The U.S

The U.S. market represents north of 80% of Campbell’s revenue and is therefore a core market to budget.

Campbell operates in ten overall segments, some of which are perceived as stable cash cows while others represents new ventures and high growth segments.

7.1.1.1 Soup

From 2006 to 2008 Campbell’s growth within the U.S. soup segment was almost identical to the overall market growth. From 2008 both the overall market and Campbell experienced negative growth which flattened in 2010.

After a period of sluggish growth between 2008 and 2010, Campbell experienced a continued three-year period of declining growth that eventually flattened out. In the same period the overall market continued to further outgrow Campbell, a growth that can partially be explained by the increasing presence of PL’s in this segment. Soup is Campbell’s flagship product line and the origination of their brand value, the segment represents 32% of their U.S.

revenue and 25% of their total revenue. Consequently, sluggish growth and the loss of market share in this segment have a strong effect on Campbell’s financial performance. As a consequence of the financial crisis, products with a value offering have done very well, explaining the strong growth in private labels. The authors expect the growth of private labels to saturate in near future as the U.S. economy continues to improve. The authors expect that as consumer purchasing power increases name brand products should regain some of their lost market share.

Source: Authors own compilation

Projected Sales Growth in U.S. Soup segment

Soup

2016 2017 2018 2019 2020

3.0% 2.4% 2.1% 2.7% 2.7%

77 7.1.1.2 Biscuits & Snacks

Since 2008, Campbell has outgrown the overall U.S. biscuits and snacks market substantially. The favorable growth is partially due to a series of acquisitions, which have strengthened Campbell’s portfolio within the segment, which now accounts for 16% of total revenue and 20% of U.S. operations. The organic growth is not possible to estimate, the acquisitions kicked off at a progressive growth rate, which has since flattened, and is now currently in-line with the growth of the overall market, and expected to remain at this level.

7.1.1.3 Sauces, Dressings etc.

The segment represents around 14% of Campbell’s revenue and is expected to increase to 15% by 2020. From 2009 to 2012 Campbell experienced a dip in its growth rate compared to the overall market. In recent years however, the growth has picked up from its low point and is currently almost tangent with the growth rate of the overall market. The authors expect this trend to continue up until 2019, at which point Campbell should have regained market shares. From 2019 and onwards the growth is expected to be in-line with the market.

7.1.1.4 Baked Goods

The baked goods segment represents 10.8% of Campbell’s revenue and the expectation is that this segment distribution will develop relatively flat. Campbell’s growth within the baked goods segment has been somewhat of a rollercoaster since 2006, some years seeing growth of more than 8% led by negative growth the following year.

More recently the volatility has declined and growth appears more stable. In general, the growth has been below the overall market, but growth is now very much at par, partially due to acquisition activity in recent years, and the growth is expected to remain in parallel with market trends.

Source: Authors own compilation

Projected Sales Growth in U.S. Biscuits & Snacks segment

Biscuits & Snacks

2016 2017 2018 2019 2020

2.2% 2.4% 2.8% 3.0% 3.0%

Source: Authors own compilation

Projected Sales Growth in U.S. Sauces, Dressings etc. segment

Sauces, Dressings etc.

2016 2017 2018 2019 2020

4.0% 4.0% 3.5% 2.9% 2.9%

Source: Authors own compilation

Projected Sales Growth in U.S. Baked Goods segment

Baked Goods

2016 2017 2018 2019 2020

2.6 % 2.7% 3.0% 3.0% 3.0%

Forecasting

78 7.1.1.5 Juice

Apart from a period between 2007 and 2011, in which Campbell experienced a slightly slower growth, the juice segment has in general delivered strong growth for Campbell compared to the overall market. The increase was significant in 2011 and 2012, partly due to Campbell’s acquisition of Bolthouse Farms. Through the acquisition Campbell managed to widen its portfolio in the beverage segment with “super-premium” juices, smoothies and protein shakes. Campbell’s other products within the juice segment are primarily within the “high-end” product class, appealing to customers with a preference for healthy and organic beverages, which in term makes it more resistant against private label competing products. With the general segment seeing no growth in recent years and the expectations indicating slow to no growth, it is clear that Campbell’s performance is led by product innovation and acquisitions, which in turn has increased their market share. With that in mind, it is still the authors’ opinion that Campbell would continue to enjoy a solid advantage in terms of their strong brand portfolio, with brands like V8 etc., which hold a very distinct perception. The U.S. juice segment is therefor expected to continue contributing 8% to 9% of total revenue. As Campbell is not expected to engage in M&A activity in the base case scenario, and since the massive growth from 2011 to 2012 has flattened to a level close with the market growth, the growth of this segment is forecasted to be 1.4% on average, equal to the industry average.

7.1.1.6 Ready Meals

The U.S. ready meal market has been sluggish since 2007, with a compounded growth p.a. of less than 1% over the last eight years. In the same period Campbell has been unable to keep its own growth rate on the plus side, and instead experienced a massive decline. The poor performance cannot be explained by any disinvestments, but rather by Campbell’s inability to compete, hence their loss of market share. The segment represents just above 1.2% of their total revenue and Campbell has naturally focused their effort on higher growth areas with more scalability. The overall market for ready meals is expected to see a stronger growth going forward, and the authors believe Campbell will strengthen their competitiveness through marketing in order to not be left behind when growth picks up speed. A growth rate 50 basis points below the overall market growth is perceived as a probable performance going forward.

Source: Authors own compilation

Projected Sales Growth in U.S. Juice segment

Juice

2016 2017 2018 2019 2020

0.0 % 1.1% 1.5% 2.1% 2.1%

Source: Authors own compilation

Projected Sales Growth in U.S. Ready Meals segment

Ready Meals

2016 2017 2018 2019 2020

1.2 % 2.1% 2.2% 2.1% 2.1%

79 7.1.1.7 Baby Food

Campbell entered the U.S. baby food segment in 2013 through its acquisition of Plum Organics, a leading manufacturer of premium organic food, baby food and snacks. The segment represents 1.1% of total revenue and has outperformed the overall market. The authors expect this trend to continue for the next few years as the segment enjoys the perks of a larger organization and experiences more scale.

7.1.1.8 Processed Meats and Seafood

The overall market for processed meats and seafood has seen strong growth, with low volatility since 2006.

Campbell however has strong negative growth. The simple meals business in Europe was divested in 2013, the largest drop in this segment also occurs from 2012 to 2013. Hence, there might be some negative spillover effects from the European divestment that are at play, but this is difficult to determine. One example could be that some of the U.S. sales were of products and brands that originated from their European business unit, and as that was divested, those products had to be discontinued. The U.S. segment for processed meats and seafood represent 1.1% of revenue, the large changes within this segment make it difficult to forecast, but with Campbell now having had some years to recoup from the organizational change in 2013 it is the assessment of the authors that this segment will continue to grow with the general market.

7.1.1.9 Ice Cream & Frozen Desserts

Campbell’s growth within the segment was in line with the general market until 2013. From 2013 to 2015 the segment has experienced a sharp decline, however the exact cause is unknown. The segment represents less than 1% of total revenue where it experienced a sharp decline. The exact reason unknown, but Campbell has communicated that they are changing recipes, shifting to organic ingredients, such a shift is costly and also means a re-branding of these products which may not target the same consumer base. It is the perception of the authors that the segment is likely to grow 50 basis points below the general market during the forecasting period.

Source: Authors own compilation

Projected Sales Growth in U.S. Baby Food segment

Baby Food

2016 2017 2018 2019 2020

1.2 % 2.1% 2.2% 2.1% 2.1%

Source: Authors own compilation

Projected Sales Growth in U.S. Processed Meats and Seafood segment

Processed Meats

& Seafood

2016 2017 2018 2019 2020

1.2 % 2.1% 2.2% 2.1% 2.1%

Forecasting

80 7.1.1.10 Rice, Pasta & Noodles

In this segment Campbell has experienced a negative growth almost equal to the positive growth of the overall market. With no clear causes for why the segment is suffering so much it is difficult to picture a very positive scenario. The segment only represents 0.26% of total revenue, as such it could be a prime candidate for a divesture should the performance continue its current trend. The authors forecast a continued sub-par performance of 150 basis points below the general market growth.