Campbell Soup Co. on Wednesday unveiled a major new cost-cutting initiative as it battles what CEO Denise Morrison called a "a mounting distrust of so-called Big Food."
The soup, snacks, meals and beverage marketer will target $200 million in annual cost savings over three years, representing 2%-3% of its annual sales. The savings will come through a variety of means, including eliminating "excess layers of management," while adopting a "zero-based-budgeting" approach, according to the company. The budgeting method, which is emerging as a popular tool for struggling food companies, involves making departments justify all of their expenses every year.
The announcement, which came at this week's Consumer Analyst Group of New York meeting in Florida, follows Campbell's move late last month to reorganize into three divisions. The new structure seems aimed at pouring profits from the company's sluggish, but high-margin shelf stable soup and meals business into its faster-growing fresh food brands sold at the store perimeter. Last week, the company lowered its 2015 full-year sales and earnings guidance.
"Despite many changes and important accomplishments over the past three years, we haven't achieved the growth rates in sales and operating profits that we aspire to," Ms. Morrison said during a blunt presentation at CAGNY. "We realized that to fulfil our mission we must think bigger and act bolder."
The changes follow cost-cutting moves by other food marketers, including plant closures and overhead cost cutting. The cuts come as executives begin to aggressively confront the new reality that consumers are less interested in heavily processed foods.
Said Ms. Morrison: "We are seeing an explosion of interest in fresh foods, dramatically increased focus by consumers on the effects of food on their health and well-being and mounting demands for transparency from food companies about where and how their products are made, what ingredients are in them and how these ingredients are produced."
She added that there is a "mounting distrust of so-called Big Food: the large food companies and legacy brands on which millions of consumer have relied on for so long."
In response, Campbell is putting a new emphasis on its so-called "packaged fresh" division that is led by its Bolthouse Farms brand. Bolthouse primarily competes in the fresh beverage and salad dressing categories sold in store perimeters. Now Campbell wants to explore launching fresh products in other categories, including soups, sauces and sides sold in the deli section, executives said. Coming this spring, the company will launch a new brand called "1915" that will include "ultra-premium cold-pressed organic beverages," Ms. Morrison said.
Campbell's namesake soup business will be put in a division called "Americas Simple Meals & Beverages" that will also include V8 beverages, Swanson, Prego and Pace. The brands compete in sluggish center-of-store categories. As a result, Campbell has lowered its expectations for growth, while focusing brand-building investments on "fewer, bigger" ideas, Ms. Morrison said.
"We need to better balance the expectation for growth in line with the marketplace realities, while at the same time leveraging some of the cost opportunities … to expand our margins," she said.
A third division, called Global Biscuits and Snacks, brings together the company's Pepperidge Farm brand and overseas Arnott's brand, which had been run separately.
Tuesday's presentation was the latest example of a packaged-food company putting an intense focus on cost savings, as emerging-market growth has slowed and U.S. consumers change buying habits.
Mondelez, for instance, moved to zero-based-budgeting last year aimed at overhead reduction. The moves include reducing spending on consulting and travel, as executives outlined this week at CAGNY this week. Mondelez wants to cut travel spending by 45%, for instance.
"Most of this will come from simply traveling less," said Chief Financial Officer Brian Gladden. "We broadly implemented video conferencing around the world and it's really become the way that we run the business with a lot less travel."