7. Campbell s Soup Company

Transcription

1 7. Campbell s Soup Company M m! M m! Good! That s what Campbell s Soup is... M m! M m! Good. That s a famous advertising slogan that captures the essence of what the Campbell s Soup Company is about. But Campbell s Soup is much more than a soup company. It operates in other grocery categories but doesn t have nearly the presence which it does in soup. Campbell s operates in mature product categories. If the company is to grow, it needs new products that meet the needs of contemporary consumer lifestyles. New strategies must be devised, but the direction the company should take could be controversial. The Company Campbell's Soup Company is the world s largest manufacturer of soup and a leading producer of juice beverages, sauces, biscuits, and confectionary products. The company markets soup globally under the Campbell s brand name. Over time, the company has acquired other brands that are well known in other markets. Among them are brands such as Erasco and Heisse Tasse (Germany), Liebig (France), and Batchelors and Oxo (United Kingdom). Other food brands include Pepperidge Farm cookies and crackers, V8 and V8 Splash juice beverages, Pace Mexican sauces, Prego pasta sauces, Franco-American canned pastas and gravies, and Swanson broths, all of the United States, as well as Arnott s biscuits from Australia and Godiva chocolates around the world. Campbell s Canada was established in It began making and marketing canned soup in Campbell s success is based on a simple formula of providing consumers with uncompromising quality, good nutrition, and excellent value. Campbell s Canada makes and markets such well-known brands as Chunky soups, Habitant soups, Pepperidge Farms, V8 and V8 Splash, Red and White Campbell s condensed soups, and Ready-to-Serve soups. A quick look at the categories that Campbell s competes in reveals a strong connection to traditional forms of meal preparation and traditional meals. Condensed soups, for example, are eaten as part of a main meal or are added to a recipe that is part of a meal. The ready-to-serve versions such as Campbell s Chunky soups offer consumers some convenience, but preparation still requires access to a stove or microwave oven. V8 is typically served with main meals; it is a product very similar to regular tomato juice. V8 Splash has a more contemporary image and offers unique taste combinations; it competes directly in the rapidly expanding and very competitive bottled juice category. Based on sales and earnings over the past two years, Campbell s Soup can be characterized as a conservative, slow-growth type of organization. Between 2000 and 2001 sales increased by only 3 percent and earnings declined by 5 percent. Despite the decline in earnings, the company is not in any financial trouble. A summary of key financial data is included in Figure 1. For a complete review of Campbell s financial situation refer to the company Web site,

2 Figure 1 Financial Highlights Campbell s Soup Company ($ million) Net Sales Cost of Goods Gross Profit General, Admin., & Marketing Expenses Restructuring Charge 10 Earnings Before Interest and Taxes Interest Expense Earnings before Taxes Taxes Net Earnings Sales by Product Segment Campbell s products are divided into three primary segments for the purposes of reporting financial information and marketing. The segments are Soup and Sauces, Biscuits and Confectionary, and Away from Home. The segments are managed as strategic units because of their distinct manufacturing processes, marketing strategies, and distribution channels. The Soup and Sauces segment includes Campbell s soups worldwide and the other European soups previously mentioned, along with Prego pasta sauces, Pace Mexican sauces, Franco-American pastas and gravies, Swanson broths, and V8 and V8 Splash beverages. The Biscuits and Confectionary segment includes the Godiva Chocolatier, Pepperidge Farm, and Arnott s businesses. Away from Home represents the distribution of products, including Campbell s soups and Campbell s Specialty Kitchen entrees, to North American food service and home meal replacement markets. The Soup and Sauces segment is the foundation of the company. In 2001, soups and sauces contributed 68 percent of sales and 88 percent of operating earnings. Clearly, these businesses carry the company in that they provide revenues and operating income to support the development of new products in all product segments. For a breakdown of company sales and earnings by segment refer to Figure 2. Figure 2 Sales and Earnings by Product Segment ($ million) Sales Earnings Segment %Change %Change Soups and Sauces Biscuits and Confectionary Away from Home Other Intersegment (65) (62) Corporate (123) (82) Sales or Earnings

3 By product segment, the increase in sales for soups and sauces in 2001 is largely attributed to soup. Soup sales increased by 5 percent. Beyond soup, sales of prepared foods, including Franco- American products and beverages as well as V8 and V8 Splash, declined in highly competitive categories. Sales from biscuits and confectionary increased by 5 percent with the entire portfolio of products contributing favourably. Pepperidge Farm cookies, crackers, fresh bread, and frozen products did extremely well and Godiva Chocolatier reported double-digit growth as a result of new store openings and increased comparable store sales. Godiva is a premium chocolate product that appeals to a segment of the market that is not that price sensitive. It is a decadent treat for those who can afford it. Away from Home sales increased 1 percent mainly as a result of growth in frozen soup and sauces, offset by declines in lower-margin bakery products and frozen entrees. Marketing Investment Campbell s invests significantly in marketing and selling each year. In 2001, marketing and selling expenses were 26.5 percent of net sales. In 2000 the figure was 25.1 percent, and in 1999 it was 24.7 percent. The company traditionally supports core brands, principally soup. The company s marketing budget is divided between media advertising, consumer promotions, and trade promotions. Discounts and allowances for distributors are a crucial part of the promotion mix, especially for mature products that are trying to protect their shelf space. Newer product lines tend to receive more media advertising support in order to generate brand awareness and stimulate trial purchases. Geographic Importance of Sales Campbell s operates worldwide but the United States accounts for 75 percent of all sales and close to 95 percent of earnings before interest and taxes. Refer to Figure 3 for details. Figure 3 Net Sales by Geography Net Sales % Change United States Europe Australia/Asia Pacific Other Countries Adjustments and Eliminations (72) (73) Consolidated The Corporate Strategic Plan Heading into 2001, Campbell s conducted an intensive review of operations and mapped out its strategic direction for the next three to five years. The plan is designed to get Campbell s back on a growth track. Campbell s wants to be a tougher competitor with a much closer connection to consumers all over the world. The company is optimistic about its North American soup business and has brought back the M m! M m! Good! advertising slogan in The slogan is

4 extremely popular among baby boomers who grew up with it, but it is not that familiar among new younger shoppers just beginning to establish brand loyalties. The slogan s marketing potential is therefore questionable. The strategic plan calls for improvements in product quality and the creation of new and convenient packaging and products. The company committed $500 million ($300 million for development and $200 million for marketing) to a fund that would support the development of innovation. The money will be spent between 2002 and The strategic plan is based on a new mission statement and five unique but related strategies. The company mission statement reads as follows: Our mission is to do much more with the exceptional assets we have to leverage our brands and the talent of our people to win in the marketplace and win in the workplace, all across our company, wherever we do business. The five-point strategic plan is summarized as follows: 1. Revitalize the North American soup business. 2. Strengthen the broader portfolio for predictable volume and profit growth. 3. Begin to build new growth avenues. 4. Drive a quality agenda while continuing to drive productivity. 5. Substantially improve organization excellence and vitality. As an indication of how that plan is being implemented, Campbell s launched a new product line called Campbell s Supper Bakes in Supper Bakes are an All-in-One meal kit that takes five minutes to prepare. It is a frozen pork or chicken meal (meat only) that is oven-basted in a seasoned baking sauce and packed in a container that can go directly into the microwave oven or stove. Supper Bakes offer a homemade taste without the hassles associated with homemade meal preparation. They take only 5 minutes to prepare and 30 minutes to bake. In today s hectic world Supper Bakes give busy people the feeling of cooking a dinner, even though it only took a few minutes to do so. Present Situation When one thinks of canned soup, one may think about high-salt and high-fat content. When Campbell s started selling soup in a can, it was heralded as the new wave of industrial efficiency and for generations it was. But such an image about the product may not be in keeping with the needs and expectations of modern-day consumers. According to Jaine Mehring, a market analyst with Salomon Smith Barney, The core of the entire Campbell s empire may not be all that relevant to most of the consumer base. Why aren t they driving the shift more aggressively to ready-to-eat and just sort of letting go of the condensed soup business? She has a point. Perhaps the marketing emphasis should be placed in areas where long-term growth potential is greater. Campbell s is being threatened by newer versions of ready-to-eat soups from brands like Progresso and Healthy Choice, and convenience meals aimed at low-fat, health-oriented consumers. In their own product categories, the tried and true soups like Chicken Noodle and Cream of Mushroom are old school. They need something upbeat and trendy, something ethnic, and something in keeping with the constantly changing food preferences of modern consumers.

5 The nature of the soup business is changing. The nature of the grocery business is changing. Despite the direction that Campbell s seems to be going in, there are those who believe that Campbell s has not reinvented itself to fit into modern-day life. For example, how many things does Campbell s make that are sweet or portable, and that can be thrown into a kid s lunch box or an executive s briefcase? How many Campbell s products can you take to work? Is anyone going to sit at a desk with a can of Campbell s soup? The Challenge This case embraces two key planning topics: corporate strategic planning and marketing planning. Campbell s has developed into a worldwide company, but its businesses are concentrated in categories where growth potential is modest at best. External trends such as demographic and social trends, technological trends, and competitive trends strongly suggest the need for new ways to grow. How and when people consume meals is different today than it was ten or twenty years ago. Being a large and financially resourceful company, Campbell s has to decide what direction or directions to take. Is it market development, product development, or acquisition and diversification? Your challenge is to conduct some secondary research on the basic business that Campbell s competes in, and identify the key trends that will affect the direction the company should take. Part of the analysis should also focus on the strategies and activities of direct competitors and indirect competitors. Once the situation has been thoroughly analyzed, you must make recommendations about how the company should proceed over the next two to three years. If, for example, product development is the marketing direction that is recommended, what product categories should Campbell s compete in? What types of products should the company offer? You must consider the resources of the company and the expertise of management when making such recommendations. If the marketing direction is market development, what markets (demographic and geographic) should the company pursue? What is the justification for pursuing these markets? Essentially, your job is to devise a marketing strategy that conforms to the basic direction provided in the five-point corporate strategic plan. Questions 1. What external trends and influences are affecting the growth potential of the Campbell s Soup Company? 2. What basic marketing strategy should Campbell s adopt? Should it be market development, product development, acquisition or diversification, or some combination of these? Justify your answer. 3. Are there other grocery categories that Campbell s should enter? Base your decision on the resources and expertise available at Campbell s. 4. What specific marketing activities should Campbell s implement over the next two to three years that will help achieve the corporate objectives established by senior management? Adapted from Hamida Ghafour, Not just the same old soup, Toronto Star, July 29, 2001, p. A7; and Campbell reports fourth quarter and fiscal 2001 results, press release, September 6, 2001,