Campbell Soup Co plans ‘DSD transformation’ to fuel snack growth amid consumer demand ‘bifurcation’
In the company’s fourth quarter reported yesterday, Campbell’s revealed a year-over-year slowdown to 1% growth in its organic net sales growth for snacks overall with 5% net price realization. Executives were quick to point out that the quarter lapped one of the company’s strongest growth periods so that on a 2-year compound annual basis organic net sales were up a “solid” 8%, and its margins also improved from 13.7% to 14.5% in the period year-over-year.
While company executives remain optimistic about the snack business, a closer inspection of how Campbell’s “power brands” performed within the category reveals shifting shopping habits that could have longer term implications – prompting the company to look for other ways to shore up snack margins and drive sales going forward, such as embracing a DSD model that would support shipping efficiencies, provide more direct consumer insights and potentially allow for more shelf space and in-store promotions.
A snacking ‘bifurcation’
While dollar consumption of all Campbell’s power brands in snacking remains strong on a two year stack, year-over-year dollar consumption is a different story.
Over two years, the dollar consumption for all of the company’s “power brands” were up – ranging from a high 34% increase for Lance, 25% increase of Cape Code and 23% increase for Goldfish to lower increases of 7% for Snack Factory Pretzel Chips and 6% for Pepperidge Farm Cookies.
But lapping last year’s success was more challenging with year-over-year dollar share for Goldfish and Snack Factory Pretzel Chips coming in flat and dropping into the negative range for Pepperidge Farm Cookies (down 0.3 pts), Snyder’s of Hanover (down 3 pts) and Cape Code (down 0.7 pts), according to the company.
The most telling changes in the past year were for Lance and Late July, both of which increased dollar share year-over-year 2.4% and 2.2% respectively.
What makes their growth notable is not only that they bucked the trend compared to other brands, but that they sit on opposite sides of that price-value spectrum with Lance appealing to more cost conscious consumers and Late July positioned as a premium offering targeting higher income shoppers.
“You’re starting to see a little bit more bifurcation within snacking,” CEO Mark Clouse told investors yesterday during the company’s first quarter earnings call. “A lot of the decline that we’re experiencing, actually a significant outsize of contribution, is coming from low-income households, which index on snacking only at about 20% but they represent a much bigger portion of our declines, whereas the premium brands that index higher to the mid- and higher-income levels have been very stable, if not growing at faster rates.”
He explained that Late July “is a well-positioned brand in that added-value and elevated space, and thus within those consumer segments that remain extremely relevant and the growth rates continue to perform very well,” while Lance indexes higher to value with a lower price point that appeals to more financially challenged shoppers.
DSD ‘transformation initiative’ will add fuel to snack brands’ growth
Looking at the segment through a two-year lens, Clouse reiterated that Campbell is on track to lift its long-term margins in snacking to 15% in fiscal 2024 and 17% longer-term. But to do that, he said, the company is “adding even more fuel to our snacks growth and margin journey with our DSD transformation initiative.”
The first time that the company has talked meaningfully about this initiative, Clouse was light on details and promised more information in the company’s second quarter earnings call.
For now though, he said, the initiative includes three key elements – the first two of which are “already progressing.”
The first element is to create one snacking DSD logistics and warehouse network – a multiyear effort that Clouse said, “will streamline our logistics and warehouse network, eliminate redundancy, simplify our network and improve our technology and capabilities within our warehouses and depots.”
The second element is to modernize and harmonize the tools and technology that independent distribution partners use.
“This will enable new capabilities and help enhance effectiveness and focus,” Clouse said, adding it “also will allow better retailer linkage and alignment to orders, while improving in-store insights.”
The third component, which the company is currently piloting, is enhanced DSD routes.
“The good news is the vast majority of geographies already have scaled routes, and in combination with the upgrades from the first two elements of our DSD transformation, these will be fully optimized going forward,” Clouse said.
He added, “To help improve geographies where routes are not operating at full scale, we’re piloting a variety of potential solutions with encouraging early results,” that he plans to share next quarter.
‘A steady drumbeat of innovation’
Campbell also plans to drive consumer engagement with snacking through increased innovation – especially within its Goldish brand, the appeal of which the company has proactively been expanding beyond children to include teenagers and adults.
Clouse touted Goldfish’s “steady drumbeat of innovation” as helping the brand hold or gain dollar share for five consecutive quarters.
“On this front, we’re excited to bring to consumers our latest limited time offer for the holiday season, Goldfish Elf Maple Syrup Flavored Grahams in partnership with Warner Bros. Discovery, celebrating the 20th anniversary of its iconic movie, Elf. Is there anything better than maple syrup Goldfish to spread holiday cheer, and it's perfect for stocking stuffers or snacking all season long,” he said.
“And,” he added, “There's even more exciting innovation in Goldfish in store this year. Adding to the incredible success of innovations like Goldfish Mega Bites and our run of limited time offers, we are reinventing the category again in a way only Goldfish can with the introduction of Goldfish Crisps, crisps with the way that Goldfish does chips, the best of Goldfish with the best of chips combined into an irresistible, light, airy, crispy, fish-shaped baked snack” that will be available in three flavors in January.
