C-Fresh sales down 8% in Q2 driven by lower sales of carrots, Bolthouse Farms refrig beverages, Garden Fresh Gourmet
Campbell Soup CEO: Fresh is the future, but ‘the truth is, we expected more, faster…’
Speaking on the Q2, 2017 earnings call - in which Campbell posted a 2% decline in organic net sales driven by a weak performance in Campbell Fresh and V8 V-Fusion and V8 Splash - Morrison said the perimeter categories in which Campbell competes were growing “significantly faster than the traditional center-store.”
However, she acknowledged that “our performance over the last year in fresh has been disappointing.”
Her comments came as rival General Mills reduced its sales and earnings outlook for fiscal 2017 on the back of lackluster performances in US yogurt and soup; and combined optimism about the strategic direction of the company and frustration at the pace of change.
The integration of Garden Fresh Gourmet into the Bolthouse Farms fresh platform proved to be challenging
A particular area of frustration was the integration of Garden Fresh Gourmet (salsa, hummus, dips and chips and fresh soups), which was acquired in June 2015, at which point its annual revenues were c.$100m, she said.
“The traits that made Garden Fresh Gourmet an attractive acquisition target, a small authentic brand with a compelling story, have also presented some obstacles…The integration into the Bolthouse Farms fresh platform proved to be challenging.
“The truth is, we expected more, faster in multiple areas of this business, including financial systems, information technology, and supply chain integration, as well as increased marketplace distribution.
“Garden Fresh Gourmet salsa was largely a Midwestern brand. Our plan called for the rapid distribution expansion of branded salsa beyond the Midwest. However, it became apparent that we did not have the differentiated recipes and taste profiles that would be accepted by consumers in other parts of the country."
Q2, 2017, results by segment:
Americas Simple Meals and Beverages: Sales were flat at $1.231bn. Excluding the favorable impact of currency translation, sales decreased 1% driven by declines in V8, partly offset by gains in soup, Prego pasta sauces and Plum Organics products. Sales of US soup rose 1%, driven by gains in ready-to-serve soups, which were mostly offset by declines in broth and condensed soups.
Global Biscuits and Snacks: Sales were flat at $680m. Excluding the favorable impact of currency translation, sales decreased 1% primarily driven by declines in Kelsen, primarily in the US, and Arnott’s biscuits, partly offset by gains in Pepperidge Farm.
Campbell Fresh: Sales fell 8% to $260m driven by lower sales of carrots, Bolthouse Farms refrigerated beverages, and Garden Fresh Gourmet, which were only partly offset by gains in refrigerated soup.
New packaging and recipes for Garden Fresh Gourmet salsa
She added: “In January, we launched branded Garden Fresh Gourmet salsa in new packaging with new regional recipes. We're focused on key distribution and velocity-building initiatives. For example, in January, we gained national distribution for new branded organic salsa with a major customer.
“Today, our ACV distribution of Garden Fresh branded salsa is only 37%, so we have a lot of runway to match the 70% ACV levels of our other C-Fresh CPG brands.”
While private-label salsa was performing below expectations due to lost distribution with two customers, she added “We've recently regained one of these customers and active negotiations are underway with the second.”
Meanwhile, fresh soup continues to grow at high single-digits, and the company is also excited about the prospects for Souplicity, a new ‘cold-pressed’ soup currently in test-market phase, she said.
We've learned some tough lessons over the last several quarters
At Bolthouse Farms, which Campbell acquired in August 2012, momentum in beverages had been lost in part due to the June 2016 recall (owing to spoilage issues) of 3.8m bottles of Protein PLUS, which had been one of the brand’s strongest performing SKUs, and accounted for 15% of the Bolthouse Farms beverage business, she said. “Since then, we've steadily improved but have not returned to pre-recall production levels.”
It was also taking longer than expected to regain carrot customers lost in 2016 due to quality issues compounded by volatile weather (drought, coupled with heavy rainfall), she said.
“We've learned some tough lessons over the last several quarters and we're applying them.”
On the plus side, Campbell is excited about new launches including yogurt-based dressings under the Bolthouse Farms MAIO brand, Bolthouse Farms Plant Protein Milk – a new pea-protein-based beverage line launching later this year that has had positive feedback from retail customers, and new additions to the 1915 premium HPP juice line.
