| The Cambell Soup Company Essay, Research Paper
The Campbell Soup Company
The Campbell Soup Company has evolved into one of the strongest food companies on the market today. For the past two decades, the company has employed three different CEOs with three different strategies. In my analysis, I will show with each CEO and each new strategy, how Campbell has managed to turn its obstacles into opportunities and remain ahead of its competitors.
George McGovern brought a corporate strategy that focused on satisfying the consumers’ expectations, developing new products, maintaining high standards of quality, and expanding the business with an acquisition strategy.
The main focus was to deliver what the consumer wanted in convenience food. The main desires were identified as nutrition in the food, convenience, price, quality, and uniqueness. Business managers were expected to fulfill these desires and improve or change as needed. McGovern’s strategy for each business unit focused on improving operating efficiency, developing new products according to ever-changing trends, updating advertising for both new and present products, and of course high standards regarding quality.
McGovern implemented a five-year plan that included four financial objectives. He wanted to see a 15% annual increase in earnings, a 5% increase in volume, a 5% increase in sales, and an 18% return in equity by 1986. The highlights of his plan were developing and introducing new products, and acquiring new divisions in the business that would bring at least $200 million dollar sales a year. His plan seemed to work, at least for a short time. By the end of 1984, sales were up by 31%, a total of $3.7 billion dollars! Earnings increased by 47%, to a total of $191 million!
McGovern preached customer satisfaction, and demanded high production quality, but his main focus was growth through new product development and acquisition. During his time at Campbell, the company introduced 922 new products. This is more than any other food company. McGovern was consistently looking into research for answers to remedy troubled divisions. Pepperidge Farms was Campbell’s third largest division, but some of its new products were not selling as it hoped to. As a result, he sent Del’s Vegetables in pastry back into research and development to improve quality. He also put a new management team to overlook and give an extension review of each new product. Because of McGovern’s in-depth research of customer’s wants and needs, he was able to create new flavors for the Vlasic pickle! The consumer wanted more variety; he produced.
McGovern’s strategy to get his managers involved in the new product development started at the grocery store, literally. McGovern himself shopped weekly for his family, part so he could see what and how the competition was selling, and part to make sure his own displays were shelved to his expectations. He often talked to other shoppers to get their suggestions first hand. He encouraged his managers to do the same. To reinforce this method, he often held meetings at the grocery stores themselves so managers could talk to shoppers afterwards. McGovern structured a free for all product development for the different units. This encouraged creativity and broke any limits that would put a frozen food unit in developing solely frozen foods. He began allowing 30 to 40 million dollars to support new product developments. He encouraged development, regardless of the failure rate. He wanted his teams to know it was OK to fail, which was just a natural part of the business.
McGovern also emphasized and changed the way the company advertised. Because of changing times in health and fitness, his ads reflected this change. The slogan went from ” Mmm. Mmm Good” to “Soup is good food.” I can personally remember the first time I saw a commercial that showed a slender looking woman in an even more slender looking dress, telling viewers soup is good food, and it only as 90 calories per can. It’s funny how a commercial can have such an impact. Every time I pull out a can of soup, I think of that woman, and think “great, I’m only eating 90 calories!”
McGovern expected no less than zero defects. He had nationwide conferences for managers that included ways to improve quality. One of those strategies was to conform the company’s equipment to produce products the consumer wanted. Before, it would produce what it could with present equipment and risk reducing customer satisfaction.
New product innovation is a great asset to the company, however Campbell spent too much time and energy on new products and excessive advertising. From 1982 to 1989 Campbell’s marketing budget grew from $275 million to $552 million dollars. It’s advertising expenditures went from $67 million in 1980 to $197 million in 1989. With the entire new product innovation came high risk. When Campbell’s started its new product campaign, it spent $30 to $40 million for creation of new product lines. Usually it would use $10 million to develop and test new products, and it also used $10 to $15 million in advertising to launch the new item. He insisted on new items, regardless of cost. He preached he would rather his divisions create new products and fail, than no creations at all. Typically in the food industry only 20% of new products lasted for more than a year. But Campbell surpassed this average. During the 80’s one out of eight products were successful.
McGovern had no limit to the amount of money he spent to encourage new products and acquiring businesses and updating the company. McGovern spent $150 to $300 million annually for production, packaging, and labeling. This decision was based on market considerations and consumer trends. As a result of overspending and turning manager’s attention to product innovation, the company began to lose sight of cost control, profit margin goals, and old stand-by products. They became overconfident with their strategies and acquisitions. Often if the odds were against them, they would still pursue. They focused too much on marketing and lost sight of processing, packaging, and distribution.
In the later part of the ’80’s, the profits started to reflect the neglect to the better part of the company. The Dorrance heirs began to openly criticize McGovern’s approach to running the company. McGovern chose to resign from the criticism and the family disagreement over whether or not to merge with Quaker Oats.
Campbell than started their search for a new CEO and found David Johnson, he was formerly CEO of Gerber, and proved his ability to turn around a company and produce higher profits. David Johnson started with Campbell in January 1990. Since he was the CEO of one of Campbell’s competitors, he was able to get an unbiased perspective of the troubles in the company. He knew Campbell had a good, strong foundation, with excellent research and development with well known brands. The company had just lost its focus. He felt if he could reorganize and refocus the company within six months than it would be performing once again. Not only were earnings growth a first priority, but gaining the confidence of the Dorrance heirs was too. He felt confident, they were not trying to medal in the business, they were only dissatisfied with the profits. Johnson’s restructuring plan refocused the business on its best known brands, such as its soup, Prego, Pepperidge Farms, Vlasic, and Swanson. Johnson did not believe that Campbell’s growth should come from acquisitions of small food companies and from new products that primarily served to satisfy short lived trends. Johnson divested businesses that McGovern had purchased that were not complimentary to Campbell’s portfolio. A total of 26 businesses were divested and those 26 businesses only had an average net profit margin of 1%. Johnson also eliminated unprofitable and slow selling products from the Campbell product family. Johnson had six initiatives to his strategy to help the company’s performance:
? Divesting businesses that were non-strategic and reorganizing it’s own division.
? Eliminating weak items from the company’s product family.
? Using the 20-20-20- motto for performance targets and insisting new products compliment Campbell’s strengths.
? Focusing on the global marketing of the company’s competencies and capabilities.
? Expanding and creating low-cost business system at corporate level.
? Utilization of assets to maximize the return to stockholders.
To utilize assets, Johnson sold eight plants and shut down twelve more worldwide. The remaining plants took the production of the closed plants, this lead to maximum efficiency in each of its plants. The plant in North Carolina was able to increase output by 50%, and was the first plant to lower production costs lower than 50% of its product’s retail price.
Johnson also had new strategic incentives for each divisional unit. He emphasized the primary purpose of the corporation was to build shareholders wealth. He also concentrated on the name brand of Campbell. He instilled confidence with his employees by giving them responsibility for maintaining the existing brands, “People power” is what he called it. And last, he wanted to preserve the company’s independence from mergers and other companies trying to take control.
Another technique Johnson used that was changed from McGovern, was new product innovation. Johnson researched and tested products before they were put on the market much more than McGovern did. He also limited ideas to where Campbell had experience and success. With this new technique, Campbell introduced a new soup, “Cream of Broccoli” that ranked on the top five selling list. A new soup hasn’t ranked that high since 1935.
When Johnson reorganized the business, he wanted the strategy to fit best with the company and its divisions. During Johnson’s first year, he developed a three-division structure. This improved communication and technology sharing between each of its subsidiaries. Eventually it helped Campbell focus more on the international market.
Johnson began to see Campbell’s growth reaching new heights. He felt a sizable portion of its earnings could come from the international market. Their acquisition of Germany’s Erasco increased their international soup sales to 21% of total soup sales. They then bought an operation in Malaysia that would eventually enable them to produce their soup instead if importing it. Since tastes varied with each country, it was rather difficult to succeed in the international market. Campbell failed in Europe, for they were accustomed to preparing their soup in a different way. So, when they approached Hong Kong, which had an unusual strong market for soup, they were more cautious. They started a taste kitchen for testing and perfecting the tastes of the country. As a result, they were successful.
As I have shown, Johnson and McGovern’s strategies were very different. While McGovern focused on new product innovation and encouraged frivolous new product financing, Johnson geared more towards taking care of the old. Johnson built a firmer foundation in the company before he looked for bigger markets or new businesses to acquire. He was more cautious and more particular in the companies he chose to purchase. Johnson’s plan was for the company to strategically fit together as a whole, all of it, not just parts of it.
I think Johnson’s strategy was more productive and less frivolous. McGovern seemed to have lost site of cost effectiveness. He was obsessed with new products, which lead their focus away from their primary purpose: to create stockholder’s wealth and a strong company that was hard to compete with. Even though McGovern acquired more businesses and created more products, Johnson’s strategy brought more earnings to Campbell, not only in the U.S., but in other countries as well.
After Johnson retired in 1997, Dale Morrison was appointed CEO. He basically kept the same strategy as Johnson had started, but with only a few changes. Morrison focused on marketing a little more than Johnson did. He also improved the quality of packaging in countries where high quality packaging attracts more consumers.
Morrison continued to restructure Campbell’s portfolio. He announced the spin off of seven low-growth businesses including Vlasic International. Campbell was confident this would enable their company to focus more on businesses with higher growth potential to acquire. And it gives Vlasic and Swanson opportunities for growth under a new dedicated management team. Critics thought it would be difficult for Vlasic to grow, but Campbell was confident with brands like Swanson, Swift, and Gourmet Specialty Foods, it would not have a problem. But it did find problems. In the first six months of going on the market, shares fell from $22.75 to $13-$15. Their third and fifth quarter sales and earnings fell below projections, and pickles and frozen foods were down by 10%.
Morrison further restructured their portfolio by focusing on brands and businesses that related to either brand or image. They began to divest several operations, including their canning operation for their soup. This allowed Campbell to have enough funds to buyback some of their stock of the 451 million shares that were outstanding beginning in 1999 through 2001.
In the mid 90’s, Campbell began to focus more strongly on the soup and sauces division. The market represented soup sales were declining regardless of their efforts of introducing countless varieties of new flavors. They found success in their sauces. Consumers were now looking for a healthier way to eat and fat free foods proved effective. Their newest innovation was soup that could be stored in a reusable, refrigerated package. They acknowledged that people went to their refrigerators to find quick meals, instead of their pantries. They hope that this reusable packaging will increase sales and begin a new generation of consumers.
Throughout the past two decades, Campbell has grown into one of the strongest food companies on the market. They have restructured their company to focus on divisions that will compliment their existing operations. Campbell looks towards the future to grow into the most competitive company on the market.
As long as Campbell continues to recognize the ever-changing market and introduces products that will represent the changes, they will continue to grow. Consumers don’t have the time they use to to prepare meals at home as often. People rely on restaurants and quick serving items to feed their families. I think their soup containers have much to be desired. Soups on the go, could be packaged with crackers, They need to introduce more products that will keep up with the busy lives of working, parenting, and school attending adults. They also need to keep focusing on fat free foods and healthier alternatives for burger and fries. It seems Campbell’s management has kept up with the changing trends of the consumer. With every new CEO, brings an opportunity for more growth. Campbell plans to continue to bring wealth to its shareholders in the years to come.
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