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Is Campbell Finished With Health-Focused Foods?

Mary Mazzoni headshotWords by Mary Mazzoni
Energy & Environment
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After years of building its product portfolio through mergers and acquisitions, Campbell Soup Co. is looking to return to its roots. In a surprise announcement at the end of last month, executives laid out plans to sell off the company’s international and fresh food businesses—including recently acquired brands like Bolthouse Farms and Garden Fresh Gourmet

The decision came after a months-long operational review the company began in May in the wake of slumping sales, falling stock prices and a reportedly rocky integration of pretzel-maker Snyder's Lance—which Campbell acquired for $6.1 billion last year, CNN Money reported.

After shedding fresh food labels, as well as international brands like Australian biscuits company Arnott’s, Campbell will refocus efforts on its North American snack, meal and beverage categories—which include Pepperidge Farm cookies, Prego sauces and, of course, Campbell’s condensed soups. “Our plan will build upon our existing strengths,” interim President and CEO Keith McLoughlin said in a statement.

McLoughlin stepped in after the sudden and unexpected retirement of former CEO Denise Morrison, who held the top spot at Campbell for seven years. Her departure left an even smaller group of women at the helm of America’s largest companies—only 25 women serve as CEOs of Fortune 500 firms, a number that will decline again this year as longtime CEO Indra Nooyi leaves PepsiCo.

When she reflected on her career in an interview with the New York Times, Morrison said she “wanted to break the glass ceiling” for future women executives. “It wasn’t only about me,” she told the paper. “It was about the next generation of women coming behind me.”

During her tenure, Morrison oversaw a vast expansion into fresh, organic and health-focused foods in response to what she called a “seismic shift” in eating habits. But, as Philadelphia Magazine’s Fabiola Cineas put it, “The fresh-foods business plan backfired.”

Sales numbers indicate Campbell may have been ill prepared to enter the crowded category. Its fresh-food unit posted an operating loss of $7 million this quarter, and McLoughlin said the company overextended itself in its rush to diversify and enter this growing segment.

“We aggressively pursued the important consumer mega trend of health and well-being without having clarity on our source of uniqueness or whether we brought a competitive advantage to the space,” he said in an analyst call last month, as quoted by Philadelphia Magazine—which operates across the Delaware River from Campbell’s headquarters in Camden, New Jersey. “We depended too much on [mergers and acquisitions] to shape our business strategy.”

Even as the company plans to leave fresh foods behind, some health-focused acquisitions first championed by Morrison will remain in the portfolio—and they may be integral to the company’s success.

In particular, Campbell’s soup sales would have dropped 14 percent over the past year if not for Pacific Foods, which Campbell bought for $700 million in July 2017.

The products on offer from Pacific, which also has strong roots in environmental and social sustainability, clearly overlap with Campbell’s legacy business model, as well as its potential future. The Oregon-based company’s signature products are shelf-stable soups and broths, which feature organic and sustainable ingredients and continue to be a hit among millennials and other conscious consumers. The company also gives Campbell penetration in decidedly more modern food segments, such as plant-based milks and meat substitutes.

As Morrison put it after the purchase last year, “The acquisition allows us to expand into faster-growing spaces such as organic and functional food.” Though her broader vision of an ever-expanding Campbell that can nimbly navigate fluctuating demands in both the fresh and packaged foods segments may prove short-lived, the company isn’t leaving the entire plan behind. It identified Pacific as one of 10 brands it hopes to grow in order to boost sales.

Ironically, Pacific was among the least expensive in a string of high-profile acquisitions that reportedly left Campbell mired in debt. Bolthouse Farms, which makes fresh juices, shelf-stable salad dressings and plant-based milks, cost the company $1.55 billion back in 2012. The $6 billion Snyder's Lance purchase last year further complicated Campbell’s balance sheet.

Of course, Campbell is far from the only company to catch flak for over-diversifying in an attempt to keep pace with shifting consumer and market trends. After decades of dividend aristocracy, General Electric halved its quarterly dividend payments to shareholders at the end of last year. Insiders said the breadth of its business played a key role in the cash crunch that fomented the dividend cut, only GE’s second since the Great Depression.

But where Campbell opted to double down on its legacy businesses and leave new acquisitions behind, GE took the opposite approach. The $20 billion worth of brands GE plans to sell come almost entirely from legacy categories—including its century-old railroad business, its former flagship light bulb business, and its well-known dishwasher and appliance business. Instead, GE will “focus on being a modern industrial company that sells things like jet engines, power plants and MRI machines,” Matt Egan of CNNMoney reported last year.

For its part, Campbell is far from out of the woods when it comes to managerial drama. Even as it moves away from fresh foods and toward health-focused options that are perhaps a more seamless fit for its business, the company remains under increasing pressure from activist investor Third Point. The hedge fund recently disclosed a 5.65 percent stake in Campbell and called an outright sale the "only justifiable outcome" of its operational review, CNBC reports.

McLoughlin noted that Campbell’s board “remains open and committed to evaluating all strategic options to enhance value in the future,” leaving the door open for a potential sale. Without one, Third Point and its billionaire founder Dan Loeb may push for a full turnover of Campbell’s board, all of whom come up for re-election this year, Lauren Hirsch of CNBC predicted.

The ongoing shake-up at Campbell is only the latest in a string of signals indicating a food industry in flux, as consumers continue to gravitate toward more healthy and sustainable food choices. US packaged food companies have shuffled chief executives 15 times since the start of 2016, the same number as in the previous seven years, according to an investor note from JPMorgan, as cited by the New York Times.

Image credit: Bolthouse Farms via PRNewswire

Mary Mazzoni headshotMary Mazzoni

Mary Mazzoni, Senior Editor, has written for TriplePundit since 2013. She is also Managing Editor of CR Magazine and the Editor of 3p’s Sponsored Series. Mazzoni’s recent work can be found in Conscious CompanyAlterNet and VICE’s Motherboard. She is based in Philadelphia.

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