Bold Move to Build Profits : Campbell Soups Up Its Operation
For more than a century, the corporate strategy at Campbell Soup was as bland and consistent as its tomato soup.
A few years ago, however, it began aggressively introducing new products, a move that increased profits and kindled excitement within the company.
But Wall Street analysts and even Campbell’s president think the 115-year-old enterprise may have become too adventurous.
Campbell executives started tinkering with its conservative formula in the mid-1970s, but the company’s boldness took off when R. Gordon McGovern became president and chief executive in 1981.
Unorthodox Style
McGovern, who came from the top spot at the company’s Pepperidge Farm division, decentralized the corporate structure and encouraged risk taking in a company where volume and earnings gains were starting to decline.
The 58-year-old president brought an unorthodox style to the company’s top office. He drove to work in a little yellow Volkswagen, joined employees at lunchroom tables and did his family’s shopping on weekends as a way to keep track of supermarket trends.
But he also made some major substantive changes. The company was split into 52 strategic business units, each with a general manager responsible for meeting sales and profit targets.
“Each of these business units was given a lot of autonomy,” Campbell spokesman Jim Moran said. “He (each general manager) was like the president of a small company.”
With encouragement from the top, those units started contributing new ingredients to the corporate soup. In the last five years, the company added 392 new products, accompanied by sharp increases in advertising and promotion budgets.
Future in New Products
“New products are the growth,” McGovern said in an interview. “It’s like the Gulf Stream. You want to get in the warm, fast moving streams.”
The flow of new products made Campbell a hot property. Sales grew from $2.8 billion in fiscal 1981 to $3.7 billion last year, while profits rose from $130 million to $191 million. But the growth has slowed in the company’s latest fiscal year, which ended July 28, and its profit is not expected to much above last year’s.
Among the most successful new products were Le Menu, a line of premium-priced frozen dinners, and Prego spaghetti sauce.
“Prego represents one of the most successful new grocery products in recent years,” according to a report by the Salomon Bros. investment company. Introduced in September, 1982, Prego generated revenues of nearly $100 million in its first full year.
The success of the Le Menu frozen dinners, which Campbell officials attribute to changing eating patterns and the willingness of two-income families to pay high prices for elegant convenience foods, helped increase revenues in the company’s Swanson division.
But there have been losers, too.
One of the biggest flops was Pepperidge Farm Apple Juice. In retrospect, company officials said, consumers rejected the juice because of its high price, its cloudy appearance and its packaging in a plastic bottle at a time when small cartons with a straw were gaining popularity.
