Campbell Soup Co. this winter and spring shifted money from advertising to support promotional programs for retailers, including giving price discounts to a wider set of stores. But the move failed to boost demand as expected and at least one analyst has begun to question the company's turnaround strategy.
"We've been saying for quite some time that promotions are not a sustainable strategy to drive long-term profitable top-line growth, and are disappointed by management's actions particularly as the firm has been spending to reignite its brand portfolio," Morningstar analyst Erin Lash wrote in a note to investors. "It is possible this suggests the firm's new offerings, especially in the soup aisle, aren't winning consumers over at this juncture."
The company on Monday lowered its net sales guidance for its 2014 fiscal year to 3% growth from the previous estimate of 4% to 5% growth. The revision came after the company reported disappointing results for its third quarter, which ended on April 27.
Quarterly sales increased 1% to $1.97 billion. Sales of condensed soup in the U.S. fell by 3% and ready-to-serve soup sales dropped by 1%. On the bright side, the company's broth business continued to impress with sales up 14%. Also, sauce sales, which includes Prego and Campbell-branded skillet and slow-cooker sauces, jumped by 11%.
For soup, the company was facing a tough comparable from the year-earlier quarter, when total U.S. sales jumped 14%. Still, Campbell was banking on better results this year to reach its annual goals. Part of the plan included introducing more soup varieties in January, including more versions of its "pub-inspired" Chunky soup flavors such as Jazzy Jambalaya and Mushroom Swiss Burger. The company also introduced its first line of "Latin-inspired" condensed cooking soups.
CEO Denise Morrison partly blamed the disappointing results on external factors that are hurting most packaged food marketers, including underemployment, reductions in a food-stamp program and what she described as "rising home, fuel and healthcare costs."
Still, she told analysts that the company was "making no excuses for our disappointing sales. We own the results. Our third-quarter sales did not meet our expectations or yours, but our team remains resolutely focused on executing our dual mandate to strengthen our core business and expand into higher growth spaces."
Those high-growth areas include its Bolthouse Farms brand of fresh carrots and refrigerated beverages and salad dressings. The brand's sales jumped 6% in the quarter.
But for the ad industry, the larger story in the third quarter was Campbell's tactical shift that moved money away from consumer marketing and advertising and into trade promotion, which typically includes such items as store displays or price cuts paid for by marketers. Campbell extended its promotional frequency across a broader set of retailers. "While we executed the programs effectively, the enhanced trade promotion did not yield the anticipated volume," Ms. Morrison said.
At the same time, Campbell cut its marketing and selling expenses by 11% in the quarter to $217 million, the company stated. Campbell's ad agencies include WPP's Y&R and Omnicom Group's BBDO. Other big consumer-packaged good marketers have also trimmed marketing spending lately, including Procter & Gamble, Hershey Co. and Dr Pepper Snapple Group.
Could Campbell's disappointing results lead the company to re-examine its ad strategy? It's hard to tell. Campbell did not detail its long-term marketing plans. Those details will likely be discussed at its investor day on July 22.