Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

Denise Morrison, CEO of Campbell Soup Co., seems to have no illusions about the enormity of the challenges facing her packaged-food company as consumers change their eating habits.

During a Wednesday presentation for investors, Morrison said, "Those companies who cannot or choose not to respond are running out of time."  

It's a frank and correct assessment, and it explains why Campbell has gotten ruthless in recent years about slashing costs.

The company has reorganized into divisions based on product types, thinned its ranks of middle managers and adopted zero-based budgeting. Last summer, it said it was on track for $300 million in annual savings by 2018. Encouraged by the speed of cost-cutting so far, executives said in February they were aiming for $450 million in annual savings by 2020.

Campbell is also working on making its supply chain more productive. 

These efforts seem to be paying off in the bottom line: Michael Halen, a consumer analyst with Bloomberg Intelligence, points out Campbell's adjusted Ebit margins have been improving: 

Trimming the Fat
Campbell's cost-cutting efforts have helped its profitability
Source: Bloomberg Intelligence

But now it needs more clarity -- and urgency -- about how it will boost its top line.

The company's recent $700 million acquisition of Pacific Foods was a good step in that direction. The purchase of this producer of organic soups and broths makes sense, given that shoppers are gravitating toward niche brands with a good-for-you aura. Campbell's share in the soup category has been eroding for some time now. Pulling a small and growing rival into its stable is a way to offset that.

Cooling Off
Campbell still easily dominates the soup business -- but it has also lost significant share
Source: Euromonitor International

And even if consumers' preference for boutique-like brands proves to be a passing fad, the trend toward healthier eating is certainly a long-term one. Like Campbell's earlier purchase of baby food line Plum Organics, the Pacific Foods deal gives Campbell more of a toehold in this category.

But other moves have been more puzzling, including the launch earlier this year of a new line of soup called Well Yes. The line aims to appeal to customers with healthy, trendy ingredients such as kale and quinoa. Campbell plunked down money for a splashy TV advertising campaign around it and quickly brought the soup to major supermarkets. The company on Wednesday bragged that Well Yes had hit $28 million in retail sales in six months, exceeding expectations. It plans to add five more flavors to the brand in the next fiscal year.

But Well Yes hardly seems like the answer to Campbell's problems. It is still canned soup -- a tough sell at a moment when many shoppers see freshness as a proxy for a product's healthfulness.

Plus, Campbell has said that Well Yes was designed to target younger shoppers who already buy canned soup. How much can that really move the needle, when the problem is that not enough people are willing to buy canned soup in the first place?

The investment in Well Yes promises only incremental change, not bold transformation. And it makes you wonder if Campbell is consistently putting its muscle behind the initiatives that have the best chance of helping it survive.

Some of the other product ideas Campbell discussed on Wednesday seem logical enough: It will roll out a plant-based protein beverage under its Bolthouse Farms label, a product wisely catering to people who need or want to eat dairy-free. It is expanding a line of organic salad dressings and creating new varieties of Goldfish crackers to appeal to older kids' tastes.

Those items will likely find an audience. But they don't do much to safeguard Campbell's future.

And that's why it is a good thing executives still seem intensely focused on deal-making as a way to boost Campbell's firepower: The ideas coming from within don't seem to be big enough. 

Not Mmm Mmm Good
Campbell's stock has slipped significantly
Source: Bloomberg

Campbell executives talk the right talk about the kinds of changes a packaged-food company needs to make to thrive in today's dining culture. They know the tides have shifted, and they've responded by working to remove artificial colors and flavors from their food and to get rid of BPA in the lining of cans.

And there are other reasons to be optimistic it can rev up sales: It has plans to make deeper inroads in countries such as China and Indonesia. The recent woes in its Fresh division seem surmountable, as they are largely tied to a product recall and a ill-timed carrot harvest.

But Campbell will ultimately rise or fall on how quickly it can innovate or buy its way to a compelling product assortment. And it needs to turn up the heat on those efforts. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net