Company has long been more than its name suggests. Now its underappreciated snack business looks set to become its star performer.
Campbell is composed of two divisions: meals and beverages, which includes its namesake soups as well as brands such as Pace salsas and V8 juices; and snacks, which features the Pepperidge Farm line of cookies and Goldfish crackers, among other brands.
Snacks makes up around 43% of sales currently, but is growing faster than meals and beverages and looks set before long to become Campbell’s biggest business. The main question hanging over the division is its profitability, which lags that of peers.
The snacks business got a big boost with the acquisition of Snyder’s-Lance in 2018, which brought in several relatively high-end brands including Kettle and Cape Cod potato chips, Late July corn chips and Snyder’s pretzels. The deal was one move that proved canny during the controversial tenure of former Chief Executive
took over in 2019, reversing the declining fortunes of the soup business had to be his top priority.
Now that soup sales have stabilized, snacks are inching back into the spotlight.
“I hope that I get a question on Snacks,” Mr. Clouse told analysts on a conference call during the company’s earnings presentation in March, after fielding several on soup. It is understandable why he’d be keen to talk about it: In that quarter, snack sales were up 15% from a year earlier, compared with 11% growth in the meals-and-beverages segment. And, unlike meals and beverages, snack growth wasn’t entirely due to price increases, with underlying volume rising 2%. Retail sales of Goldfish were up 21% from a year earlier.
At an investor day in 2019 where Mr. Clouse laid out his overall strategy, Campbell said it would aim to “stabilize” meals and beverages over the long run while growing snack sales “at or above the category rate.” They reiterated that target at another investor event in 2021, defining the snack “category rate” for the year ahead at around 3% to 4%.
Many competitors are thinking along the same lines.
for instance is in the process of spinning off its cereal division to focus more exclusively on its snack brands including Pringles and Cheez-It. Somewhat similarly to Campbell, Kellogg says it sees higher growth for the snacking business but is aiming just for stable cereal sales.
remains the dominant snack player with Frito-Lay.
Yet Campbell looks well positioned competitively. Its Pepperidge Farm line, plus some of the brands from Snyder’s-Lance, give it a differentiated portfolio, which Mr. Clouse describes as “a bit premium but also affordable.”
“It’s not the mainstream cookie or cracker; it’s a completely different proposition,” he said in an interview.
To this lineup Mr. Clouse is applying a playbook developed during his tenure as a senior manager of
the global treats and snacking giant that was separated from Kraft Foods Group in 2012. Mr. Clouse served as chief commercial officer and chief growth officer at Mondelez, from the separation until 2016. There, he initiated the strategy of introducing limited-edition Oreo flavors, beginning with Reese’s peanut butter and going on to birthday cake and many other flavors.
Now Campbell is doing something similar, with limited-time products such as Frank’s Red Hot and Old Bay seasoned Goldfish, birthday cake Pepperidge Farm cookies and so on. Shoppers tend to pick up an extra limited-time item alongside their usual purchase of Oreos or Goldfish, giving a strong boost to sales.
At the same time, Campbell has an opportunity to massively scale up some Snyder’s-Lance brands, such as Kettle and Cape Cod, which were essentially regional brands before the merger and didn’t receive much investment in the form of advertising and promotion, said Chris Foley, president of Campbell Snacks. “They were not at all at scale” at the time of the acquisition, he said in an interview.
So the sales outlook for Campbell snacks seems bright. Profit margins are where the challenge lies. There were hundreds of millions of dollars in cost synergies from the Snyder’s-Lance acquisition that should have added to margins. But those savings ultimately only compensated for unforeseen costs from the pandemic, inflation and supply-chain disruptions. In December of 2021, the company said its snacks operating margin of around 13% was well below the industry average of around 21% and set a target of raising it to 17% by fiscal 2025. But inflation worsened in 2022, keeping margins under pressure.
Now, though, profitability seems to have turned a corner as multiple rounds of price increases have caught up with costs. Snack operating margins fell to 12.7% in the quarter ended last May but have since risen for three consecutive quarters, reaching 13.9%.
There are still efficiencies that could be wrung out of the Snyder’s deal, executives say. For instance, Campbell is applying analytics software to optimize manufacturing at Snyder’s-Lance plants. Importantly, the Snyder’s-Lance and Pepperidge Farm operations each have their own separate “direct-to-store” distribution networks. This makes a certain amount of sense, as one network places goods in the chip aisle, while another heads to the cracker-and-cookie aisle.
But Campbell is in the process of integrating its network of warehouses, creating regional depots where both categories of snacks can be sorted and loaded onto trucks at a single point, and also investing in tech and automation upgrades to those facilities to make them more simplified and efficient, says Mr. Clouse.
Nuts-and-bolts considerations like these will determine if Campbell hits its margin target in time. But at least profitability is now headed in the right direction. Even if the timeline slips a bit, investors might be inclined to give Mr. Clouse the benefit of the doubt. In the world of food, steady sales growth paired with expanding margins make for an appetizing mix.
Write to Aaron Back at email@example.com
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