I attended the Campbell Investor Day conference last week. Of the many takeaways, the overriding notion is that Denise Morrison, Campbell’s CEO, gets it.
Denise clearly outlined the macro trends and rapid changes occurring in the marketplace and underscored Campbell’s commitment to being a leader in this environment. As it soon became apparent, this wasn’t just talk. What makes this CEO’s overview different is the acknowledgement that the majority of macro trends affecting the food industry are directly aligned with the values and enduring philosophies of the natural products industry. In fact, a sizeable portion of the three-hour event was spent on topics front and center to it: transparency, being purpose-driven, plain-labeled GMO claims, animal welfare concerns, supply chain traceability, fresher food, clean labels and ingredients, and more.
Unlike many other CPG companies that are following and trying to catch up with the trend, and who mention these terms as if they are on the outside looking in with their noses pressed up against the glass, Denise was not just reciting a list of market dynamics—she was emphatic that embracing these trends is essential for survival. She also emphasized that these elements are emerging within Campbell to create a whole new culture—how it thinks, how it acts and how it works. Attributes of this “new” Campbell were enumerated as a mindset of being the challenger, ability to be more lean and agile (like the innovative natural product companies flying under the radar but winning), greater emphasis on health and well-being, ability to make real food with clean labels and being transparent. She did not mince words about the work ahead to get there, but she made it clear Campbell would lead her CPG contemporaries into the transformation of the new business of packaged food.
Among the initiatives announced, Campbell plans to add $2 billion in packaged fresh product sales by 2020, building on a platform where it has “the capabilities to succeed.” New launches over the next six months include new plant and pea protein-based non-dairy milks from Bolthouse Farms, new HPP smoothies from 1915, multiple new products from Garden Fresh Gourmet and a new fresh soup brand created for the natural and specialty channel called Souplicity. Campbell’s is also launching a new canned soup subline, Well Yes!, which it says is clean label “with recognizable and desirable ingredients.” Campbell will also be expanding organic and clean label products across the portfolio, and longer term, leveraging vegetable and whole grain attributes to deliver “naturally functional benefits in energy, endurance, and digestive health.”
It has been a dream of our industry for decades to hear an $8 billion mainstay CPG admit the business they are anchored in is not the path forward, but that business principles, missions, supply chain transparency and ethics, and product portfolios more like our industry are the path forward. I heard that dream come to pass today as the transformation our industry has been influencing continues to gain momentum.
No doubt CPGs by necessity are changing as their sales drag at flat to declining levels for the past couple years, but those trends are the result of consumer demand shifting away from their traditional businesses. Along these lines, it was apparent to me that the investors during the Q&A session showed a contemplative tension—feeling like Campbell just made a compelling case for the need to change, but the likely results from changes they proclaimed are somewhat unfamiliar to the broader investment community. Except for perhaps General Mills, a company the size and scale of Campbell has not pronounced in such clear terms it’s wholesale commitment to this "niche" business model.
As usual, the investment community wanted to understand how this new world order would impact margins and profitability. While these questions are not a surprise, it seemed to put Campbell a bit into a more guarded mode of communication. Campbell itself knows it will be mindful about how it transforms and where it wants to end up, but can’t yet forecast the quantitative and P&L impact with certainty.
While this is unchartered territory for all CPGs, a handful of those out front have formed venture arms to invest in, incubate and/or acquire smaller natural products companies as a perfect platform from which to learn about this new model. General Mills’ 301 INC is the outstanding star when it comes to this approach, but Campbell also launched Acre Venture Partners in February with $125 million fund to do just that too. At the conference, Campbell noted it has invested $26 million so far in emerging companies.
The outlook is bright for more sophisticated capital and know-how supporting our industry from increased private equity participation as well as from CPG. In addition to Campbell’s and General Mills’ venture funds, there are venture funds from Kellogg (eighteen94), Purina (9-Square), Unilever (Unilever Ventures), Coca Cola (Venturing & Emerging Brands) and several more in the works to be announced later this year.
Denise Morrison and her team made a strong case for the New Normal. Campbell and General Mills have emerged as leaders in the CPG sector toward transforming their business. Using their influence and scale, CPGs by extension are also transforming the industrialized food business to be healthier, more transparent, more ethical, to use less processed and more simplistic ingredients, leverage technology and emphasize personalized wellness. This is great news for people, animals, ecology and the environment.
It is an exciting time in our industry. I would suggest the next dream to see come true is finance professionals in the CPG and equity markets adapt as well, becoming willing stewards of attainable profits as this New Normal takes hold, rather than focusing purely on profits at whatever the cost. The wheels are in motion and we are open to all possibilities...