Even though the company’s fourth quarter results, which were reported Sept. 3, beat earnings per share expectations by 3 cents at 63 cents, JPMorgan analyst Ken Goldman described them as “not bad, but not great,” and noted that “food companies’ prints need to be great right now” given the tailwinds many are experiencing because of the ongoing coronavirus pandemic.
The company’s 2% loss in market share, due mostly to COVID-19 related production challenges, also dampened what otherwise might be celebratory numbers – especially when put in context of competitors’ gains, including General Mills’ 17% and JM Smucker’s 13% market share increases.
Despite this, Campbell’s new CEO Mark Clouse, who took the helm in January 2019, remained optimistic in the company’s ability to “unlock growth potential” of its “unique and differentiated portfolio,” and retain the “millions of new households” that have come to the company during the pandemic through innovative launches, and capitalizing on emerging, but likely long-lasting, “quick-scratch cooking” trends.
“As we navigate this unprecedented period of remarkable growth, I hear one question rather consistently: Are these the best days we can expect from Campbell? My short answer is no,” Clouse told analysts during the company’s earnings call Sept. 3.
While he acknowledged the company and industry has enjoyed “some unique one-time drivers in the second half of fiscal 2020 that created fairly historic growth numbers,” he said, “the collective progress we have made strategically, the unique investments that have been enabled, and the lasting consumer trends we are experiencing, I believe, places us in a highly advantaged position as we emerge from this pandemic period, whenever that may be.”
Campbell’s is making ‘every effort to retain the new households and younger consumers’
The first step in leveraging the gains achieved during the pandemic for longer term success is to improve retention of new consumers who have flocked to the company’s products during the pandemic by providing them with additional new options that meet their evolving needs, Clouse said.
Noting that household penetration remained up 4 points for the company in Q4 versus a year ago with strong sustained repeat of 71% in the new households, Clouse said the company is making “every effort to retain the new households and younger consumers who have purchased our brands through the pandemic.”
These efforts include a line-up of new products that will meet their evolving needs for better-for-options, “quick-scratch cooking,” convenience and more kid-specific options.
For example, Clouse said, the company is relaunching its Well Yes! Brand and expanding it to including a line of sipping soups. It also is expanding its Swanson Broth sipping line with a Chinese Spice and Moroccan offering.
“Sipping represents an incremental occasion for broth and is expanding the Swanson equity. We expect this line to attract younger consumers, particularly Millennials and GenXers, who value the ease and convenience of the sipping cup,” he said.
Under Pacific Foods, the company also will introduce three condensed soup varieties in a can, all of which are organic and gluten-free, to help consumers who want to save time with quick-scratch cooking but still have organic and nutritious ingredients.
“We are also optimistic about the national launch of our Slow Kettle Toppers line with five flavors,” which “is bringing a new and younger consumer to the soup aisle,” he said.
On the children’s side, Clouse said Campbell’s is offering caregivers more options for in-home lunches with the upcoming launch of a Tomato ABC variety as well as sops featuring “the always popular Disney Princesses along with one of Nickelodeon’s hottest TV shows Paw Patrol.”
Other launches include “more permissible varieties of Spaghetti-Os, like new chicken meatballs and added veggies,” he said.
Meeting consumers where they are
The second lever that Campbell’s will pull to retain and gain additional consumers going forward is to meet them where they are – which is online and during an increasingly worrisome economic period.
He explained that during the fourth quarter, the company’s ecommerce business is up more than 100% to account for mid-single-digits of overall company sales, but which doesn’t show up in many measured channels.
Still, he said, ecommerce “creates a really great platform for us to connect to consumers in a very specific way to influence them.”
At the same time consumers are looking for safer ways to shop, they are looking for value, Clouse said.
“Consumers are realizing that the value equation on this quick-scratch cooking is quite powerful. So, you roll that together with our ability to impact consumers online, as well as strengthening conviction to cooking” and Clouse said he has “a lot more confidence” that some of the behavior shifts during the pandemic will be long-lasting.
‘Creating drill-sites for … future productivity’
The third lever that Campbell’s will pull to retain the gains it has seen in 2020 is by “creating drill-sites for us for future productivity,” including optimizing the portfolio, improving the supply chain and exploring cost efficiencies revealed by a virtual work environment, Clouse said.
On the third point, Clouse said he still believes that a team environment is important for Campbell’s creativity, but he questions if the company needs as much travel, the same extensive infrastructure and if there are other small adjustments that could save money.
By leveraging each of these trends, Clouse said he has “significantly more confidence” for the future of the company, and its ability to extract long-term gains out of a tough moment in time.
