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Campbell's Baking and Snacking segment includes, Pepperidge Farm cookies, crackers (such as goldfish), Campbell's Baking and Snacking segment includes, Pepperidge Farm cookies, crackers (such as goldfish),
-bakery and frozen products in U.S. retail. The segment also includes Campbell's Arnott’s of Australia which is the largest biscuit and second largest snack producer in the country. Arnott's also has a significant presences in the Asia Pacific region. +bakery and frozen products in U.S. retail. The segment also includes Campbell's Arnott’s of Australia which is the largest biscuit and second largest snack producer in the country. Arnott's also has a significant presences in the Asia Pacific regio<ref>[http://files.shareholder.com/downloads/CPB/452311993x0x237115/611e6ac8-c073-4dfe-abff-9ae0f5b00bf5/2008AnnualReport.pdf CPB 2008 10-K Item 1. Business]</ref>n.
==== Int'l Soup, Sauces and Beverages (20% sales, 15% income) ==== ==== Int'l Soup, Sauces and Beverages (20% sales, 15% income) ====
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Royco soups in France, Devos Lemmens mayonnaise and cold sauces and Campbell’s and Royco soups in Belgium, and Bla° Band soups and sauces in Sweden. In Asia Pacific, the company markets it's Campbell’s soup and stock, Swanson Royco soups in France, Devos Lemmens mayonnaise and cold sauces and Campbell’s and Royco soups in Belgium, and Bla° Band soups and sauces in Sweden. In Asia Pacific, the company markets it's Campbell’s soup and stock, Swanson
broths and V8 beverages. In Canada, operations include Habitant and Campbell’s soups, Prego pasta sauce, V8 broths and V8 beverages. In Canada, operations include Habitant and Campbell’s soups, Prego pasta sauce, V8
-beverages and certain Pepperidge Farm products.+beverages and certain Pepperidge Farm products<ref>[http://files.shareholder.com/downloads/CPB/452311993x0x237115/611e6ac8-c073-4dfe-abff-9ae0f5b00bf5/2008AnnualReport.pdf CPB 2008 10-K Item 1. Business]</ref>.
==== North American Foodservice (8% sales, 3% income) ==== ==== North American Foodservice (8% sales, 3% income) ====
The North America Foodservice includes Campbell's Away From Home operations which The North America Foodservice includes Campbell's Away From Home operations which
-distributes its products to restaurants, schools, colleges & universities, health care, adult cash, convenience stores, vending, and delis in the United States and Canada.+distributes its products to restaurants, schools, colleges & universities, health care, adult cash, convenience stores, vending, and delis in the United States and Canada<ref>[http://files.shareholder.com/downloads/CPB/452311993x0x237115/611e6ac8-c073-4dfe-abff-9ae0f5b00bf5/2008AnnualReport.pdf CPB 2008 10-K Item 1. Business]</ref>.
==Key Customers== ==Key Customers==

Revision as of 13:50, December 3, 2008

Since its founding over 125 years ago, Campbell's Soup Company (NYSE: CPB) has grown to be the largest producer of soup in the world. It has a 60% market share in the 4 billion dollar soup market. Campbell's has market shares in a number of food industry categories with products such as soups, sauces, snack foods, baking goods and beverages. Campbell's products are sold in over 120 countries around the world.

Campbell's soup depends heavily on its soup sales. In 2006, soup products contributed to almost half of U.S. sales. Campbell's ability to adapt to new consumer trends, such as healthier eating will be important to Campbell's in order to keep its majority of the soup market share. Campbell's has developed a new low-sodium soup line in order to target health conscious consumers and baby boomers concerned with high blood pressure. Since baby boomers are Campbell's main consumer base, educating the baby boomers about the benefits of their low-sodium soups will be pivotal to Campbell's future success.

Perhaps Campbell's biggest challenge lies in its continued growth. Campbell is dependent on mature (e.g. slower growing) US market for the majority of its sales. It has lower exposure to faster growin emerging markets than any of its competitors. Campbell has also committed itself to growing organically rather than acquisitions. As a result of these two factors Campbell's growth has trailed its competitors.

Business Overview

History

Founded in 1869 as the "Joseph A. Campbell Preserve Company," Campbell's initially produced canned tomatoes, vegetables, jellies, soups, condiments, and minced meats. In 1897, Campbell's hired John Dorrance, a chemist who would eventually develop a method for condensing soup by halving the amount of water needed[1]. With Dorrance's discovery, Campbell's quickly rose to the top of the ready-to-serve soup category[2] From the 1940's to the 1970's Campbell's aggressively expanded its offerings to include Pepperidge Farm's breads, cookies, and crackers, V8 vegetable juices, Swanson broths, and Godiva's chocolates. Throughout its history and to this day, Campbell's has relied heavily on advertising and marketing to build its brand equity.

Business Segments

U.S. Soup, Sauces and Beverages (46% sales, 72% income)

U.S. Soups, Sauces and Beverages account for almost half of Campbell's revenue
U.S. Soups, Sauces and Beverages account for almost half of Campbell's revenue[3]
U.S. Soups, Sauces and Beverages account for an even greater concentration of Campbell's operating income
U.S. Soups, Sauces and Beverages account for an even greater concentration of Campbell's operating income[4]

Campbell's U.S. Soup, Sauces and Beverages segment generates the bulk of the company's revenues and operating income. U.S. Soup, Sauces and Beverages include products such as Campbell’s condensed and ready-to-serve soups; Swanson broth and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbell’s Chunky chili; Campbell’s canned pasta, gravies, and beans; Campbell’s Supper Bakes meal kits; V8 juice and juice drinks as well as Campbell’s tomato juice[5].

Baking & Snacking (26% sales, 10% income)

Campbell's Baking and Snacking segment includes, Pepperidge Farm cookies, crackers (such as goldfish), bakery and frozen products in U.S. retail. The segment also includes Campbell's Arnott’s of Australia which is the largest biscuit and second largest snack producer in the country. Arnott's also has a significant presences in the Asia Pacific regio[6]n.

Int'l Soup, Sauces and Beverages (20% sales, 15% income)

The International Soup, Sauces and Beverages segment includes the soup, sauce and beverage businesses outside of the United States, including Europe, Mexico, Latin America, the Asia Pacific region and the retail business in Canada. Campbell's sells the Erasco and Heisse Tasse soups in Germany, Liebig and Royco soups in France, Devos Lemmens mayonnaise and cold sauces and Campbell’s and Royco soups in Belgium, and Bla° Band soups and sauces in Sweden. In Asia Pacific, the company markets it's Campbell’s soup and stock, Swanson broths and V8 beverages. In Canada, operations include Habitant and Campbell’s soups, Prego pasta sauce, V8 beverages and certain Pepperidge Farm products[7].

North American Foodservice (8% sales, 3% income)

The North America Foodservice includes Campbell's Away From Home operations which distributes its products to restaurants, schools, colleges & universities, health care, adult cash, convenience stores, vending, and delis in the United States and Canada[8].

Key Customers

Campbell Soup Company's largest customer is Wal*Mart. Campbell's sold products from all of its segments to Wal*Mart and its affiliates. Wal*Mart accounted for approximately 14% of Campbell's net sales for 2005 and 2006. No other customer accounts for more than 10% of Campbell's net sales.

Campbell's also sells its products to grocery stores, convenience stores, club warehouses, as well as other retail establishments.

Products

Campbell Soup Company had a total of $7,343 million in sales for 2006. The majority of Campbell's profits are generated by its famous soups. Soups accounted for 55% of sales and a whopping 65% of its profits. Campbell's also produces a number of different products across the food market. Campbell's Soup Company can be broken up into four different segments:

  • U.S. Soups, Sauces and Beverages

The soup category is comprised of all the different Campbell's style soups such as condensed, ready-to-serve, Chunky and Select soups. The sauces category includes Prego (Italian sauces), Pace (Southwestern sauces) and Swanson broths. Lastly, V-8, fruit and vegetable juices, make up the beverage category. The bulk of Campbell's soups and sauces are sold in the Fall and Winter seasons. A warmer Fall or a milder Winter could adversely affect soup and sauce sales.

  • Baking and Snacking

The baking and snacking segment primarily includes Pepperidge Farm products such as Goldfish, cookies and puff pastry items.

  • International Soups and Sauces

Campbell's international segment accounted for 35% of Campbell's overall sales in 2006. This segment includes three main international brands: Erasco soups in Germany, Liebig soups in France, and Arnott's biscuits and snacks in Australia.

Healthy Living

The shift to healthy living in recent years has affected Campbell's in two different consumer groups. The younger consumer group has been shifting towards soup because of its lower calorie content which qualifies it has a healthy meal alternative. The younger, "on-the-go", low-calorie conscious consumers have helped Campbell's gain 70% of the microwaveable, ready-to-serve soup category. On the other hand, baby boomers are more concerned with sodium content because of blood pressure. Baby boomers make up the majority of Campbell's consumer base and because of the baby boomers' dieting trends, Campbell's, as well as other food companies, have had to adjust its product line in order to adapt to the health conscious, lower-sodium diets. Campbell's has developed Healthy Request soups which include the condensed, Select and Chunky style soups in order to try and win over the more mature age group.

The success of Campbell's low-sodium soups will be important to Campbell's in order to hold on to the majority of the soup market. Since soup is known to be have one of the highest amounts of sodium compared to other processed foods, Campbell's has reduced the sodium content in its soups in order to target the older consumer base who are concerned about high blood pressure, as well as other ailments connected to high levels of sodium.

Campbell's will face a marketing challenge because of low-sodium soups' bad tasting past. Campbell's claims to have formulated a better tasting low-sodium soup using sea-salt in order to reduce the sodium content by at least 25% in their Healthy Request soups. Campbell's marketing team will have to present the improved soup to help change consumer predispositions about low-sodium foods to make its new product line a success.

Baby Boomers

Since the majority of Campbell's consumer base are baby boomers, low-sodium products are pivotal to Campbell's long term success. The majority of baby boomers' diets are comprised of low sodium . High cholesterol, attributed to high levels of sodium intake, is the number one diagnosed health condition for the baby boomer generation.
Since condensed soups have one of the highest sodium contents of all processed foods, challenge. Campbell's must market its new low-sodium product for consumer .

Diversification

Products

Campbell's Soup Company has relied on the success of its soups for over 125 years. In 2006, soup sales made up 55% of total sales and a total of 65% of profits. The condensed style soup made up 15% of total soup sales alone. In recent years, Campbell's has been pushing their other branches, such as Baking and Snacking and International Soups and Sauces, in order to produce more consistent profits. This has allowed their other segments to slowly mature. From 2004 to 2005, the Baking and Snacking segment experienced a 19% increase in earnings, International Soups and Sauces went through a 12% increase and the Other category went through a 9% increase in earnings.

Geographic

Although Campbell's has a steady foothold in the American soup market, its international sector isn't faring as well. Campbell's has the lowest international exposure than its competitors, which directly correlates to its slow international growth rate. Campbell's global growth rate is about 1.5% behind that of its peers. In addition to its lack of international exposure, Campbell's lost the most market share abroad from 2001 to 2004 than its competition.

Campbell's International Exposure
Company % Sales Abroad ('04) Global Growth Rate (*) Change in Global Mkt Share (*)
Campbell’s 1% 1.8% -1.4%
U.S. Packaged Foods Avg ~13% 3.4% .1%
  • Source: Company reports
  • (*): Data from 2001 to 2004

Organic Growth

Campbell's does not have a set long term growth plan, except to try to expand organically. Organic growth is when a company attempts to expand by simply increasing output and enhancing sales, and essentially represents the true growth of the core of the company. Organic growth can be a good indicator of how well Campbell's management uses their resources to expand profits and does not include acquisitions, mergers, or takeovers. Campbell's plan to grow organically won't affect sales in the short run, and may only affect sales in the very long run.

Campbell's organic growth plan has kept Campbell's above the U.S. competition, but with low international exposure and a slowing soup market, organic growth might not be enough to rely on. They will have a difficult time producing the same amount of economic profit without the continued growth of the soup market. Once the U.S. soup segment has been exhausted, Campbell's won't have another means for long term growth.


Commodities

Campbell's uses a number of different products in order to produce, package and deliver its soups. In the past, Campbell's has been able to keep production costs low, but rising prices of those commodities will negatively affect pricing. Campbell's does not directly compete with generic soups because of their ability to keep soup production costs, and prices low. Increased soup prices would be detrimental to soup sales because of increased competition with lower priced generic soups.

In order to produce their soups, Campbell's needs products such as vegetables, tomato paste, beef and poultry. Price increases for these food products would be affected by bad weather, rising gas prices or changes to government-sponsored agricultural programs. Bad weather will attribute to a bad growing season and make these raw materials more expensive due to scarcity. Rising gas prices will increase transportation costs and ultimately increase the price of the soup itself. If the government decides to stop, or decrease, subsidizing farmers, the price of materials will increase. Also, changes to import or export taxes would also increase transport costs, which would directly lead to increases in soup prices.

In addition to products to make soup, Campbell's uses a variety of metal, glass and paper to package its products. Price increases to these raw materials will directly lead to a price increase in soups. Prices would be affected by volatile oil prices and scarcity.

Campbell Soup Company and the Competition

Campbell's main competitor is General Mills (GIS) Progresso. Progresso has low-sodium, Ready-to-Serve and Rich and Hearty soups, which directly mirror Campbell's Healthy Request, microwaveable/Soup at Hand and Chunky soups. Progresso's low-sodium soups were released shortly before Campbell's and have been successful, which poses a challenge for Campbell's marketing team. Campbell Soup Company can stay ahead of competitors if it can correctly adjust with new consumer trends, such as healthy eating.

Campbell's faces an extremely competitive market because of the similarities between each soup producer. Campbell's will have to maintain its gourmet soup reputation, as well as continue to develop new soups to distinguish itself from Progresso and other smaller soupmakers.

Generic soup brands are not a pressing threat to Campbell's because of their ability to keep production costs very low. This allows Campbell's to price their soup products only 20 to 25% higher than generic brands while maintaining a level high quality. Campbell's production costs would be affected by a rise in produce costs, as well as volatile gas prices. If those prices dramatically rise, then generic soup brands would add another fierce competitor to the already extremely competitive soup market.

Campbell's v. Progresso
Company Total Sales (2006) (mil) % of U.S. Soup Sales Sales Growth (2005 vs 2006) No. of Soup Lines Market Share
Campbell’s $7,587 47% ~4% 7 60%
General Mill's $12,172 6% 3.4% 4

Chart 4. Source: Company Data

Campbell's has recently incorporated a new gravity fed shelving system that allows Campbell's to stock 15% more inventory on shelves. They hope that this new tool will boost sales because it will help defeat "out of stock" problems. Progresso will most likely also take advantage of this new shelving device in order to help overcome Campbell's new advantage. If Progresso uses the gravity fed shelving system, it will cut down on the sales that Campbell's hopes to generate.

In terms of the global market, Campbell's is at a disadvantage. Campbell's has the lowest international exposure, which has led to slow growth and a loss in international market share. Campbell's is relying on organic growth to build its business in Russian and Eastern European markets. In 2004, General Mills (GIS) had 10% more sales abroad than Campbell's meager 1%. Organic growth will not have much of an effect in the short run, and only may have an effect in the very long run.



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References

  1. Funding Universe- History of Campbell Soup
  2. Funding Universe- History of Campbell Soup
  3. CPB 2008 10-K Notes to Consolidated Financial Statements
  4. CPB 2008 10-K Notes to Consolidated Financial Statements
  5. CPB 2008 10-K Item 1. Business
  6. CPB 2008 10-K Item 1. Business
  7. CPB 2008 10-K Item 1. Business
  8. CPB 2008 10-K Item 1. Business
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