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Souping up Campbell's
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July 6, 2001: 1:00 p.m. ET
Wall Street anticipates revival plan from No. 1 soup maker's CEO Conant
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Generations of American moms whipped up cans of Campbell's condensed soups as a quick, convenient cure-all when their children got sick. But in the Internet age, what many once viewed as a convenient and quick meal now appears cumbersome and time-consuming.
That's why Wall Street will be listening carefully for Campbell's new CEO, Douglas Conant, to unveil a revival strategy for the red and white flagship brand when he meets with analysts on July 27.
"The fact is that they basically need to convince the consumer that soup is relevant, that soup is a convenient meal as opposed to being a side dish," said Eric Katzman, an analyst with Deutsche Banc Alex. Brown. "It's either that failure or that success, to get that idea across that's going to grow the category or shrink the category."
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Campbell has been struggling with sluggish soup sales (CNN/FILE) | |
Camden, N.J.-based Campbell Soup remains by a wide margin the category leader with 70 percent of the total market share for wet soup, ahead of competitor Progresso. The company has made some changes, namely by introducing ready-to-eat soups, pop-top cans and healthier varieties, but not before Progresso beat Campbell to the punch with the same products, and in so doing steadily chipped away at Campbell's market share.
Now the pressure is on Conant to come up with innovative marketing and advertising plans, a prospect made more challenging because there's only so much you can do to peddle soup, analysts said.
"I don't think there's any rabbit to pull out of a hat here," said Leonard Teitelbaum, a Merrill Lynch food analyst. "I think at this particular point in time we're looking at this as a real dose of reality. I think there's only so much he can do with what he's got unless he comes up with something spectacular."
Whether that something spectacular comes in the form of strict cost-cutting, acquisitions or other moves remains to be seen. Katzman expects Conant to make fundamental changes by making a "significant investment" in the core brand. Measures he anticipates include cutting costs, pumping up spending on marketing and advertising, and improving the quality of the soup.
For years Campbell stuck by its tried-and-true strategy of keeping its standard condensed soup as its feature product, despite a shift in consumer preferences in recent years to healthier meals that could be eaten on the run.
Progresso recognized such a shift early, and quickly stepped in with its own soups that could be eaten straight out of the can instead of first being mixed with water. It has and continues to steal market share from Campbell.
From 1995 to 2000, Campbell posted slim 1.3 percent annual sales growth, according to Merrill's Teitelbaum. Operating income came in at a somewhat respectable 4 percent clip, but that's mainly attributed to cost reductions.
Campbell has come around this year, reviving its vintage "M'm! M'm! Good!" advertising slogan to hawk its new varieties, but more needs to be done to boost sales and profit and restore investor confidence, analysts said.
"The question they have is how do you translate soup into a convenient product? How do you consume soup with one hand? That's a great question," Davenport & Co. Analyst Ann Gurkin said. "It doesn't seem to be enough to drive sales. They need to drive interest in soup, so it comes down to marketing."
Though Conant rates high marks from analysts since he took the helm in January, he carries the added pressure of reviving sales growth, a goal predecessors Dale Morrison and David Johnson failed to achieve.
Conant may have gotten a head start in the sales department. In May, Campbell reported dismal third-quarter results, yet saw domestic soup sales spike 12 percent in the period. Conant attributed the jump to increased marketing initiatives.
Recognizing the need to focus on its core soup business, Campbell announced in April plans to split its soup business from its beverage and sauces business, which includes V-8 vegetable drinks and Prego pasta sauces.
"The soup volume is a little better this year, but they're still losing market share to Progresso. They need to freshen up the portfolio," Bank of America Securities analyst William Leach said. "It just depends on the credibility of the new marketing initiatives. I think things are not quite as bad we think.
Though soup is the company's cash cow, analysts agree that more could be done with the company's other brands such as Godiva chocolates and V-8 Splash.
Another question mark is Campbell's acquisition earlier this year of Unilever PLC's European dry soup and sauce business that includes several key overseas brands. Though the Street generally favors the acquisition, the unit could face some earnings pressure if the dollar remains strong against the euro.
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Though investors anticipate an overall sea change at Campbell, Leach cautioned not to expect thunderous earnings growth.
People don't buy food companies for fast growth, they buy them for predictability," Leach said. "All these consumer companies are floundering around trying to find green ketchup and blue ketchup. In this industry if you get 2 percent growth, that's great." 
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Campbell Soup
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