire advertising spend at the company each year, she said.
Equally important, she said, is growth in e-commerce, which currently accounts for about 1 percent of Campbell Soup sales.
“Clearly we have runway here,” she said. “Despite the growth of e-commerce, the brick-and-mortar food shopping experience remains very appealing. Many consumers are seeking a blended approach to food shopping. As part of building our e-commerce muscles we’ll pursue an omnichannel strategy to make sure our products are within arm’s reach of our consumers whether that’s on a retailer’s shelves, a mouse click away at an on-line store or ordered on a mobile phone for store pickup.”
The company is targeting $2 billion of annual sales in its Packaged Fresh business by 2020, and Morrison and other company executives cited pending new product introductions that represent innovativeness that will be key to success in this effort.
In its Campbell Fresh division, a Bolthouse Farms plant-based alternative milk drink will be on the market shortly.
“It’s made with pea protein that delivers far more protein than other alternative milks,” she said.
In the company’s soup business, Campbell is introducing a ready-to-serve clean label soup called Well Yes.
“Designed with our real food philosophy, it’s made with recognizable and desirable ingredients like kale, potatoes, tomatoes and quinoa,” she said.
In remarks about Campbell Soup financials, Anthony DiSilvestro, senior vice-president and chief financial officer, offered insights into the growth potential of the fresh foods business as well as challenges the sector has faced.
|Anthony DiSilvestro, senior vice-president and CFO of Campbell Soup.|
“Our strategy is to build scale by accelerating organic growth in our existing CPG categories and expanding into adjacent categories both organically and through external development as we have done with the acquisition of Garden Fresh Gourmet,” he said. “Year to date we have not delivered the expected level of growth in C-Fresh as we faced declines in our ingredient businesses and experienced a weather-related carrot yield issue in the third quarter. We expect continued weakness in the fourth quarter due to the recently announced recall of protein drinks as well as the impact of a major carrot customer moving to a dual source arrangement…
“Despite those challenges we remain confident in the growth potential of this business and expect to deliver improved performance going forward.”
Also picking up on some of Morrison’s themes was Mark Alexander, president of Americas, Simple Meals and Beverages. For example, he elaborated on efforts form the company to continue its portfolio shift over time.
|Mark Alexander, president of Americas, Simple Meals and Beverage for Campbell Soup|
“Over the next three years we plan to invest approximately $50 million to drive this effort,” he said. “We will continue to evolve existing products and launch new varieties aligned to our real food philosophy. And we’ll be transparent about our efforts. Today we published the Campbell’s real food index, which we’ll use to track our progress.”
Planned steps that will improve index scores in coming years include diminishing the use of monosodium glutamate, removing artificial colors from formulations and BPA from can-line, as well as the phasing out of antibiotic-fed chicken.
He cited the newly unveiled soup line, Well Yes, as a “challenger brand.”
“For people who want real food that will positively benefit their well-being, (Well Yes is) a product that will score 100% on our real food index,” he said. He also cited attractive potential for Plum Organics, acquired three years ago.
“During the past 12 months the organic baby food category generated $461 million in retail sales and grew nearly 11 percent,” he said. “Over the same period Plum grew 25 percent and delivered $119 million in retail sales, solidifying its position as the leader in the organic baby food category.”
More recently, the company launched an organic infant formula under the Plum brand.
“Organic brands are underrepresented in the formula category,” he said. “And given our experience in the baby and tots markets we believe there is a great opportunity.”