Background of Campbell Soup Company

Campbell Soup Company

Case Study

Leading as well as Growing Soup Company In 1869, Abraham Anderson, an ice box maker and Joseph Campbell, a fruit merchant, established a canning and preserving business. Their reputation for quality food products was established instantly. In 1891, it was incorporated as the Joseph Campbell Company in Canada, New Jersey. In 1897, John T. Dorrance developed a process for canning soup in condensed form and Campbell has been known for this process ever. The company was owned entirely by the Dorrance family. In 1922, it was incorporated as the Campbell soup company and went to the public but the Dorrance family retained control. In 1989, they had approximately 60% of the stock. John T. Dorrance ran the Campbell soup company from 1914 until his death in 1930. In 1930, his son John T. Dorrance Jr. began to run the company. Management was centralized at that time under his command. The company was a conservative and paternalistic company at that time. After the death of John T. Dorrance Jr. a rumor was prompted that the company would be sold. But these rumors were down played by the founder’s grand children. After incorporating the Campbell soup soon because the target manufacturer of condensed canned soups and ready to serve soups. Other manufactured food products were- vegetable and tomato juices, pickles, seafood and chicken, frozen meat pies, canned beans, canned pasta, bakery products etc. In addition, to their domestic operation in 24 states, foreign sales also accounted for 21% of total net sales and 13% of operating earning in 1988. In food process industry one year is relatively indiscernible from the next from a macro economic point of view. Basically consumption can only grow as the population grows, which for the last two decades, had been stagnant, still major changes were taking places within the processed food industry. According to industry analysts the packaged food industry traditionally has been the beneficiary of inelastic price demand-consumer demand is relatively stable regardless of product prices. Prior to Gordon McGovern as CEO and President of Campbell, the company’s management was very centralized. In

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1980, McGovern came in and transformed management by emphasizing a decentralized nature and encouraging managers to take risks and attempt to develop new products. The overall company was focus on the consumers and maximizing the profitability and shareholders value. In August 1989, Campbell announced it plan for a major restructuring that was aimed at modernizing and strengthening operations. The four operating divisions of Campbell were- Campbell USA, Pepperidge Farm, Campbell Enterprises and Campbell international. Campbell USA was the largest division; there were $3358 million, in fiscal 1989, which accounted for 58.3% of total sales. McGovern production philosophy was to focus on quality products rather than making products the way that the machines were already designed to make them. McGovern concentrated on what the consumers wanted. McGovern felt that their new products should be introduced through good promotion and advertising. Campbell competition came from different levels including international, national, regional and local food processors. The restructuring program caused current earning to decline, operating expenses to upward trend. As a result in 1989 Campbell ranked near the bottom of food industry group in terms of ROE. In 1989, the future of the food industry looked bright, a relatively stable economy had been forecasted and ample opportunity remained for the 1990.However, despite this overall sunny forecast, Campbell still has cloud their horizon.

Problem identification: Although the origin of the business is 1869, the Campbell soup company still has some problems to rid off. Here we are going to search the main problems surrounding the case. They main problems that need immediate solutions are•

The company has been faced the effective management problem.

•

The company has ample sources of fund with unused line of unconditional credit approximately $630 million. -2-


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Along with these we have located some other problems that indirectly may be cause of the above problems. They are•

Huge expense for marketing and sales promotions.

•

Competition increases due to new organizations comes in the market and facing problem arises.

•

It does not concern enough about the environmental issues.

Analysis and recommendation: The company is facing the reliable management problem and bearing huge free cash flow costs. Considering the present condition and the main issues the following suggestions should be taken immediately: •

The BOD should find immediately who will be the CEO of the company that can balanced both the Dorrance family and the shareholders interests.

•

Find the available sources for investment that are more beneficial for the organization and make it more compatible and profitable. It can be done by - Invest in forward integration to get advantages from the distributors. This integration will help to fight against the competitors in the field. - Invest more in R&D to introduce new product rather than adopt only. This will help to increase its brand image for new product and increase the profitability of the company. - Follow concentric strategies that is acquired the firm related to this firm to reduce the competition in the market.

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Answer to the particular questions: 1. What is the ownership and management history of Campbell? How has the history caused the problem for the company? In 1869, Abraham Anderson, an ice box maker and Joseph Campbell, a fruit merchant, established a canning and preserving business. Their reputation for quality food products was established instantly. In 1891, it was incorporated as the Joseph Campbell Company in Canada, New Jersey. In 1897, John T. Dorrance developed a process for canning soup in condensed form and Campbell has been known for this process ever. The company was owned entirely by the Dorrance family. In 1922, it was incorporated as the Campbell soup company and went to the public but the Dorrance family retained control. In 1989, they had approximately 60% of the stock. John T. Dorrance ran the Campbell soup company from 1914 until his death in 1930. In 1930, his son John T. Dorrance Jr. began to run the company. Management was centralized at that time under his command. The company was a conservative and paternalistic company at that time. The problem of the history is that after the death of John T. Dorrance Jr. a rumor was prompted that the company would be sold. Speculation was further flamed by rumors that the family had named a sell price for the company, that an investment bank had been hired and that there was a rift in the Dorrance family.

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2. Do an internal analysis of Campbell’s functional level strengths and weaknesses before McGovern’s reorganizing and restructuring include an analysis of problems with management, marketing, finance and production? Internal analysis of Campbell’s level of strength and weakness before McGovern’s reorganizing and restructuring has identified in consideration of management, marketing, finance and production. Management point of view Strength:

Weakness:

- Second strong brand name in

- Centralized.

America.

- Narrow product line.

- Strong market share.

- No incentive plan for development.

- Low debt.

- Lack of motivation to managers for

- Average stock price.

- development of new products - No up gradation in the product. Marketing point of view

Strength:

Weakness: - Marketing and advertisement was limited

- Lower marketing expenditure.

with in the country.

- High brand recognition.

-There was no microwave food for

- Product innovation.

microwaveable container. - Long term growth was not ensured. - Only formed as production not marketing. - There was central marketing policy no regional based marketing.

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Production point of view Strength:

Weakness: - Campbell emphasized new products

High quality products

that were compatible with existing production

facilities

not

consumer

oriented products. - Lack of Low fat products. - Safety stocks and inventories were higher. - Cost advantages were not available.

Finance point of view: Strength:

Weakness:

Increased net sales

Increasing long term debt.

Current asset was good.

Decreasing shareholders equity.

High divided payout ratio.

Increasing administrative expense.

Low debt-equity ratio.

Declining current earning.

Cash flow was satisfactory.

Declining working capital

Adequate financial resources

Increasing interest expense.

High liquid ratio.

Decreased net earnings

Improved operating margin.

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3. Do an analysis of the food processing industry and discuss how Porter’s five forces model and the factors in the macro-environment affect the opportunities and threats affecting Campbell? Analysis of the food processing industry: •

Food processing industry is an industry whose future bright. In a relatively stable economy, prices are stable and easy to staying in the market position. But in this industry the more important is retaining, improving and staying in the market by” how much consumer willing to pay”.

•

This Food processing industry is also attractive for investment because it causes strong unit volume in an elastic price as well as merger and acquisition benefits is possible with there available benefits that is possible to get the mature market with low fixed costs with the pricing strategy.

•

The improvement in market share is very costly because producing a product can only capture one percent of the overall market share.

•

Prices increases due to inflation and competition also rise in both home and abroad. This is happened because of flexibility in product pricing.

•

There is intense competition in the EU market which causes the increase the competition costs also. The primary activities to introduced product in EU market not so easy. There is also strong substitute in the EU market for example Cake than Bread. It is also difficult to making competitive to the EU market because it is expanding very fast.

•

Legal problem is also an important factor in the international food processing industry. Many countries follow strong restriction in marketing the product as well as best way for safety stock and inventories. -7-


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Porter’s five forces model: This model is related to the competitiveness of an industry.

It has a great

contribution to find out five featured competitiveness of an industry. The factors that are considered in this model is given below according to the analysis of food processing industry 1. Barriers to entry: Since there is intense competition in the food processing industry, it is not easy to access in the market. There are also high legal barriers and marketing barriers in this industry. The economy is also an important factor here. If one want enter in developed economy food processing market then must have to face high costs for strong competition. 2. Barriers to exit: Similar to entry exit is also not so easy. Since to compete in the market need high investment in the technology as well as high competition costs one can not want to go without any End game strategy which sometimes causes extreme competition. 3. Rivalry among competitors: It is a high competitive market. No one can survive without competition. This competition exist international, national and local food processing company. There is also a problem called facing. Generally the products that are more facing got more attention from the shoppers. As a result of the competition of facing, the competition will also be increased. 4. Power of buyers: Since there are huge tendency of new entrance with new and variety of products buyers bargaining power will be high. On the other hand many retailers are creating their own brands and sell it. As a result competition cost will be increased. 5. Power of suppliers: In case quality products the suppliers face an important factor. Due to the inflation the overall price of materials increased. So there is also a cost exists to get the reliable customer. There is a tendency in the world now a day makes a backward integration and wants to minimize the costs of suppliers.

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Opportunity &Threats of Campbell Company: Factors

Five forces

Five forces and macro environment Barrier to entry Barrier to exit Power of suppliers: Power of buyers Rivalry among competitors Stable economy Fluctuation in

Macro environment

Opportunity &Threats

the

raw

material prices Legal opportunity Inflation High investment Cost savings

Threats Threats Threats Threats Threats Opportunity Threats Threats Threats Threats Opportunity

4. What has been Campbell’s business-level strategy? How well did it work? What changes have been made at both the business and corporate levels? What changes still need to be made to increase profitability? The business level strategy of the Campbell Company was customer oriented in other wards it is followed market niche strategy because it focused on low price and product differentiation to compete with specific market segment. By using this strategy, the company was committed to lower costs and to aggressively addressing the weak spots such as the overseas companies in their manufacturing and distribution systems and after taking the strategy it was getting profitable. The management’s opinion “goals were achieved”. So the strategy did well.

The changes that was made in the business level strategy is given belowBusiness level strategy means competitive strategy and the corporate strategy means the acquisition, divesture etc related activities. In corporate level strategy it was closed

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Pennsylvania, Illinois, Maryland and Tennessee and also divested of marginal business such as Pietro’s restaurant. It was acquired four domestic companies and one foreign company among the other acquired companies. They are contributed both the business and corporate level strategy. Companies name Marie’s salad dressing Fresh (1988)

Business level Corporate level produce product Acquisition occurred and gets

(product differentiation)

the leadership in refrigerated

California ripe olives Olive product

salad dressing market. Acquisition occurred and gets

and durkee

the leadership in olive market.

Spanish (product differentiation)

olives(1988) Home style food ,Inc. Chilled line product

Acquisition occurred and gets

(1988)

the

(product differentiation)

Fresh back food PLC Related

products

strengthened

in

refrigerated market. (product Acquisition occurred and gets

(1988)

differentiation)

the strengthened in foreign

Casera Corp (1986)

new market. Producer of can and decrease Acquisition occurred. the price of the product

The changes still need to be made to increase profitability is•

Reduction of cost by decreasing the marketing and sales costs.

•

Reduction of competition through following the conglomerate strategy

•

Used the unused fund properly.

•

Make the good image by giving the positive attitude to the customers.

•

Appoint a reliable CEO who has experiences and ability to make the company profitable.

5. How did strategy implementation play a part in Campbell’s turnaround efforts?

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The Campbell soup overall strategy was to focus on customers. Their goals are to maximize profitability and shareholder value by marketing consumer food products that lead in quality and to build and defend the first or second position in every category in which they compete. In addition to this overall strategy management set goals for the company to achieve each year. In an effort to improve shareholder value, management streamlined the company infrastructure by eliminating obsolete and inefficient facilities. They also reduce their inventory and divested themselves of marginal business such as “Pietro’s restaurant” surplus assets were disposed of and they added the capacity in long term growth markets such as the salad dressing market with acquisition of Marie’s. As a result of this effort, several programs were introduced to reduce cost. A hiring freeze was enacted along with an early retirement program and a review of all head quarter functions. Management believed that these programs would reduce overhead by approximately 10 million dollar annually. Another result of streamlining strategy was realignment with the creation of five manufacturing regions, which was expected to enable Campbell to relate more closely with their wholesale customers. The close relationship was a major step in improving their information flow and speeding up their deliveries. To enhance the satisfaction of the customers, the Campbell’s management in 1990 stated that they will try to lower costs and to aggressively addressed the weak spots such as the oversees companies in their manufacturing and distribution systems. They were also dedicated to aggressively marketing products that were the first or second best sellers in their categories, for example, Marie’s salad dressing. In 1869, Abraham Anderson, an ice box maker and Joseph Campbell, a fruit merchant, established a canning and preserving business. Their reputation for quality food products was established

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instantly. In 1891, it was incorporated as the Joseph Campbell Company in Canada, New Jersey. In 1897, John T. Dorrance developed a process for canning soup in condensed form and Campbell has been known for this process ever. The company was owned entirely by the Dorrance family. In 1922, it was incorporated as the Campbell soup company and went to the public but the Dorrance family retained control. In 1989, they had approximately 60% of the stock. John T. Dorrance ran the Campbell soup company from 1914 until his death in 1930. In 1930, his son John T. Dorrance Jr. began to run the company. Management was centralized at that time under his command. The company was a conservative and paternalistic company at that time. 6. What alternative strategies might Campbell now consider? Which one would you recommended? Campbell Soup Company might consider the following strategies - The first one is to develop a clearly defined mission statement that will assist in providing focus to an organization and is essential for effectively establishing objectives and formulating strategies. The top management team at Campbell Soup Company is so large, that by not having a mission statement, each executive is subject to his/her own interpretation of the company's current vision: Campbell Brands Preferred around the World. In order for the company to proceed into a future where competition is highly competitive, they need to define who and what they truly are, their concerns, their philosophies, and what gives them the competitive advantage over their competitor Campbell Soup should focus on their business growth. They need to decide: where to grow, how to grow, when to grow, and what to grow. They would need to continue to divest less profitable business. This allows both capital and resources to be freed up to allow Campbell's to concentrate on growth. They also need to invest in new and existing

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products so that they remain successful. Campbell's has the experience, know-how, brand power, and financial capability to pursue this In this case it becomes evident that there is huge growth potential in the industry. The greatest potential lies overseas. There exists a huge untapped market that needs to be identified. There are a number of techniques Campbell's could employ in order to expand further into the global market. One would be to acquire competition by implementing horizontal integration. This could increase their economies of scale and distribution centers that they have overseas. This would include increased marketing efforts. Finally we would like to recommend for Campbell Soup Company should follow the market development strategy along with penetration strategy because the population is growing faster than on their home area. Campbell's presently relies too heavily on US sales for their overall earnings. If the US market sales continue to slow, the company could suffer financially because of its heavy investment in the US market. They could also focus this strategy at the increasing number of people in the older generation who are very concerned with nutritional values of foods they eat. The market has already identified the possibility of adding nutritional vitamins and supplements within food. Campbell having superior research abilities should take advantage of this avenue and further develops this product line.

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Conclusion: The Campbell soup company (1869 – ongoing) is the leading food manufacturer in North America. It is also a growing company in the EU. It was centralized at the beginning but decentralized operation. It was expanded its business in EU and facing several legal and promotional difficulties in intense competitive environment. It was invested, divesture, acquisition and taking consideration that customer first. But in the recent few years, it was in several problems though there was a still chance of sunny day.

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References: 1. Siroplis, Nicholas, Small Busimess Management, 2nd Edition, Jhan Wiley & Sons,INC, New York, United States of America. 2. Thompson, Strickland, Strategic Management: concept and cases,13th Edition, McGraw Hill, West Patel Nagar, New Delhi

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SWOT analysis Opportunities Innovative products and packaging Innovations in product and packaging offer an opportunity for Campbell to revitalize itself in the North American market. For instance, in 2003, it introduced soups in microwavable packages the sales of which exceeded the company’s internal targets by a factor of two.

Growth in Asia Pacific markets The Asia-Pacific region posted strong sales growth in 2003, driven in part by new production in Australia and also the acquisition of three brands from George Weston Foods. Sales in this region were 11.6% of overall sales in 2003 (which was a 41% increase over 2002) and the company has an opportunity to expand further in this region.

Improved cost savings Campbell Soup has been upgrading its systems and improving its spending efficiency in its bakery business which will generate significant savings. The company opened a new Pepperidge farm bakery in Connecticut and also upgraded Arnott’s bakery in Australia. Campbell’s cost savings are an important source of funds for investments in its brands. Threats : Strong pricing pressure from competition Campbell faces strong pricing pressure from competitors. Since October 2003, Progresso,

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a unit of General Mills, sold much of its ready-to-serve products at deep discounts. In January 2003, Campbell withdrew its normal trade discounts and lost significant market share to Progresso. Furthermore, the share of private label in the condensed soup market has been growing. This will affect the company’s sales in its core sector, especially because of the company’s reliance on wet-soup and condensed soup as a source for operating income. Low adoption rates for new products Consumer preferences for many of Campbell’s new products are difficult to assess and change fast. For instance, while the microwaveable products have been an early success, high consumer adoption rates are required for the products to establish a sustainable position in the market. Low adoption rates shall result in heavy promotional and marketing spends. Fast consumer acceptance for the slew of new products introduced by the company shall become a challenge in the coming years. Fluctuations in raw material prices The ingredients required for the manufacture of the company’s food products are purchased from various suppliers worldwide. The raw materials are subject to fluctuations in price due to factors such as change in crop size, cattle cycles, government sponsored agricultural programs, import and export requirements and weather conditions. Ingredient inventories also follow seasonal patterns depending upon the growing and harvesting seasons. Fluctuations in price of these ingredients can adversely impact the company’s profitability.

Public fears over beef safety The depth of public concern over the current issue of mad cow disease in the US, and the safety of beef generally, has been sufficient for Cambell to issue a statement to assure the public that it sources its beef and beef products from USDA approved and inspected suppliers. The company insists that the types of beef used are in full compliance with USDA regulations, including all those related to BSE risk materials. In early January 2004, the Agriculture Department banned ill and injured cattle from - 17 -


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human food supplies, prohibited human consumption of older cows’ brains and spinal cords and created regulations on the tracking, testing and slaughtering of cattle. This move was well received by national food safety groups, and it increases the profile of the issue. This may have the effect of reducing consumer demand for the type of products Campbell produces.

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Background of Campbell Soup Company

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