Campbell Soup Co., which is looking to revive its soup business in the US after two years of falling sales, faces continued “pressure” from competitors in the first half of its new financial year, the company’s new chief executive has warned.
The US company saw its domestic soup sales fall 6% in the year to 31 July. The drop in sales led to operating earnings from the division to slide 11%.
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Part-way through the year, Campbell increased its list price on its soups on sale in the US to combat rising raw-material costs. Under Denise Morrison, who became Campbell’s president and CEO on 1 August, the company is looking to spend less on trade promotions and focus more on brands and on new products. In the year ahead, Campbell plans to spend US$100m on innovation and brand building.
However, speaking to analysts on Friday (2 September) after the company issued its fourth-quarter and full-year financial results, Morrison warned of a challenging few months ahead.
“We’re not expecting the first half to be easy. We’ve had a list price increase and competitors have delayed following suit, so we expect that competitive pressures will continue. We have to watch this carefully,” Morrison said.
Competition from other soup makers and what Campbell calls “simple meals” has hit its US soup sales. On occasion, the company’s promotional activity has failed to boost sales, while in July, Campbell added salt back to some of its soups after consumers gave a lukewarm reaction to moves to reduce sodium.
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By GlobalDataMorrison insisted an “emphasis on brand building” and “more consistent innovation” was the “right approach to stabilise and then profitably grow our simple meals business”, which under a change to the way Campbell reports its results, will include its US soup operations.
However, when asked by Goldman Sachs analyst Judy Hong whether promotional activity from Campbell’s rivals could affect retail space for the company’s brands and new products, Morrison was confident in its strategy.
“We have not seen our branded competition move up base price in the marketplace and we believe that, with the latest round of pricing, we have the opportunity to offer the best price/value across the category, while still covering our inflation and our marketing investment. Our intention is to be competitive,” she said.
There were indications that Campbell executives recognised the potential dilemma it could face in attempting to profitably grow its simple meals business in what will remain a competitive category.
CFO Craig Owens insisted Campbell would place “more emphasis” on brand building and less on “trade discounts”.
However, his comments were followed by Campbell’s senior vice president of finance, Anthony DiSilvestro, who pointed to the investment the company would make on promotions. “It’s important to recognise that, even though we’re pulling back a little bit on trade, we are still spending a significant amount of funds on promotional spending and advertising,” he said.
Morrison agreed but insisted Campbell would “apply a whole new level of discipline to that spending”.
