Campbell soup annual report 2011

CAMPBELL: IS THE SOUP STILL SIMMERING?*
Change was stirring at Campbell Soup. Denise Morrison, who formerly headed the company’s North American soup business, has taken over as CEO. The change at the top for 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 may have missed an opportunity by picking insider Denise Morrison to lead the world’s largest soup maker instead of bringing in outside talent to revive sales.1

By 2013 with Morrison at the helm, The Campbell Soup Company had launched more than 50 new products, including 32 new soups. This number was way up from only 3 in 2010 and 2011. Morrison also shocked experts with the $1.55 billion buyout of California juice-and-carrot seller Bolthouse Farms, the largest acquisition in Campbell’s history.2 Despite the revitalization of their product line, however, the company still failed to accomplish an impressive comeback. Midyear 2012 financials indicated that profit slipped by 5 percent in the latest quarter, which the company attributed to an increase in marketing expenditures to revive soup sales.

Company Background
Probably known best 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 offers a whole lot more than just soup in a can. Today the company, headquartered in Camden, New Jersey, competitively operates in five segments: U.S. Simple Meals, Global Baking and Snacking, International Simple Meals and Beverages, U.S. Beverages, and North America Foodservice (see Exhibit 1).

In 2013 Campbell’s products were sold in over 100 countries around the world, and the company had operations in the United States, Canada, Mexico, Australia, Belgium, China, France, Germany, Indonesia, Malaysia, and Sweden (see Exhibit 2).3

The company was 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 a first step, Campbell Soup Company, synonymous with the all-American kitchen for 125 years, acquired in 1994 Pace Foods Ltd., the world’s largest producer of Mexican sauces. Mr. Weise, CFO at that time, said that a major motivation for the purchase was to diversify Campbell and 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-materials purchasing operations, since peppers, onion, and tomatoes were already used in the company’s soups, V8, barbecue sauce, and pasta sauces.4 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.5

*This case study was prepared by Professors Alan B. Eisner and Dan Baugher of Pace University; and Professor Helaine J. Korn of Baruch College, City University of New York. The purpose of the case is to stimulate class discussion rather than to illustrate effective or ineffective handling of a business situation. Copyright © 2013 Alan B. Eisner.

EXHIBIT 1 Sales by Segment

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1 Sales by Segment
2 % Change
3 2012 2011 2010 2012/2011 2011/2010
4 (Millions)
5 U.S. Simple Meals $ 2,726 $ 2,751 $ 2,938 (1) (6)
6 Global Banking and Snacking 2,193 2,156 1,975 2 9
7 International Simple Meals and Beverages 1,404 1,463 1,423 (4) 3
8 U.S. Beverages 774 759 762 2 —
9 North America Foodservice 610 590 578 3 2
10 $ 7,707 $ 7,719 $ 7,676 — 1

Source: The Campbell Soup Company, Annual Report, 2012.

Campbell Soup, a leading food producer in the United States, had a presence in approximately 85 percent of U.S. households. However, in recent years, the company faced a slowdown in its soup sales, as consumers were seeking

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EXHIBIT 2 Campbell’s Principal Manufacturing Facilities

out more convenient meal options, such as ready meals and dining out. In order to compete more effectively, especially against General Mills’ Progresso brand, Campbell had undertaken various efforts to improve the quality and convenience of its products.

Principal Manufacturing Facilities
Inside the U.S.
California New Jersey South Carolina
Dixon (USSM/USB) South Plainfield (USSM/USB) Aiken (GBS)
Sacramento (USSM/USB/ISMB) East Brunswick (GBS) Texas
Stockton (USSM/USB) North Carolina Paris (USSM/USB/1SMB)
Connecticut Maxton (USSM/ISMB) Utah
Bloomfield (GBS) Ohio Richmond (GBS)
Florida Napoleon (USSM/USB/NAFS/lSMB) Washington
Lakeland (GBS) Everett (NAFS)
Illinois Willard (GBS) Wisconsin
Downers Grove (GBS) Pennsylvania Milwaukee (USSM)
Denver (GBS)
Downingtown (GBS/NAFS)
Outside the U.S.
Australia China Indonesia
Huntingwood (GBS) Xiamen (ISMB) Jawa Barat (GBS)
Marleston (GBS) Canada Malaysia
Shepparton (ISMB) Toronto (USSM/ISMB/NAFS) Selangor Darul Ehsan (ISMB)
Virginia (GBS) France Mexico
Belgium LePontet (ISMB) Villagran (ISMB)
Puurs (ISMB) Germany Sweden
Luebeck (ISMB) Kristianstadt (ISMB)

Source: The Campbell Soup Company, Annual Report, 2012.

USSM - U.S. Simple Meals

GBS - Global Baking and Snacking

ISMB - International Simple Meals and Beverages

USB - U.S. Beverages

NAFS - North America Foodservice

out more convenient meal options, such as ready meals and dining out. In order 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
For the longest time, consumption of soup in Russia and China has far exceeded that of the United States, but in both countries, nearly all of the soup was homemade. Within the past few years, however, with the launch of products tailored to the local tastes, trends, and eating habits, Campbell presumed that it had the chance to lead the soup commercialization in Russia and China. “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 prepare at home.”6 For about three years, in both Russia and China, Campbell sent their marketing teams to study the local markets. The main focus was on how Russians and Chinese eat soup and how Campbell can offer something new. As a result Campbell came up with a production line specifically created for the local Russian market, called “Domashnaya Klassika.” It 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.

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But after just four short years, Campbell pulled out of the Russian market, after thinking it would be a simmering new location for them. In June 2011, 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 in September 2007, they knew that it would be challenging to persuade a country of homemade soup eaters to adopt ready-made soups. When Campbell initially researched the overseas markets, they learned that Russians eat soup more than five times a week, on average, compared with once a week by Americans.7 This meant that both the quality and sentiment of the soup meant a great deal to the consumers—something that Campbell may have underestimated.

As for China, after Campbell infiltrated the market a few years prior, in 2013 CEO Denise Morrison was quoted by the Global Entrepreneur as saying, “The Chinese market consumes roughly 300 billion servings of soup a year, compared with only 14 billion servings in the US.”8 When entering the Chinese market, Campbell 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 the U.S. “The numbers blow your hair back,” said Larry S. McWilliams, president of Campbell’s international group.9 While they have successfully entered the market, it has yet to be seen whether they have 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.

U.S. Soup Revitalization
In September 2010, Campbell launched its first-ever umbrella advertising campaign to support all of its U.S. soup brands with the slogan “It’s amazing what soup can do,” highlighting the convenience and health benefits of canned soup. The new campaign supported Campbell’s condensed soups, Campbell’s Chunky soups, Campbell’s Healthy Request soups, and Campbell’s Select Harvest soups, as well as soups sold in microwaveable bowls and cups under these brands.10 Despite other departments flourishing, the soup division continued to struggle.

Campbell Soup Co. has begun moving attention away from reducing salt in its products to focusing more on “taste adventure” as its U.S. soup business has turned cold. Campbell Soup was one of the first large U.S. packaged-food makers to focus heavily on decreasing sodium across its product line. The salt-reduction push was one of the company’s biggest initiatives of the past decade. “The company had pursued reducing sodium levels and other nutritional health initiatives partly to prepare for expected nutritional labeling changes in the U.S. 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.”11

Yet with Campbell reinventing its product offering and revitalizing its soup line, CEO Douglas Conant 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. Since then, Denise Morrison, formerly president of the North America Soup division has taken over 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 reinforced their confidence in her to do the job, and Morrison assured everyone that changes were on their way and a shift in focus was in the works. Morrison said that Campbell would bring both the “taste and adventure” back to their soups, with a new and expanded product line offering unique new flavors and “adding the taste back” by doing away with their sodium reduction.