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.

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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:

- Second strong brand name in

America.

- Strong market share.

- Low debt.

- Average stock price.

Weakness:

- Centralized.

- Narrow product line.

- No incentive plan for development.

- Lack of motivation to managers for

- development of new products

- No up gradation in the product.

Marketing point of view

Strength:

- Lower marketing expenditure.

- High brand recognition.

- Product innovation.

Weakness:

- Marketing and advertisement was limited

with in the country.

-There was no microwave food for

microwaveable container.

- Long term growth was not ensured.

- Only formed as production not

marketing.

- There was central marketing policy no

regional based marketing.

Production point of view

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Strength:

High quality products

Weakness:

- Campbell emphasized new 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:

Increased net sales

Current asset was good.

High divided payout ratio.

Low debt-equity ratio.

Cash flow was satisfactory.

Adequate financial resources

High liquid ratio.

Improved operating margin.

Weakness:

Increasing long term debt.

Decreasing shareholders equity.

Increasing administrative expense.

Declining current earning.

Declining working capital

Increasing interest expense.

Decreased net earnings

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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.

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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 and macro

environment

Opportunity &Threats

Five forces

Barrier to entry Threats

Barrier to exit Threats

Power of suppliers: Threats

Power of buyers Threats

Rivalry among competitors Threats

Macro environment

Stable economy Opportunity

Fluctuation in the raw

material prices

Threats

Legal opportunity Threats

Inflation Threats

High investment Threats

Cost savings 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.

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The changes that was made in the business level strategy is given below-

Business level strategy means competitive strategy and the corporate strategy means the

acquisition, divesture etc related activities. In corporate level strategy it was closed

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 Business level Corporate level

Marie’s salad dressing

(1988)

Fresh produce product

(product differentiation)

Acquisition occurred and gets

the leadership in refrigerated

salad dressing market.

California ripe olives

and durkee Spanish

olives(1988)

Olive product



the leadership in olive market.

Home style food ,Inc.

(1988)

Chilled line product



the strengthened in

refrigerated market.

Fresh back food PLC

(1988)

Related products (product

differentiation)


the strengthened in foreign

new market.

Casera Corp (1986) Producer of can and decrease

the price of the product

Acquisition occurred.

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.

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

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

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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.

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

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allow Campbell's to concentrate on growth. They also need to invest in new and existing

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

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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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