July 10, 2017

Campbell Soup announced that it has agreed to acquire Pacific Foods, a leading producer of organic soups and broth, as well as shelf-stable, plant-based meals, beverages, and side dishes for $700 million in cash.

Like many large CPG companies, Campbell Soup has found it challenging to respond rapidly enough to shifting consumer demands for healthier, more traceable, value-added, and functional foods. This inability has affected the company’s bottom line with net incoming falling to $176 million in its third quarter from $185 million, reported Reuters in February.

“We experienced significantly lower consumption across almost all of our categories… we felt it most acutely in February,” Campbell Soup Chief Executive Denise Morrison said on a post-earnings call reports Reuters.

In response, Campbell Soup has undertaken some strategic moves in an attempt to diversify and broaden its consumer appeal, including paying $1.55 billion for Bolthouse Farms’ natural fruit juice business; acquiring Garden Fresh Gourmet for $231 million; making an undisclosed investment in the startup Juicero Inc.; and announcing in June 2015 that it was removing all artificial coloring and flavoring from its North American product line by the end of FY 2018.

However, earlier this year at the Consumer Analyst Group of New York (CAGNY) conference, Morrison said that more is called for stating, “We believe that defining the future of real food requires new approaches, new business models, smart external development and an ecosystem of innovative partners.”

And do more, it has; pivoting its focus toward the perimeter of the supermarket, and the booming organic category.

The U.S. organic market has grown at a compounded annual growth rate (CAGR) of 15.3 percent over the past four years, according to IRI Market Advantage. Sales of organic and non-GMO foods in 2014 topped $200 billion, according to the report, “Non-GMO Foods, U.S. and Global Market Perspective, Second Edition” compiled by Packaged Facts, and are expected to climb to a value of $330 billion by 2019, reports Food Business News.

Furthermore, a consumer survey conducted by Packaged Facts in 2015 found that 39 percent of respondents stated that they buy groceries with non-GMO labeling, and 35 percent stated that they bought organic products as a way to avoid GMOs.

Founded in 1987 in Tualatin, Oregon, Pacific Foods operates out of a certified organic plant under a farm to table approach that strongly appeals to today’s consumers, and which has led the company to generate approximately $218 million in trailing twelve month net sales as of May 31, 2017.  

This deal is the fifth acquisition in five years for Campbell Soup, which expects the addition of Pacific Foods to bolster its flagging Fresh Division that includes Bolthouse Farms and Garden Fresh Gourmet, according to Food Dive. Campbell Soup also expects the deal to “help accelerate Campbell’s efforts to deliver real food and beverages that meet consumers’ changing tastes and preferences,” said the company in a statement. “The acquisition will also further Campbell’s efforts to drive innovation in health and well-being to reinvent the center store, while giving the company more access to natural and organic customers and channels.”

Moving forward, Pacific Foods will become part of Campbell’s America’s Simple Meals and Beverages division, which includes Campbell’s soup, simple meals, and shelf-stable beverage units across the U.S., Canada, and Latin America.

“Pacific is an authentic brand with a loyal consumer following,” said Morrison, Campbell’s president and CEO. “The acquisition allows us to expand into faster-growing spaces such as organic and functional food. Moreover, Pacific Foods is an excellent fit with Campbell — strategically, culturally, and philosophically.”

Campbell Soup plans to drive growth for Pacific through the application of its expertise and scale to expand distribution; enhance marketing support for brand-building; and invest in R&D and the supply chain to lift operations and customer service.

Campbell’s plans to fund the acquisition through a combination of short and long-term debt, without any financing conditions. The company expects the acquisition to be neutral to earnings in the initial 12 months following closing, which is subject to regulatory approvals.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.