It's easy to see why Campbell's is attracted to these markets. The company estimates 32 billion servings of soup are eaten in Russia per year, and 320 billion in China (versus 14 billion in the United States). The problem is that the majority of soup is made from scratch, almost unheard of in the United States. Consumers in these countries have said they just don't like the canny taste of prepared soups. In response, Campbell's will sell broths and soup bases in pouches and boxes. (The company already sells broths successfully in Hong Kong.) Homemade soups will become easier to prepare, which should be very popular as incomes rise and increased industrialization makes lifestyles more hectic. Campbell's products should save time while keeping the flavor that is of utmost importance.
I think its research shows the company is going in prepared. Those in research and development should get a raise for their efforts. Rather than just blindly sell its products, on the basis of a large market, Campbell's is conforming to local tastes and customs. Companies get in trouble when they blindly enter a new market. AMF Bowling decided to go into China and other Asian countries, and the results were disastrous. Sales were soon disappointing, and, along with overexpansion in other areas, led to its bankruptcy filing. On the flip side, McDonald's
Patient investors should be rewarded by Campbell's strategy to go into these markets. It has obviously given it careful consideration and will sell its soup in a form foreign consumers will embrace. Campbell is also going in at an early stage, before there is a lot of competition. The early bird catches the chicken (and beef)!
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Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. Feel free to e-mail him at email@example.com. He doesn't have any positions in the companies mentioned.