Campbell Soup Co. seeks larger slice of $151b US snack category with innovation, C-store distribution
During the company’s investor day Dec. 14, executive vice president of snacks Valerie Oswalt laid out a three-point strategy for expanding Campbell’s already sizeable snacking business so that brands operate at or above category rates.
These goals, if achieved, will build on the company’s strong gains in snacking during the pandemic, including seven of its eight “power brands” holding or growing share while increasing consumption 12% on a two-year basis and driving household penetration up to 85% in the last year, Oswalt said. It also would build on the almost $300m of value capture and synergies Campbell tapped into across its snacks organization since acquiring Snyder’s Lance almost three year ago, she added.
“I am proud of what we have accomplished creating a strong and unified snacks organization. However, our mission to unlock growth is not over. While we are pleased with our topline growth and the value capture savings we were able to deliver, we continue to have a margin opportunity versus our industry peers,” Oswalt said.
To that end, she also laid out a four-phase plan to improve the business’ margins approximately 400 basis points or 17% by fiscal 2025 so that Campbell’s snack margins (currently about 13%) are more in line with the industry average of 21%.
Acknowledging that some “structural differences and complexities in our portfolio” could hinder these goals, Oswalt confidently explained that Campbell can reach these targets “by improving our fundamentals and creating a more efficient an effective supply chain” in order to invest in growth while also improve margins.
'Three clear paths to generate back growth' in snacks
To accelerate growth in Campbell’s snacking business, Oswalt said the company will follow “three clear paths to generate back growth,” including leveraging its “proven growth model,” grounding innovations in consumer insights and expanding distribution across channels.
Oswalt touted the strong foundation from which Campbell will grow its snack business, noting that all of its snack brands are in the two fastest growing segments: permissible indulgence and true indulgence.
“Permissible indulgence represents about $32b of snacking, which is about a quarter of total snacking, and it is growing at a two-year compound annual growth rate of 4%. These are the snacks that consumers feel are more permissible because they offer something without guilt or have added benefits,” Oswalt said. Brands playing in this space include Late July, Goldfish, Lance, Snyder’s and Snack Factory’s Pretzel Chips.
The true indulgence category, which includes Campbell’s Kettle Brand and Cape Cod chips and Pepperidge Farms cookies, is growing even fast at 10% and represents about 30% of the snacking category at about $40b.
From this position of strength, Campbell’s plans to further grow these brands by elevating their positioning, investing in marketing, expanding new consumers and geographies and innovating to strengthen equity – a “proven growth model” that Oswalt said helped Campbell grow Kettle Brand 11% in two years, and gain 1.7 points of share in two years.
The second prong in Campbell’s growth strategy is to innovate based on consumers needs, which includes offering twists on the familiar, more permissible indulgence options and expanding snacking occasions.
Examples of “twists on the familiar” include an upcoming launch in the new year of Goldfish Mega Bites, which take everything people love about Goldfish and add more to “make a bigger, bolder, cheesier Goldfish” with a melt in your mouth texture.
Campbell also will roll out a its first chocolate Milano cookie as an expansion in permissible indulgence, Oswalt said.
“We dialed up the chocolate impact while keeping it permissible with real, simple, premium ingredients that consumers expect from Pepperidge Farm cookies,” she explained.
Campbell also is innovating within packaging to help keep products “within arm’s reach” by offering more sizes that are designed to fit consumers’ lifestyles, such as larger sizes for the pantry, more personalized smaller packs and elevated pack design, such as what it has done so far to improve omni-channel sales.
The third prong of Campbell’s growth strategy is to increase the reach and penetration of its power brands in the convenience channel, where Oswalt says there is an additional $200m revenue opportunity.
“Power brands, such as Late July, Pepperidge Farm cookies, Kettle chips and Snyder’s of Hanover have $100m opportunity by closing our distribution gap versus Goldfish. Additionally, we have $115m opportunity by closing our development gap in convenience stores,” she said.
Closing the margin gap
Campbell’s investment in growing its snack brands will not come at the expense of its margins – rather Oswalt suggested that its plans to accelerate growth will also help expand the company’s margins – bringing them more in line with industry averages.
To do this, she laid out a four-phase plan that will track over then next three fiscal years.
In fiscal 2022-23, Oswalt said Campbell will strive to gain about 200 basis points by focusing on the fundamentals, including offsetting inflation through pricing, improving mix by shifting more towards consumer favorites and permanently cutting about 10% of SKUs to increase capacity and reduce complexity, and by improving plant performance.
Continuing through fiscal 2025, Campbell aims to capture an additional 250 basis points by expanding its enterprise savings program and enhancing manufacturing and site performance.
In fiscal 2024 and 2025, Campbell will explore improves in its route to market, including an independent contractor distribution model, ways to streamline complex logistics networks and explore other longer-term opportunities. Together this should capture 50 basis points.
Even as the company focuses on improving its margins, it will continue to invest in marketing, upgrades to its production and route-to-market technology and its people, Oswalt said, noting this could cost about 100 basis points but will follow a pay-as-you-approach.
Ultimately, Oswalt said: “As we move out of this period of integration and into the next chapter, we know how to grow our brands and we know how to win in snacking. We have a portfolio that is well positioned to meet consumers desire for elevated snack experiences a proven growth model, category momentum, a margin roadmap to deliver improvement, winning innovation, a strong and committed team with exceptional snacks industry experience and a track record of execution.”
