Founded in 1869, Campbell Soup Company is a leading manufacturer and marketer of branded consumer food products. With approximately 24,250 employees worldwide, the company has a presence in 10 nations with 36 manufacturing plants. Campbell Soup Company offers over 2000 products on the market and has diversified into various businesses over the years, including frozen dinners and retail garden centers. However, soup remains its core business. Some prominent brands of Campbell Soup Co. include their flagship red-and-white canned soup, Prego Spaghetti sauces, Godiva Chocolates, Pepperidge Farm baked goods, and V8.
In addition, Campbell Soup Co. has undergone three different strategies under three different CEOs since 1980. Each CEO brought their own agenda to build value for the company and its shareholders. For example, Gordon McGovern (1980-1989) focused on developing and introducing new products and expanding the business portfolio through acquisitions.
David Johnson (1990 – 1997) shifted the company’s focus to increasing sales growth, market share, and shareholder value. This was achieved by eliminating unprofitable products and business units, emphasizing global marketing, and improving communication and technology sharing between businesses.
Under the current CEO, Dale Morrison (1997 – present), Campbell’s strategy continued to prioritize sales growth, market share, and shareholder value. However, the focus shifted towards profitable businesses with high growth potential and divesting non-strategic businesses.
From 1980 onwards, Campbell has undergone three notable changes to its corporate strategy and business structure. Each change was implemented by a different CEO during their respective leadership tenures:
- Expansion through acquisitions and development of new products.
- Increase sales growth, increase market share & share holder value.
- Continue to increase sales growth, market share & share holder value.
Campbell’s corporate strategy, led by Gordon McGovern, focused on expanding and developing new products to take advantage of consumer trends and improve operational efficiency. However, this strategy proved to be inefficient as Campbell’s managers became overly invested in new product development and neglected the performance of their existing products. Furthermore, the expansion strategy led to unsuccessful diversification into industries where Campbell’s lacked expertise or competitive advantage. Consequently, the company’s production costs increased and profits decreased.
Under David Johnson’s leadership, the company underwent a restructure and adopted a fresh corporate strategy. This new approach aimed to remove unprofitable products and business units, enhance communication and technology sharing between units, and prioritize global marketing efforts to boost sales growth, market share, and shareholder value. Thanks to this strategy, the company experienced an increase in operating margin and profits. Some businesses also saw improvements in their performance under David’s guidance. However, the global marketing strategy faced obstacles, particularly in penetrating the European market for products like Campbell’s soups. The company failed to recognize the need for aggressive advertising to introduce The Soup products in Europe, resulting in a decline in sales in those markets.
When Dale Morison became the CEO of Campbell Soup, he aimed to improve David Johnson’s plan while further restructuring the company’s business line structure. His objectives included increasing sales growth, market share, and shareholder value. However, Dale prioritized profitable businesses with high growth potential and divested non-strategic ones. Consequently, he now needed to allocate resources to the business units that offered favorable market shares and growth potential.
The food processing industry has a large market size, with potential sales ranging from 77.9B to 143B and potential net profits ranging from 3.1B to 6.4B. This attracts companies seeking to acquire established competitors in attractive industries. Acquisitions are also motivated by the desire to boost brand strength, which leads to economies of scale, more shelf space, pricing flexibility, and line extensions. These factors ultimately result in earnings growth, surplus cash, and superior stock performance. The industry’s average growth rate is approximately 13% per year, which is considered stagnant. As a result, there is increased competition and weaker performers are acquired by larger, stronger companies.
The food processing industry faces high barriers to entry due to the saturation of companies and limited capacity for new entrants. Most companies in the industry are well-established, profitable, and enjoy a prominent presence in supermarkets. The barriers to exit vary depending on the size and market penetration of the company.
The food processing industry faces rapid and costly technological changes, which pose risks for companies in this sector. These companies invest significant funds into advancing technology, only to find that the equipment may become outdated before it is fully utilized. To address this issue, both food-related companies and the government have collectively spent around 1 billion dollars on research and development in food technology. This investment aims to create food products that are nutritious, delicious, fresh, convenient, and resistant to spoilage. The increased importance of technology in product development is driven by factors such as the growing health-conscious trend, the rising number of households with two career or single adults who desire high-quality, quick-to-prepare meals, and the economic considerations of food processors seeking longer shelf life for their products.
The competition among food processors in the industry was intense as they vied to become the top contender. Price, quality, taste, health factors, product innovation, and benefits were the key aspects on which these companies competed. Additionally, the rivalry intensified due to the presence of firms from other industries offering substitute products. Many firms in different industries were involved in supplying, producing, and serving similar food products as those produced by food processing companies. For instance, Dunkin’ Donuts operates in the foodservice sector while Campbell Soup Co. operates in the food processing sector, with both offering soup. Thus, consumers have the option to visit Dunkin’ Donuts and obtain the exact same soups offered by Campbell Soup Co.
The suppliers’ bargaining power was low as there were numerous suppliers for the companies to choose from. It wasn’t a case of one supplier serving all the companies. Buyers held significant bargaining power due to their vast numbers and the volume of industry output they purchased. The industry’s profitability was determined by the buyers. If buyers deemed the prices too high, they could stop purchasing products and easily switch to supplements, consequently forcing food processing companies to decrease prices.
During Gordon Morison’s tenure as CEO of Campbell Soup Co., there was a strong emphasis on new product development. This resulted in brand managers focusing heavily on the creation of new products, while neglecting cost control and profit targets. Campbell Soup Co. was divided into around 50 autonomous units. While many of these units had strategic alignment with one another, the corporate structure made it impossible to combine production efforts or reduce costs by sharing technology between units. Missed opportunities for value chain activities were identified in the value chains chart provided below, highlighting the strategic fits that were overlooked under Morison’s strategy. Furthermore, Campbell’s expansion strategy led to unsuccessful diversification into industries in which they lacked expertise or competitive advantages. Triangle Manufacturing co., a fitness products manufacturer, and Campbell hospitality-restaurants serve as examples of units that had no strategic fit with the rest of Campbell’s business, resulting in poor performance and eventual divestment.
In 1990, when David Johnson assumed control of Campbell Soup, he undertook a restructuring effort that included implementing a new corporate strategy. The primary goal of this strategy was to eliminate unprofitable products and business units, enhance communication and technology sharing among units, and prioritize global marketing to drive sales growth, market share, and shareholder value. As a result of this strategy, non-strategic business units were divested, leading to improvements in the performance of certain units. Additionally, the new business line structure enabled the consolidation of units with shared products or technology, facilitating more efficient management.
Despite encountering difficulties, the company faced setbacks with its worldwide marketing strategy. A notable challenge arose when penetrating the European market with products like Campbell’s soups. The company failed to recognize the need for aggressive advertising in Europe to successfully introduce The Soup products, resulting in declining sales in those markets. The operating margin chart provided showcases a comparison between Campbell’s European sector performance and other global sectors.
Operating Margins by Geographic Regions
Campbell Soup Company is a well-established company in the packaged food industry. It has a strong brand and leadership position in the industry. Based on my analysis, I recommend that the company should only pursue diversification in areas where it already has core competencies and strategic fit with its existing businesses. Unrelated diversification should be avoided as it can lead to poor performance and financial loss. Lack of expertise in new industries can be expensive. Therefore, I advise Campbell Soup Company against pursuing unrelated diversification.
Campbell Soup can enhance its future growth by expanding its market share in the food service industry. Despite commanding 80% of the prepackaged soup market, Campbell’s share of the overall soup market is only 38%. To address this, Campbell should pursue partnerships, contracts, and strategic alliances with restaurant chains and school cafeterias to distribute their products. This approach will not only boost sales but also enhance Campbell’s foothold in the food service industry.
