Is Organic the Pick-Me-Up Campbell Soup Desperately Needs?

A nearly 150 year-old company is about to make a major change to its product portfolio. Here's why it's the right thing to do.

Aug 8, 2014 at 11:00AM

Campbell Soup Company (NYSE:CPB) is thinking outside the can. In response to sluggish sales amid shifting consumer preferences, the nearly 150-year-old company is about to shake things up big time with a major initiative designed to get its financial performance back on track. Campbell will re-energize its portfolio with organic ingredients across several of its product categories.

The packaged food industry is being squeezed right now, and here's why Campbell Soup's strategic change of direction makes a lot of sense, and has the potential to re-energize sales.

Packaged foods are stagnating
Last quarter, Campbell generated flat sales, and cut its full-year sales guidance, citing the tough consumer landscape. Peer ConAgra Foods (NYSE:CAG) noted the same conditions when it reported a 7% drop in sales in its core consumer foods segment in its fiscal fourth quarter.

Both companies are suffering from consumer perceptions that traditional canned and packaged foods are less nutritious than organics. Management teams of both Campbell and ConAgra stressed the need to redefine their marketing, but until now, didn't take measures to actually respond to what consumers were saying.

ConAgra stated that it would refine consumer communication, but more needs to be done if the move to organics, across the industry, is a long-term trend. This is especially true for ConAgra, since two of its major brands, Healthy Choice and Chef Boyardee, were two of its major under-performers.

Fortunately for Campbell Soup investors, management is on top of the trend and about to drastically change things.

Campbell gets fresh
Campbell recently announced plans for its first batch of Campbell's branded organic soups. It will re-release its old favorites, like chicken noodle and tomato soup, but will also expand into new organic varieties. The ready-to-serve soups will be packaged in "contemporary cartons that help preserve their fresh taste and goodness."

In addition, Campbell will appeal to consumers' desire to serve fresh foods to their children. In the Bolthouse Farms segment, the company will launch its first "Kids" line, which will include a portfolio of refrigerated fruits and vegetables. This is a change in strategy from its previous offerings, as Bolthouse Farms was previously focused on carrots and dressings. Still, this represents a significant move, since the Bolthouse segment accounts for 18% of Campbell's total revenue.

Campbell is no stranger to organics, which means it's got an early advantage in reshuffling its brands. It holds the recently acquired Plum Organics line, and it's going to expand its offerings with 22 new organic simple meals and snacks for infants and children.

This is a wise move, since Plum Organics is doing well. Last quarter, Campbell Soup's poor performance would have been even worse if it weren't for Plum Organics. Although companywide sales were flat, sales of sauces in the United States jumped 25%, and the Plum Organics acquisition contributed 14 percentage points of that growth.

In all, Campbell plans to launch 200 new products in the upcoming fiscal year.

Campbell is moving forward
Campbell's change of strategy makes a lot of sense, because consumers are slowly but surely moving away from canned and packaged goods. Organics are all the rage right now, and Campbell is already one step ahead since its existing organic line is doing so well.

Plus, Campbell already has an established presence in juices with its V8 brand. In addition, Campbell will leverage its V8 brand to offer protein shakes and protein bars, to help profit from the health and wellness trend.

The bottom line is that Campbell Soup is responding to customer demands. While some companies resist change and cling to old strategies, Campbell Soup is doing what's necessary to try to restore sales growth.

Americans are widely embracing organic food. According to the U.S. Department of Agriculture, sales of organic foods will hit $35 billion this year, up 23% from two years ago. Campbell Soup isn't content to sit it out and let others take advantage of consumers' desire for fresh, organic foods. That's why management's strategic initiatives are spot-on.

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Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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