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CAMPBELL: HOW TO KEEP THE SOUP SIMMERING* In 2019, Campbell Soup was brimming with problems. In less than a year, the company had gone through three CEOs. The resignation of its long-term CEO Dennis Morrison proved to be a tough blow for Campbell, as its stocks had slumped from 2017. The company’s interim CEO Keith R. McLoughlin, said, “Looking back at fiscal 2018, there is no question that Campbell had a difficult year.”1 Despite the challenges, the company added Pacific Foods, a leader in organic soups and broths, and Snyder’s Lance—the second largest salty snack maker in the United States—to their portfolio. Although one of their major challenges during 2018 was lackluster financial performance, net sales increased 10 percent from $7.89 billion to $8.685 billion in 2018, primarily due to an 11-point benefit from their acquisitions of Snyder’s Lance and Pacific Foods. Denise Morrison, former CEO, had taken over the company several years prior. The change at the top of the company received a lukewarm response from investors, who were watching to see what drastic changes Morrison might have in store. By 2017, 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 previous years. One of its most important challenges was to remain attractive to health-conscious consumers. Morrison’s vision to modernize Campbell and make it a major player in fresh foods turned out to be quite expensive for Campbell. The company made contrast ing decisions to acquire Snyder’s Lance, a salty snack maker, in 2018 while maintaining its position to vent ure into fresh foods. 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 its product line, however, the company failed to spark a financial turnaround. Toward the end of 2018, the company announced Mark A. Clouse as the new Chief Executive Officer of Campbell, effective January 22, 2019. With more than 20 years of experience in the food industry, Clouse held senior management positions at popular brands such as Mondelēz International, Inc., Kraft Foods Inc., and Pinnacle Foods. Mark Clouse entered Campbell with an optimism duly * This case study was prepared by Professors Alan B. Eisner and Dan Baugher of Pace University, Professor Helaine J. Korn of Baruch College, City University of New York, and graduate student Saad Nazir and Sushmitha Mudda of Pace University. The purpose of the case is to stimulate class discussion rather than to illustrate effective or ineffective handling of a business situation. Copyright © 2019 Alan B. Eisner.

needed at the company’s historic crossroads. “I am honored to lead Campbell and its portfolio of iconic brands into the next chapter of the company’s storied history,” said Clouse. “I am committed to delivering Campbell’s strategic objectives and look forward to partnering with the Board and working alongside the company’s many talented employees to deliver sustainable, long-term growth. I am confident that together we can build a prosperous future for Campbell and all of its stakeholders.”3 The questions haunting investors today are: What is Clouse’s revival strategy for Campbell? Will Campbell still try to build on its image as a fresh food company?

Company Background Known 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 offered a whole lot more than just soup in a can. In 2016, the company, headquartered in Camden, New Jersey, implemented a new product category structure by reducing from five categories to three: America’s Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh (see Exhibit 1). In 2018, Campbell’s products were sold in over 100 countries around the world. The company had operations in the United States, Canada, Mexico, Australia, Belgium, China, France, Germany, Indonesia, Malaysia, and Sweden (see Exhibit 2).4 For a long time the company had been pursuing strategies designed to expand the availability of its products in existing markets and to capit alize on opportunities in emerging channels and markets around the globe. As an early step, in 1994, Campbell Soup Company, synonymous with the all-American kitchen for 125 years, had acquired Pace Foods Ltd., the world’s largest producer of Mexican sauces. Frank 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 material purchasing operations, since peppers, onions, and tomatoes were already used in the company’s soups, V8 juice, barbecue sauce, and pasta sauces.5 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.6 CASE 19 :: CAMPBELL: HOW TO KEEP THE SOUP SIMMERING C145

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EXHIBIT 1 Sales by Segment ($ millions)

% Change America’s Simple Meals and Beverages Global Biscuits and Snacks

2018

2017

2016

2018/2017

2017/2016

$4, 213

$4,256

$4,313

(1)%

(1)%

3,499

2,667

2,631

(31)

(1)

970

967

1,017

−

(5)

$8, 685

$7,890

$7,961

(10)%

Campbell Fresh

(1)%

Source: The Campbell Soup Company, Annual Report, 2019.

EXHIBIT 2 Campbell’s Principal Manufacturing Facilities

Inside the U.S. Arizona Goodyear (GBS)

Massachusetts Hyannis (GBS)

Pennsylvania Denver (GBS)

California Bakersfield (CF) Dixon (ASMB) Stockton (ASMB)

Michigan Ferndale (CF) Grand Rapids (CF) New Jersey

Downingtown (GBS) Hanover (GBS) Texas Paris (ASMB)

Connecticut Bloomfield (GBS)

East Brunswick (GBS) North Carolina

Utah Richmond (GBS)

Florida Lakeland (GBS) Georgia Columbus (GBS) Illinois Downers Grove (GBS) Indiana Jeffersonville (GBS)

Charlotte (GBS) Maxton (ASMB) Ohio Ashland (GBS) Napoleon (ASMB) Willard (GBS) Oregon Salem (GBS) Tualatin (ASMB)

Washington Everett (CF) Prosser (CF) Wisconsin Beloit (GBS) Franklin (GBS) Milwaukee (ASMB)

Outside the U.S. Australia Huntingwood (GBS) Marleston (GBS) Shepparton (GBS) Virginia (GBS) Canada Toronto (ASMB)

Denmark

Indonesia

Nørre Snede (GBS) Ribe (GBS) England Norwich (GBS)

Bekasi (GBS) Malaysia Selangor Darul Ehsan (GBS)

Wednesbury (GBS)

ASMB = Americas Simple Meals and Beverages GBS = Global Biscuits and Snacks CF = Campbell Fresh Source: The Campbell Soup Company, Annual Report, 2019.

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A leading food producer in the United States, Campbell Soup had some presence in approximately 9 out of 10 U.S. households. However, in recent years, the company faced a slowdown in its soup sales, as consumers were seeking more convenient meal options, such as ready meals and dining out. 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 Historically, consumption of soup in Russia and China has far exceeded that in the United States, but in both countries nearly all of the soup is homemade. With their launch of products tailored to local tastes, trends, and eating habits, Campbell presumed that it had a chance to lead in soup commercialization in Russia and China. According to Campbell, “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.”7 For about three years, in both Russia and China, Campbell sent its marketing teams to study the local markets. The main focus was on how Russians and Chinese ate soup and how Campbell could offer something new. As a result, Campbell came up with a production line specifically created for the local Russian market. Called “Domashnaya Klassika,” the line 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. But after just four short years, Campbell pulled out of the Russian market that it had thought would be a simmering new location for its products. 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.8 When the company entered Russia, Campbell 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, it learned that Russians eat soup more than five times a week, on average, compared with once a week among Americans.9 This indicated that both the quality and sentiment of the soup meant a great deal to Russian consumers— something that, despite its research, Campbell may have underestimated. As for China, a few years after Campbell infiltrated the market, CEO Denise Morrison was quoted by Global Entrepreneur as saying, “The Chinese market consumes roughly 300 billion servings of soup a year, compared with only 14 billion servings in the U.S.”10 When entering

the Chinese market, Campbell had 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 its U.S. market share. “The numbers blow your hair back,” said Larry S. McWilliams, president of Campbell’s international group.11 While the company did successfully enter the market, it remained to be seen whether Campbell had 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.

Industry Overview The U.S. packaged-food industry had recorded faster current-value growth in recent years mainly due to a rise in commodity prices. In retail volume, however, many categories saw slower growth rates because Americans began to eat out more often again. This dynamic changed for a couple of years when cooking at home became a more popular alternative in response to the recession and the sharp rise in commodity prices.12 After years of expansions and acquisitions, U.S. packaged-food companies were beginning to downsize. In August 2011, Kraft Foods announced that it would split into two companies—a globally focused biscuits and confectionery enterprise and a domestically focused cheese, chilled processed-meats, and ready-meals firm. After purchasing Post cereals from Kraft, Ralcorp Holdings spun off its Post cereals business (Post Holdings Inc.) in February 2012.13 Though supermarkets were the main retail channel for buying packaged food, other competitors were gaining traction by offering lower prices or more convenience. The recession forced shoppers to consider alternative retail channels as they looked for ways to save money. A big beneficiary of this consumer trend was the discounters, which carried fewer items and national brands than supermarkets but offered lower prices in return. For example, dollar store chains Dollar General and Family Dollar expanded their food selections to increase t heir appeal. Drugstore chains CVS and Walgreens expanded their food selections as well, especially in urban areas, to leverage their locations as a factor of convenience. Mass merchandiser Target continued to expand its PFresh initiative, featuring fresh produce, frozen food, dairy products, and dry groceries.14 The increasing availability of refrigeration and other kinds of storage space in homes influenced the demand for packaged goods in emerging markets (see Exhibit 3). However, for consumers who lacked the ability to preserve and keep larger quantities, U.S. companies began selling smaller packages, with portions that could be consumed more quickly.15

Firm Structure and Management Campbell Soup was controlled by the descendants of John T. Dorrance, the chemist who invented condensed soup CASE 19 :: CAMPBELL: HOW TO KEEP THE SOUP SIMMERING C147

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EXHIBIT 3 Leading U.S. Agricultural Export Destinations, by Value ($US)

FY 2018 World Total

FY 2017

143,367,456,741

World Total

FY 2016

140,184,462,069

World Total

129,602,794,075

Canada

20,568,892,981

China

21,840,643,461

Canada

20,391,538,206

Mexico

18,844,622,947

Canada

20,442,051,832

China

19,167,801,194

China

16,308,626,015

Mexico

18,608,230,044

Mexico

17,617,874,494

European Union-28

12,724,435,619

Japan

11,829,920,119

European Union-28

11,664,769,077

Japan

12,604,512,527

European Union-28

11,551,590,231

Japan

10,600,812,208

South Korea

7,976,908,026

South Korea

6,846,960,804

South Korea

5,693,404,770

Hong Kong

4,200,037,770

Hong Kong

4,043,310,944

Hong Kong

3,504,490,432

Vietnam

3,896,838,657

Taiwan

3,398,029,805

Taiwan

3,072,322,755

Taiwan

3,793,241,456

Indonesia

2,967,819,632

Philippines

2,469,892,778

Indonesia

3,096,490,112

Philippines

2,627,753,477

Indonesia

2,375,719,583

Philippines

2,831,344,950

Vietnam

2,558,986,068

Vietnam

2,354,094,686

Colombia

2,757,403,699

Colombia

2,550,841,358

Colombia

2,257,243,101

Thailand

2,148,645,560

Thailand

1,781,611,046

Thailand

1,464,919,723

Egypt

1,695,419,327

Turkey

1,711,429,322

Turkey

1,384,109,233

Turkey

1,680,585,474

Saudi Arabia

1,588,478,200

Australia

1,304,323,652

Source: U.S. Economic Research Service, U.S. Department of Agriculture, 2018.

more than a century ago. In struggling times, the Dorrance family had faced agonizing decisions: Should they sell the Campbell Soup Company, which had been in the family’s hands for three generations? Should they hire new management to revive flagging sales of its chicken noodle and tomato soups and Pepperidge Farm cookies? Or should Campbell perhaps become an acquirer itself? The company went public in 1954, when William Murphy was the president and CEO. Dorrance family members continued to hold a large portion of the shares. After CEO David Johnson left Campbell in 1998, the company weakened and lost customers,16 until Douglas Conant became CEO and transformed Campbell into one of the food industry’s best performers. Conant became CEO and director of Campbell Soup Company in January 2001. He joined t he Campbell’s team with an extensive background in t he processedand packaged-food industry. He had spent 10 years with General Mills, filled top management positions in marketing and strategy at Kraft Foods, and served as president of Nabisco Foods. Conant worked toward the goal of implementing the Campbell’s mission of “building t he world’s most extraordinary food company by nourishing people’s lives everywhere, every day.”17 He was confident t hat the company had the people, the products, the capabilities, and the plans in place to actualize that mission.

Under Conant’s direction, Campbell made many reforms through investments in improving product quality, packaging, and marketing. He worked to create a company characterized by innovation. During his tenure, the company improved its financial profile, upgraded its supply chain system, developed a more positive relationship with its customers, and enhanced employee engagement. Conant focused on winning in both the marketplace and the workplace. His efforts produced an increase in net sales from $7.1 billion in fiscal 2005 to $7.67 billion in fiscal 2010.18 For Conant, the main targets for investment, following the divestiture of many brands, included simple meals, baked snacks, and vegetable-based beverages. In 2010, the baking and snacking segments sales increased 7 percent, primarily due to currency conditions. Pepperidge Farm sales were comparable to those a year earlier, as the additional sales from the acquisition of Ecce Panis, Inc., and volume gains were offset by increased promot ional spending. Some of the reasons for t his growth were the brand’s positioning, advertising investments, improvements and additions in the distribution system. Conant also secured an agreement with CocaCola North America and Coca-Cola Enterprises Inc. for distribution of Campbell’s refrigerated single-serve beverages in t he United St ates and Canada through the Coca-Cola bottler network.19

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In fiscal year 2010, the company continued its focus on company’s internal employee learning and development delivering superior long-term total shareowner returns by program. Exemplary managers built strong engagement executing the following seven key strategies: among their teams through consistent action planning. The company emphasized employees’ innovation capabilities, • Grow its icon brands within simple meals, baked leadership behavior, workplace flexibility, and wellness. snacks, and healthy beverages. • Deliver higher levels of consumer satisfaction through Challenges Ahead superior innovation focused on wellness while providRecognizing the need for significant change, in his role as ing good value, quality, and convenience. interim CEO, Keith McLoughlin said that the company • Make its products more broadly available and relevant planned to return the company to long-term organic net in existing and new markets, consumer segments, and sales and earnings growth. While innovation is not a term eating occasions. typically associated with the food-processing industry, • Strengthen its business through outside partnerships Morrison said that innovation was a key to the company’s and acquisitions. future success. As an example, she cited Campbell’s devel• Increase margins by improving price realization and opment of an iPhone application that provided consumers companywide total cost management. with Campbell’s Kitchen recipes. Ac...