Campbell Soup has spent billions on acquisitions and debuted dozens of new products to lure health-conscious shoppers. But in the food maker still reported a 2% drop in net sales for the latest quarter.
The results highlight the challenge facing mainstream food companies face as Millennials increasingly shun well-established brands and opt instead for newer entrants that promise healthier and more flavorful food options. The trend has created sweeping challenges in the food and beverage space, where traditional names such as General Mills (GIS), PepsiCo (PEP) and McDonald’s (MCD) are struggling to report meaningful growth in established markets, including the U.S.
Campbell (CPB) is also under pressure, and the company’s president and chief executive Denise Morrison has been very upfront about it.
“We recognize the challenging environment that we and our peers are operating in, particularly in center store categories,” Morrison told analysts in a conference call on Wednesday. That comment echoes ones she made earlier this month, when Morrison said growing skepticism of large food makers has hurt legacy brands that consumers had relied on for a long time.
“This is a difficult time across the food industry,” Morrison said. And while Campbell has made efforts over the past three-and-a-half years to reshape its portfolio, “it has not been enough,” according to Morrison.
Sales slid 2% to $2.23 billion for the quarter ended Feb. 1, while net earnings tumbled 36% to $207 million. Gross margins were especially disappointing, falling 3.1 percentage points to 32.6% as a result of higher supply chain costs and an increase in promotional spending.
Campbell has taken steps to address the challenges by both adding new products to grocery shelves and acquiring brands that are more popular and present better growth opportunities. The company paid $1.55 billion for Bolthouse Farms, and also acquired organic foods and snacks maker Plum PBC. Campbell last summer also unveiled a plan to debut more than 200 products in the current fiscal year, including smoothies and veggie snacks for the Bolthouse line, organic soups for Campbell’s, and V8 protein shakes and bars.
Many of the new food items are within the healthy categories, often marketed as “organic” and tilting toward popular categories such as juices and fruits, and vegetable snacks. This spring, for example, Campbell is planning to debut a cold pressed organic juice by Bolthouse Farms called 1915.
But Campbell is also planning to debut fewer new products and place greater emphasis on the success of those launches, saying such a move would reduce complexity for the company’s supply chain.
“What we’ve realized is if we can cluster our innovation into fewer, bigger platforms that have scale in the marketplace, and can have a bigger impact, that would be a better program that we are now prepared to run,” Morrison said.
New product launches are important to Campbell, especially in the soup and simple meals businesses where there were no new product launches three and a half years ago. Since then, Campbell has made a move to add new products to those categories, such as the Campbell’s Organic line, and those offerings make up about 11% of sales for the soup and simple meals businesses. Morrison hopes they’ll contribute between 13% to 15% over time.