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July 24, 2007

Just the Answer – Larry McWilliams

Developing the key emerging markets of China and Russia has become a key plank in the international strategy of US food group Campbell Soup Co. In this month’s Just the Answer, Larry McWilliams, president, Campbell International, discusses the company’s plans for these markets and the unique insights the company has gained into the soup-eating habits of Russian and Chinese consumers.

By Dean Best

Developing the key emerging markets of China and Russia has become a key plank in the international strategy of US food group Campbell Soup Co. In this month’s Just the Answer, Larry McWilliams, president, Campbell International, discusses the company’s plans for these markets and the unique insights the company has gained into the soup-eating habits of Russian and Chinese consumers.

J-F: What were the main factors behind Campbell’s drive into Russia and China?

McWilliams: These are both markets that have tremendously high soup consumption. Campbell’s Soup is the largest soup company in the world and we felt that it was a great opportunity for our company to take advantage of the largest soup markets in the world. Our expertise is all around soup development and we thought we could bring something into those soup markets that they haven’t had in the past.

J-F: Is Campbell now starting to focus more on its international operations? Had the company scaled back its international ambitions in the past to focus on North America?

McWilliams: I wouldn’t say that we had scaled back our businesses to focus on North America. When [president and CEO] Doug Conant first came to the company six years ago, we set a transformation plan for the entire business and really started with the North American business. Over the past two to three years, we have been focusing not only on North America but also our international businesses.

J-F: Has Campbell decided to look to emerging markets to offset potential maturity in markets like North America?

McWilliams: We have seen good growth in our total business over the last several years – which would include our North American business – and our stated growth rates are 3% to 4% in net sales growth and 5% to 7% in earnings per share growth. We have been achieving those growth rates for four or five years. That being said, we are always looking for new markets that might have growth rates higher than that. We feel that Russia and China could be two of those markets that provide higher growth than our existing businesses.

J-F: What was Campbell’s presence in Russia and China before this latest offensive?

McWilliams: We had no presence in Russia. In China, we’ve had a business in Hong Kong for the last 25 years. In mainland China, we had shipped some product in from other manufacturing locations and have tested a canned soup business and a biscuit business in mainland China but there has been no real concerted effort like we have now. In China, the soup is going to be made in China. In Russia, it will eventually be made in Russia; initially it will be brought in from one of our European locations.

J-F: Campbell conducted extensive studies into the soup-eating habits of consumers in Russia and China. What were the reasons behind that strategy?

McWilliams: Of all consumer packaged goods businesses, food tends to be the most local. You grow up eating certain dishes; your mom fixes things that are grown locally. You need to understand not only the product itself but also the cultural aspects of serving the dish. That’s why we felt it important to study both of these things before entering these very large markets.

J-F: Could you tell us more about what you found out?

McWilliams: There were literally thousands of interviews that we did with people, both traditional, focus group-type research, as well as a lot of in-home research. We would go into the home, people would prepare soup, and we would ask them about the recipes they were using, how long it took, how they determined what kind of soup to make. We asked many, many different in-depth questions about how they prepared and served soup to really understand the cultural part of it. Then, we had trained cultural anthropologists go in and spend time with these people to understand the emotional part of the soup habit.

Larry McWilliams, president, Campbell International

J-F: Were the Russians and Chinese a little dubious about a US-based company moving into their countries and selling soup?

McWilliams: They would have been more dubious had we had just come in and said: “Here’s what we eat in the US; it’s got to be good for you too”. They were kind of fascinated that we were taking a comprehensive approach to understanding, not only the product, but what it meant to how people lived. What it meant to their lives, and what it meant to the family time at dinner, people getting together around the table and talking about what makes a good soup. These are people that are very emotionally involved in soup. They were very willing to tell us their soup stories. The opportunity in both of the markets is to really participate in the soup occasion initially and not specifically replace it, initially. We’re going in with a broth in China, and in Russia with a broth with meat chunks – you would think of it like a soup-starter. So they can still make their traditional recipes but it’s much more convenient to do it. That’s our main point of difference; still allowing them to make their traditional soup recipes but taking a big part out of the time element out of making a stock or a broth.

J-F: What scope is there for launching more Western-style soups in Russia and China, with consumers becoming more affluent and finding that the time they have to prepare food is restricted?

McWilliams: We will be continuing to assess the markets and what the viability is for other product entries. I wouldn’t necessarily term it Western-style soups; we will take what the markets shows us is the opportunity and pursue those things.

J-F: What competition will Campbell face in both markets?

McWilliams: There’s traditional competition and global competition in both markets. Relative to the size of the soup-eating behaviour in both countries, the commercially prepared soup category is very small. Just to give you a point of reference, there are about 32bn soup occasions in Russia; less than 2% of those are from commercially prepared sources – products that are bought in the stores, taken home and eaten. Some 98% of those 32bn occasions are home-made, so it gives you an idea of the relatively small size of the commercial market. We expect to grow the commercial category.

J-F: Where is Campbell first looking to target its soups?

McWilliams: Our lead market in Russia is the Moscow region, which is about 10% of the population. We are entering China in Guangdong province. We’ve had a broth business in Hong Kong for 25 years so the brands are known well in that part of China.

J-F: What challenges will Campbell have to surmount before it generates a sustained level of first sales and then earnings?

McWilliams: I look at the challenges that we have there and think that they are all exciting challenges; they’re growth-oriented challenges, which tend to be more fun to tackle. So, I don’t look at anything out there that’s not something we haven’t faced before. We’re excited about getting into these markets and testing the viability of our proposition. Distribution is always challenging in these markets. In China, we’re using Swire Beverages; they have very extensive operations in China and very deep distribution penetration. In Russia, we’re using the number two salty snack manufacturer, Bridgetown Foods.

J-F: Traditionally, food and beverage companies have found it difficult to make money in China. When should we expect Campbell to make a profit?

McWilliams: Sooner is better than later. We see these markets as big, important markets for us in the future. We’re going to go into these markets in the right way, with the right level of investment and build our brands and our business in a very sustainable way. We’re not looking to go in in the short-term and take profit out as quickly as we can. We’re going to invest in these markets in the long-term but, ultimately, with an eye towards not only top-line growth but bottom-line growth as well.

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