Kraft Heinz Campbell merger ‘could make sense’ if deal is snack-focused, but timing may not be right, says analyst

According to Carolina Alfero, research analyst at Euromonitor, the deal could be beneficial for both parties if Kraft Heinz is going after Campbell for its snack portfolio rather than its canned soup business.

Slumping sales of canned soup have weighed heavily on Campbell's performance with declining sales of 7% in Q1 2018, falling from 35% of its overall business to 27%.

“In my opinion, if they are aware that the biggest opportunity is in the snack category as opposed to shelf-stable soups I would agree that this acquisition could make sense for Kraft Heinz,”​ Alfero told FoodNavigator-USA.

While the Campbell’s soup can imagery is strongly intertwined in its branding, the food company has a solid position in the better-for-you snacking category with its acquisition of Snyder’s Lance​ for $6.1bn and its ownership of Pepperidge Farm.

After the Snyder’s Lance acquisition, Campbell’s snack and biscuits product portfolio grew 50% and currently represents more than 45% of its net sales, Alfero added.

“This makes the case that Campbell Soup is moving away from the soup market and getting stronger in the snack sector. As a result, acquiring Campbell would place Kraft Heinz in a better position in the strongly performing snack market in the US,”​ she said.

A ‘brilliant’ move​

Gary Stibel, founder and CEO of the New England Consulting Group (NECG), a firm that has done consulting work for Kraft Heinz and Campbell over the years, sees the move as “brilliant”​ and a way to give Campbell a stronger international position putting it on a path to growth for the struggling company.

According to Stibel, for years Campbell’s former leadership always seemed to have a “Hail Mary pass” ​that would save the day, but those moves never seemed to fully pan out for the company.

“The synergies are huge, the cost savings are huge, the concentration is of value, particularly in a world where their competitors are becoming bigger and their [retail] customers are becoming bigger,”​ Stibel said.

Stibel added that while other major CPG firms are competing for overvalued startup food business, purchasing legacy companies like Campbell can bring a lot of value to Kraft Heinz.

“While everybody feels the necessity of going out and overbidding for these small companies that seem to be doing well, most of them will peter out,”​ he said.

“If you look at companies like Conagra, B&G Foods, and Kraft Heinz, these companies have been in the business of acquiring established brands, which were not getting the attention they deserved from their parent company.”​

Is Campbell in a good place to sell?​

Along with gaining attention for its acquisitions of Snyder’s Lance and Pacific Foods, Campbell has been in the public eye for its changes in leadership and may not be in the best position to sell, according to Alfero.

In May, Campbell’s CEO since 2011, Denise Morrison, stepped down shortly before the company announced its “unacceptable”​ earnings results. Keith McLoughlin is serving as the interim CEO until Campbell identifies her successor.

This past week, the company named a former executive from SC Johnson, Diego Palmieri, as its new vice president and chief marketing officer, in charge of reviving its legacy brands including Campbell’s, Chunky, Well Yes!, Slow Kettle, Swanson, V8, Plum, Pace, and Prego.

“It should be noted though, that Campbell Soup has reacted to this adversity and in my opinion, is heading in the right direction,”​ Alfero added.

Campbell has taken note of consumers’ growing preference for fresh foods and transparent branding with its acquisitions of Bolthouse Farms, Pacific Foods, and Plum Organics in the past years.

Director of insight for Mintel food & drink, Marcia Mogelonsky, believes Campbell can regain movement against slowing soup sales by continuing focus on its snacks business but instead of offering “single-note”​ snacks such as chips or biscuits, combine elements across its product categories.

“Pairing a portable, microwavable cup of soup with a mini bag of chips, some ready-to-eat vegetables and dip, and a single cookie, for example, could present a mini meal to go,”​ Mogelonsky said.

Alfero added that timing is everything with any successful business deal, such as a potential merger of this size. 

“They have been actively fighting in the packaged food sector to maintain and extend their brand image by transforming their product portfolio to better align with health and wellness trends. I personally believe that Campbell Soup should give those strategies a little more time before trying to sell,” ​Alfero said.