CASE REPORT 17
Theprimary objective of this assignment is to reveal the important ofperforming external and internal analysis before choosing the bestbusiness strategy. Campbell case is an appropriate case because ofthe company involved. Soup business has experience slow growth orstagnation for several years. The consumer preference has shiftedfrom soup to microwave meals and frozen pizzas. Campbell hasstruggled despite the decline through diversifying its products, aswell as consolidating the tangible to focus on soup business. DeniseMorrison, the current Chief Executive Officer, came up with a plan tochange company focus from reduction of salt to taste adventure.However, the greatest concern is whether this change in strategicdirection will work for Campbell(Collins, 1994).
Inyear 2010, the Campbell Soup Company started changing its attentionfrom salt reduction to “taste adventure” because the Americansoup business started turning cold. The company is among the firstsignificant packaged-food companies in United States to focus on saltreduction in its products. Campbell pursued reduction of sodiumlevels as well as other nutritional health issues, partially toprepare for anticipated dietary changes in United States. However,amid its attention on salt reduction, the management focus on othercustomer needs like exciting varieties and better taste was small.The change came after heavy promotions by supermarkets on simplemeals like cheese and boxed macaroni that battered Campbell earningsfor three-quarters of 2010. Campbell has pursued strategies developedto expand the availability of company’s products in currentmarkets, and capitalize on the opportunities in evolving channels andmarkets in the world. However, in my view the focus on tasteadventure will help Campbell to compete effectively with brand suchas General Mills Progresso (Collins, 1994).
PortersFive Forces analysis stand for risk of both substitute and newentrants products to the market, bargaining power of suppliers andbuyers, as well as competitive degree of the rivalry industry. Thisanalysis approach provides industry context description and how theindustry has been affected by these five forces. The Porter’s FiveForces assist marketer to place the company better in the industry aswell as adjusting the marketing strategic methods
Itencompasses diversity of competitor, market concentration, exitbarriers, cost conditions, excess capacity and productdifferentiation. The analysis of these factors ought to lead to anapplication of active recommendations. Rivalry among the companies inthe industry of food processing is intense and high. Most of thebusinesses in this industry are competing for quality, price, healthfactors, taste, product benefits, and product innovation. Theprincipal rivals for Campbell are Heinz & Kraft Foods and GeneralMillis Progresso. Campbell as an international company faces highlycompetitive market locally, nationally, and internationally. Thecompetition comes from similarities among soup producers and broadselection of soup products provided by food processing companies.Moreover, different types of universal soup brands in the currentmarket, which offers products at a low price, have raised competitivepressure. Nevertheless, Campbell’s high soup products quality andability to maintain low production costs, has weakened rivalry ofuniversal soup brands. For example, Campbell prices its soup productsat twenty-five percent higher than universal brands while maintainhigh quality. Campbell should continue developing healthy soup todistinguish its brand from that of Progresso and other small soupmaker companies(Collins, 1994).
Threatof new entries
Threatof entry is influenced by entry barriers present and presence of thenew entrants to the industry of food processing. The threat bringsnew capacity and makes companies compete for market share. Campbell’smajor rivals General Mills and Kraft foods, create huge entrybarriers in this industry through high levels of promotion andadvertising. Great competition in the industry of food processingmakes it difficult to access market. Often small food processingcompanies have difficulty in getting space in supermarkets for theirproducts. The large supermarkets charge for space in their shelves,and the first opportunity goes to large food companies with theability to pay for advertisement required to attract high customerdemand. Economy is the major factor, and if companies like Campbellwants to compete effectively in this industry they must prepare topay a high cost for this stiff competition. Slow rate of marketgrowth in food processing industry has caused acquisition ofcompanies. As a result, the entry barriers have risen with very manyfirms in food processing industry(Collins, 1994).
Threatof the substitutes products
Rivalryfrom companies in other industries that offer substitute is highbecause they are supplying, producing, as well as serving similarfood products that food processing companies’ produces. Forinstance, Dunkin Donuts belong to a foodservice industry whileCampbell Soup Company belong to food processing industry, but DunkinDonuts company serves soup while Campbell sells soup. Customers canget same soup products they buy from Campbell from DunkinDonuts(Collins, 1994).
Consumersaffect the industry of food processing through ability to force theprice down, bargain for better services and quality products, as wellas playing competitors against other. In this industry, buyersbargaining power is high because there is great tendency of newentries with a variety of new products. Besides, customers preferselecting products that offer low prices. For instances, Campbell’ssoup prices are relatively twenty-five percent higher than universalbrands therefore, some customers will choose global brands inmarkets instead of Campbell soup brand. Moreover, profitabilityearned by a company is determined by clients. Businesses in thisindustry may be forced to lower their prices if customers decide thatprices are very high for them and, therefore, switch to supplementsor stop buying those products(Collins, 1994).
Suppliersmay affect this industry by their ability to increase prices or lowerquality of services and purchased goods. In the case of qualityproducts, suppliers face a crucial factor. Because of inflation theentire cost of raw materials has considerably increased. Campbell isused to purchasing ingredients of high quality from local suppliers.In year 2006, the company started Campbell’s Suppliers DiversityProgram to increase its varied supplier base as well as to ensurethat this supplier base reflect the market served. In year 2007,Campbell expected to spend $121 million on its diverse suppliers, butthe company ended up spending $129 million. Therefore, Campbell mustpay a significant amount in order to get reliable suppliers.Currently, most businesses have the tendency to make a backwardintegration as well as minimize suppliers cost(Collins, 1994).
Opportunities& threats present in this industry
Demandfor better products
Atpresent, the trend towards consumption of health products hasincreased from the two major consumer groups. Young generation iscurrently focusing on low-calorie products. For older generation,their diets need health-consciousness especially on limiting sodiumintake because of increased ailments risks. Campbell’s Soup’smain product categories mostly bakery goods and soup are broadlyperceived as healthy. Therefore, they are compatible with furtherhealth-oriented products development, like existing line of chosenharvest and healthy soups. Together with product improvement,Campbell Soup Company has decided to expand its sodium reductionprogram to reduce sodium content in its twenty-three condensedsoups(Collins, 1994).
Campbell’smajor profitable soup category has experienced high competition andhas lost its market share to the strong competitors such as Wal-Martand General Mills’ Progresso. Moreover, other segments of Campbellhave not generated constant profits. Shifting customer preferencesand habits indicate need to continuous innovation of products andcosts reduction, in order to keep loyal customers and to remainrelevant in fast-changing customer environment(Collins, 1994).
Managershave used value chain analysis as powerful tool to identify majoractivities with a company that the from value chain for the company,and have the potential for sustainable company competitive advantage.The company competitive advantage depends on performance of necessaryactivities along the value chain in a better way than competitor.Value chain framework is a network of activities or an interdependentsystem connected by linkages. When a system is managed well, linkagesmay be a crucial source of company competitive advantage. Mostly,value chain entails linkage of two sections. First, value chain linksvalue of company activities with the main functional parts. Secondsection is an assessment of the contribution of every part of entireadded value of the business. During value chain analysis, a companyis divided into primary and support activities. Primary activitiesare activities connected with the production while the supportactivities provide background needed for efficiency and effectivenessof a company, like human resource management (Collins, 1994).
Theprimary activities of Campbell Soup Company include:
Inboundlogistics: These activities are a concern with receiving rawmaterials from suppliers, then storing the externally sourcedmaterials as well as handling them in the company.
Operations:they are activities related to production of soup products andservices. In the company, these activities are split intodepartments. For instance, the customer service rooms, receptionroom, business offices, kitchen.
Outboundlogistics: These activities are the concern with distribution offinal product or service to customers. For instance, Campbelldistributes through various means such as warehouses, food brokers,and franchise distributors.
Salesand marketing: This functional section analyzes wants and needs ofconsumers. It is also responsible for generating awareness amongtargeted audience of Campbell about the various soup products andservices. The company uses marketing communications channels likesales promotions and advertising to attract consumers to its soupproducts (Collins, 1994).
Campbellsupport activities include the following:
Procurement:The procurement function is charged with the responsibility forpurchasing materials necessary for company’s operations. Campbell’spurchasing department is efficient, and therefore it can obtainhigh-quality materials at low prices.
Humanresource management: This function is a concern with recruiting,motivating, training, as well as rewarding the company employees.Human resources have become a crucial way of Campbell to attainsustainable competitive advantage.
Technologyadvancement: This section is concern with training & knowledge aswell as technological innovation that is essential for Campbell tosurvive.
FirmInfrastructure: The company foundations are planning & controlsystems like accounting, corporate strategy, and finance(Collins,1994).
Porter’sGeneric Competitive Strategies
Thistool was suggested by Michael Porter as a method of categorizingvarious competitive strategies. Michael identified two types ofgeneric competitive strategies the differentiation, and overall lowercost. The strategies are called generic because they may be employedin any form or size of the company. Overall lower cost is used bybusinesses that manufacture, develop, and distribute products in amore efficient manner than their competitors. While, differentiationis used by businesses that provide super products found on somefactor rather than low cost. The differentiation strategy may bebased on product quality, customer service, and unique style. Thistool suggests competitive scope as a factor that affects the companycompetitive position. Competitive range describes the breadth of thecompany targeted market. A company may have a broad competitive range(mass market) or a narrow competitive scope (niche market). Thecombination of these competitive ranges with differentiation andlow-cost strategy results into some generic competitive strategieslike cost focus, cost leadership, focused differentiation, anddifferentiation(Collins, 1994).
Currently,Campbell is pursuing a competitive method of broad diversification.The competitive approach is evidenced by the fact that there is awide spectrum of buyers locally and internationally. Moreover,Campbell seeks to differentiate its products from products ofcompetitors. The differentiation is done through products, brands, aswell as delivery systems aimed at serving specific needs. CampbellCompany is a producer and distributor of the packaged food products.The company does not participate in a supply of raw material the endof the value chain. According to a retailer, Campbell participates indifferent segments of the distribution. For example, for largeretailers, the company sells its products directly to retailers.Campbell makes sales on regional/divisional basis, or sometimes onglobal/corporate basis.Campbell distributes through various meanssuch as warehouses, food brokers, and franchise distributors. Thecompany distributes its products internationally, and market soupproducts in United States, Argentina, Mexico, China, Poland, and HongKong. The entire strategic approach is international distribution.Every nation that Campbell sells its products has unique promotionalneeds and tastes(Collins, 1994).
About80 percent of United States market share is ready to be served withsoup. Campbell Soup Company has a strong profitability. There arereliable brands available in United States market they include:Campbell’s soups, Chunky soups, home soups, Prego, Franco-American,Milano cookies, and Goldfish crackers. Production facilities areefficient operating at high utilization rate because of productionconsolidation. Campbell enjoys about 38 percent market share ofinternational soup market.
Campbellrelies mostly on United States market for the majority of sales. Italso relies on sauces and soups for majority of its sales. Thecompany is largely owned by one family and in case of differences inopinion the company activities can be distracted. Campbell SoupCompany has poor stock performance. It stock performance is higherthan the average industry debt to equity(Collins, 2010).
SWOTanalysis framework entails analyzing: (S) strengths and (W)weaknesses of business’s internal factors, as well as (O)opportunities and (T) threats of the business external factors of theperformance. Through SWOT analysis, business strengths and weaknesscan be matched together with opportunities and threats that operatein the environment in order to formulate an effective strategy.Strength is referred to an advantageous competency or skill that aproject or a business possesses, which allows it to have competitiveadvantages, like development capabilities or reliable research.Campbell strengths are perceived quality for the product price andreliable brand name. Weakness on contrary is the strategicdisadvantage like skills that a project or a business lacks, whichlimits the business or project and cause potential risks in thenegative economic conditions. The business weaknesses are limitedmenu and a small business in regard to the heavy weights(Collins,1994).
Themain strength of Campbell is that the company operates in differentmarkets. Therefore, because of its operations, in case one industryperforms badly, it can depend on other sectors. Campbell has remaineda significant brand name and thus it is not overwhelm by othersectors. The company focuses mostly on social responsibility thatbenefits the society, as well as the company, through attractinginvestors who like socially responsible companies. Moreover, thecompany operates in different global markets and, therefore, itsprofitability does not depend on United States economy.
Themain weakness that Campbell faces is that of declining soup sales inthe international market because some consumers view the soup asinferior product. Therefore, since soup is the most profitableproduct of Campbell, then the company is affected significantly. Debtratio is higher than other industries therefore investors can be turnoff. Operating in a global market that depends on exchange rates thatare unpredictable and fluctuate is risky. Some investors may viewsocial responsibility as perky since it uses profits, which could beshared by shareholders(Collins, 1994).
Emerging‘international marketplace’ that can lower costs of distributionand reduce a need for the product diversification is an excellentchance. The population growth has caused high demand for foodstuffs.Change of eating habits where people eat away from home has open newpossibilities for food service venues. Booming economy has createdfood designers to change. Increased in demand for cultural foods haveprovided a chance for Pace (Mexican) and Prego (Italian) brands.Opportunities will emerge from a possible acquisition of smallproducts or physically focused rivals, which are experiencing highprofitability and rapid growth. There are also opportunities thatwill arise from potential partnerships and joint ventures that willenhance international distribution(Collins, 1994).
Aggressivenessof buyers and increased market size is a major threat. Operating inthe mature market that has slow sale growth is a significant threatto Campbell. The company faces potential competitive alliance asprofits and sales erode. Consumer behavior change from eating in therestaurants, where the Corporation products are not available is athreat to Campbell. The company faces a threat of change towards‘functional foods’, which have medicinal value that requirebigger research & development budgets. Internet food distributionchannels may help rivalry companies bypass the Campbell’s excellentdistribution channels of steal market share and retail grocers.Campbell faces possible regulatory reactions to concerns of consumerover the food safety issues(Collins, 1994).
Campbellis an established company in food packaged industry. The company hasoutstanding brand name, at the same time one of the best businessesin this industry. My case analysis indicates that Campbell ought notto diversify into unrelated businesses. Campbell should expand itscore competencies, as well as in companies with a strategy that fitits existing businesses. The company should avoid unrelateddiversification because it may lead to loss of earnings andineffectiveness of performance. Lack of knowledge in a new industrymay be costly. Therefore, Campbell should pursue relateddiversification. For future expansion, Campbell should expand itsmarket share in food service industry. Although Campbell Soup Companyholds about 80 percent of prepackaged soup market, however, in entiresoup market the company holds only 38 percent. Campbell shouldimprove this market share through contracts, strategic alliances, andpartnerships with restaurant chains as well as school cafeterias todistribute its products. The strategy will help improve sales for itsgoods and increase company’s presence in food serviceindustry(Collins, 1994).
CampbellSoup Company should make the following changes:
Campbellshould create an international brand that will dominate the minds ofglobal consumers just like the local company name. It shouldgradually transmit that brand to other product lines. All corporateoperational and functional strategies should move the company towardrealization of its vision and mission. Campbell should expand globalsales radically to get a market share that is almost similar toUnited States market share. The company should develop itsdistribution channels especially those of soup products andbroadening its home market to cafeterias and restaurants(Collins,1994).
CampbellSoup Company should pursue following financial goals:
Itshould increase gross revenue to a rate that is double the averageindustry rate. Campbell should promote robust economic successes toimprove stock price and make above the average industry stock price.Continuous strong earnings and returns should be encouraged. Theratio of debt to equity should be reduced to less than the averageindustry ratio. Campbell should work hard to ensure that it isrecognized by the ‘blue chip’ businesses in the world (Collins,1994).
Thecompetitive approach applied by Campbell has remained, and it oughtto continue to be wide diversification strategy. Campbell’sproducts appeal variety of customers, and they are diversified tospecific needs through product lines and brands. Broaddiversification strategy must be supported by right organizationalstructure. For Campbell to achieve financial and strategic objectivein connection with primary competitive approach, the company shoulduse the following structure.
Thestructure will accomplish following strategic objective:
Itprovides focus on profitability and growth of the market rather thanproduct lines. The structure will enable appropriate and differentstrategies for every market based on challenges faced. Through thisstructure, Campbell will able to sell and pack its soup productsaccording to customer needs in various markets. The structure willalign sales and distribution of products in line with geographicalregion (Collins, 1994).
Providingvalue-added services will help Campbell to outsmart its currentrivals. Campbell constantly experiments with new packages that offercustomers with valuable information on meal designs, wellness, andhealth, as well as other tips. For instance, every day the companyMeal-mail program distributes approximately 510,000 recipeselectronically to Americans, who are starving for convenient andgreat-tasting meal designs that will satisfy their families.Customers can contact company’s Kitchen website at all time anddownload recipe concepts that have been tried and ratified byCampbell’s nutritionists. Customers also have a chance to sharetheir comments and ideas on recipes among themselves on Campbell’sKitchen website (Collins, 1994).
Collins,G. (1994, Nov 29). Campbell Soup takes the big plunge into salsa. TheNew York Times, Section D, p1.Retrieved on March 28, 2015 from