It seemed appropriate that Campbell Soup Co.'s much-anticipated meeting with Wall Street analysts today was briefly interrupted by the loud whirr of an emergency siren.
While the alarm was false, the company's slump is very real, with its flagship soup business suffering from an over-emphasis on sodium reduction and failure to reach out to newer generations that are increasingly skipping past the soup aisle in favor of other simple meals such as frozen foods. In a self-reflective presentation, executives sought to confront the challenges head-on, pledging more emphasis on taste while plowing an additional $100 million into marketing and innovation next fiscal year, conceding that promotion did not produce expected volume lifts.
Incoming CEO Denise Morrison, an eight-year Campbell veteran who takes the reins Aug. 1, set the bar high, saying the new leadership team would change "the course of Campbell's history." While the company operates in promising categories -- including soup, baked snacks and healthy beverages -- "our growth has stalled and we have not capitalized on our market potential," she told analysts at the meeting, which was web-casted live from the company's Camden, N.J., headquarters. "We have not responded as effectively as we must to demographic change and generational shifts in food preferences."
The new strategy, developed after a nine-month review, puts an emphasis on reaching Hispanics and millennials while rolling out new products and packaging. In fiscal 2012, the company plans to reformulate 46 of its soup varieties focusing on taste, while launching 27 new products in North America. New offerings include "slow kettle" soups, which are packed in clear containers to resemble front-of -store brands that are popular with younger generations. At the same time, Campbell will up its push for soup as an ingredient for easy meals, which is behind plans for a new line of Chunky soups in a larger 50-ounce size.
Executives gave their starkest assessment yet of the sodium-reduction strategy that ramped up in 2006 and eventually sucked up 70% of the company's innovation budget. "We learned that not all user groups value sodium-reduction equally -- some are willing to make modest taste trade-offs when others are not," said Sean Connolly, president-Campbell North America. While not backing off the reformulation, he said "we need to offer a choice model when it comes to our portfolio."
Executives seemed pleased with the ongoing "It's Amazing What Soup Can Do" umbrella campaign by Omnicom Group's BBDO, New York, and WPP's Y&R, New York, but said they would tweak it by plugging more varieties, including the microwavable soup lineup. While the message will remain the same -- pushing soup as a way to get to a "happier place" -- consumers are likely to see more of it. "We have an opportunity to bolster our TV presence and we will," Mr. Connolly said.
Campbell's domestic advertising spending dropped 3% in 2010 to $522.8 million, as it fell seven spots to No. 68 in the Ad Age Data Center ranking of the top 100 U.S. advertisers.
As it increases brand-building, Campbell is moving away from price discounting, which the company has said did not produce expected volume lifts. Campbell reported a 7% decline in soup revenue for the quarter ended May 1, despite a cold and wet winter and sluggish economy that seemed to create the perfect conditions for soup. In the $1.38 billion ready-to-serve soup category, Campbell's soup sales fell 8.32% in the year ended June 12, as its category-leading market share dropped 2.4 points to 45.3%, according to SymphonyIRI, which does not include Walmart.
Executives sought to dispel perceptions that soup-sales thrive in bad economic times, noting that consumers stock up less when their paychecks are thin. These heavy users account for 25% the company's U.S. soup volume. But while they typically buy 83 cans a year, "in recent years, their buying rates have slipped," Mr. Connolly said.
Still, Campbell's challenges appear as much structural as strategic or cyclical. The marketer is struggling to win over younger consumers who have many more options in the "simple meals category," which includes frozen foods. "Having grown up with a vast universe of other simple meal choices, these consumers do not have the same relationships with our brands and our products as their parents and their grandparents," Ms. Morrison said. "Our continued focus on the can as the primary packaging format has not encouraged them to develop that relationship."
Rather, she said, younger consumers want constant innovation, new cutting-edge packaging and taste adventures. "They are very demanding consumers," she said, adding that "we must connect with them on their own terms."