Mac and cheese, not soup, this recession's comfort food
Frozen pizza, microwave dinners and macaroni and cheese are eating into Campbell Soup Co.'s U.S. sales.
Discounting by Campbell, the biggest U.S. soup maker, failed to lift sales in the past month, said Alexia Howard, an analyst at Sanford C. Bernstein & Co. in New York. Campbell lost market share in the four weeks ended March 20 as its soup sales dropped 4.2 percent, according to data that market researcher Nielsen Co. released to clients last week.
"The historical trend of canned soup doing well in difficult times did not play out in this recession," Howard said in a telephone interview. "It's a little bit unfathomable. Price-based competition from other 'simple meals' categories may have had an impact."
More consumers are buying competing products from Nestle SA, ConAgra Foods Inc. and Northfield-based Kraft Foods Inc. as sales in the $5 billion U.S. soup industry fall, according to data from the companies and research firms. The most recent decline exacerbates market-share losses over more than two decades. Locally, Nestle has operations in DeKalb and ConAgra has operations in St. Charles and Glen Ellyn.
The share of at-home lunch meals with soup fell to 12 percent from 14.4 percent from 1985 to 2009, and dinners with soup shrank to 5.6 percent from 6.5 percent, according to market researcher NPD Group. In the same period, the percentage of meals with pizza, macaroni and cheese or a frozen entree rose, NPD said.
"Soup seems to be losing share as a category to any number of meal alternatives including frozen meals, mac and cheese, even something as simple as a sandwich that the consumer makes at home," Cynthia Axelrod, an analyst at Glenmede Trust Co. in Philadelphia. Glenmede Trust manages $18 billion and owned 122,361 Campbell shares as of Dec. 31, according to data compiled by Bloomberg.
'Hiccup' DropCampbell Chief Executive Officer Doug Conant, 58, called last quarter's 18 percent drop in ready-to-serve soup sales a "hiccup," blaming a lack of promotion at retailers and Campbell's failure to fully take into account the competition from other simple meals. Conant said on a Feb. 22 conference call that soup sales would rebound this quarter, helped by marketing plans.Those actions have led to a "strongly improved trend" in the ready-to-serve business, Anthony Sanzio, a Campbell spokesman, said last week. Soup sales by volume increased in the four weeks ended March 20, he said."We remain optimistic about our entire soup business," Sanzio said.Soup DiscountsLast month, food retailers including Albertsons, a unit of Supervalu Inc., offered two cans of Campbell's Chunky soup for $3, which is 50 cents more than a typical price for one can. Price Chopper Supermarkets, a chain of stores in the Northeast, was selling Chunky cans for $1, according to its Web site.Those discounts may offset the benefits Campbell gains from productivity improvements and lower ingredient costs, according to Eric Serotta, an analyst at Consumer Edge Research in Stamford, Connecticut."Clearly, that's going to have an impact on their margins," he said. He recommends selling the shares.Campbell's gross margin, the fraction of sales left after subtracting the cost of goods sold, widened to 40.5 percent in the second quarter ended Jan. 31 from 39.4 percent a year earlier. On Feb. 22, Campbell reiterated that full-year earnings would rise as much as 11 percent from $2.21 a share.Campbell, based in Camden, New Jersey, has gained 5.2 percent this year in New York Stock Exchange composite trading. Nestle, based in Vevey, Switzerland, has jumped 7.2 percent and Omaha, Nebraska-based ConAgra has risen 9.5 percent. Kraft Foods has increased 12 percent.Select HarvestSoup represents about 80 percent of Campbell's $3.8 billion U.S. soup, sauces, and beverages unit, according to Andrew Lazar, an analyst at Barclays Capital. That division, which makes Chunky and Select Harvest ready-to-serve soups and condensed soups such as tomato and cream of mushroom, accounts for half of total sales.Eating into Campbell's sales are frozen-pizza brands such as DiGiorno, according to Bernstein's Howard.DiGiorno frozen pizza, which Kraft sold to Nestle this year, posted a 25 percent gain in sales in the 52 weeks ending Feb. 21, according to market researcher SymphonyIRI of Chicago. Kraft's Macaroni and Cheese dry mixes rose 8.5 percent, according to SymphonyIRI. The data excludes Wal-Mart Stores Inc. sales.Sales of Marie Callender's frozen meals, made by ConAgra, advanced 12 percent during that period, Teresa Paulsen, a company spokeswoman, said in an e-mail.Historical TrendConsumers don't consider soup a replacement for the restaurant meals they are forgoing to save money, according to consumer-trend analyst Candace Corlett, president of consulting firm WSL Strategic Retail in New York, which surveys Americans on their shopping patterns and habits. When they go out, they eat dishes such as pasta, hamburgers, and french fries, she said in a telephone interview."When soup sales slip in this kind of a winter, it isn't a hiccup, it's more like a seizure," said Ryan Mathews, a consumer-trend analyst at Black Monk Consulting in Eastpointe, Michigan.