Campbell enters fast-growth organic baby food category

Campbell enters fast-growth organic baby food category

Campbell Soup Co.'s recent acquisition of organic baby food maker Plum Organics must be viewed in the context of the group's aim to drive its top line by increasing its exposure to high-growth categories and markets. The deal opens the door to the rapidly expanding organic baby food sector, where growth is significantly outpacing conventional sales. And, moving forward, it is likely that Campbell will hope to leverage the strengths of each group to step up the pace of growth. Katy Askew reports.

Get them while they are young and you've got them for life.

A concept we have all come across before, but not perhaps one that is frequently associated with the food industry. Nevertheless, the ability to tap into a new generation of consumers could well have been a substantial motivating factor prompting Campbell Soup Co.'s recent acquisition of US baby food maker Plum Organics.

In the long run, the business can be used to feed new consumers into Campbell brands aimed at older children and adults, which include a number of US childhood favourites from Goldfish crackers to its namesake soups. However, high-growth Plum also boasts a more immediate appeal.

The move sees Campbell make its debut in the organic baby food sector. Plum is the fourth-largest baby food brand in the US and the number two organic baby food maker in the country. The group also has operations in the UK, having acquired fellow start-up Plum UK at the beginning of this year.

The deal, for an undisclosed sum, will be funded through Campbell's existing credit arrangements.

Plum came up as a challenger brand in the US, taking on the likes of Nestle's market leading Gerber business and Hero Group's Beech-Nut, which collectively control 80% of the market. Plum made inroads through a combination of savvy marketing, a strong social media presence, a focus on innovation and an unwavering commitment to delivering quality organic ingredients and recipes.

The business, founded in 2007 by parents in response to what they perceived as a hole in the market, helped develop and grow the US organic baby food sector. According to founder and chief executive Neil Grimmer, the company is driving around 50% of the sector growth and is gaining market share. Plum now accounts for 4.4% of baby food sales in the US and in 2012 the company generated revenues of US$93m. 

And the future looks pretty bright for Plum, which is operating in a high-growth category. In the US the organic baby food sector is one of the best performing food categories.

Announcing the deal, Campbell emphasised that organic baby food sales have grown at an average annual rate of 43% from 2010-2012, outpacing the growth of the overall baby food sector and stealing share from conventional products. Today, the sector accounts for around 20% of total baby food sales - which are estimated to be worth around $2bn - and this figure is likely to continue to rise.

In the UK meanwhile, the organic baby food category saw a less dramatic increase in sales, which were up by about 5% last year against an overall baby food market that was largely flat. Plum UK, however, saw core growth of its main meals business of around 25%, the company indicates.

In this sense, the acquisition fits neatly into Campbell's strategy to increase its exposure to categories advantaged by a strong growth potential.

The US soup maker generates the majority of its sales in mature categories and markets. Since Denise Morrison took the helm as CEO, Campbell has pursued a "dual mandate" that has seen it strengthen its core US operations through a focus on innovation, while also seeking opportunities to invest for long-term growth. The company has looked to M&A to rebalance its portfolio and lift its growth trajectory. Announcing the Plum deal, Morrison said the move was "another step toward our long-term goal of shifting Campbell's centre of gravity".

"Baby food has a lot of growth in natural and organic," James Richardson, SVP at Hartman Strategy confirms.

Significantly, Richardson emphasises the deal strengthens Campbell's portfolio by increasing its exposure to a more affluent consumer base at a time when the US grocery scene is witnessing continued polarisation as the growth of value and premium sectors comes at the expense of the middle ground.

"It certainly makes sense to get more business from the upmarket end of the US population. This is the 10-20% of the US population with the most money. They are educated and educated people right now in the US are spending more money on food and they are ratcheting up their spend. You've got to chase the fat wallets," Richardson says.

The acquisition of Plum also ramps up Campbell's exposure to distribution channels outside of traditional grocery, such as natural and speciality retailers. Typically, larger mainstream manufacturers find it difficult to gain traction in these channels, so acquiring a brand that already has a strong presence in alternative routes to market clearly has its benefits.

Moreover, it is likely Campbell will look to leverage its clout with supermarkets and club stores to boost Plum's sales in mainstream channels in the US, greatly expanding Plum's access to consumers in the country and opening up largely untapped revenue streams.

"In our view, the allure of the premium baby food category is its strong top-line growth, access to younger, millennial consumers, not to mention distribution in many alternative channels outside of traditional grocery," Barclays Capital analyst Andrew Lazar observes. "We can see Campbell effectively extending retail distribution of Plum in traditional channels, given our belief that the majority of the brand's existing sales are in alternative outlets."

Lazr adds that, while Plum will continue to operate on a stand-alone basis under current chief Grimmer, Campbell could well look to leverage the brand in other categories, such as soup, healthy beverages and baked snacks.

Campbell is working to increase its exposure to high-growth categories, and here the organic baby food business ticks the box. However, on first inspection the US and UK focused brand does little to further Campbell's ambition of fostering its presence in rapidly expanding emerging markets.

Depending on Campbell's investment priorities moving forward, it is possible that ambitious Plum could be preparing to grow its international footprint.

In an interview with just-food in January after the Plum UK deal, Plum Organics' Grimmer hinted the company was working to do just that. "We don't think healthy food for kids is an idea exclusive to the UK or US. We think that it is an idea that has global appeal for parents everywhere," he said.

Should Campbell management concur with this assessment, it seems possible the deal could provide Plum with a welcome springboard in international markets. Backed by Campbell's deeper pockets and with the possibility of feeding Plum products into Campbell's still small but rapidly developing international distribution network, it seems clear management has a wealth of options as it looks to drive continued growth of the Plum brand.

Plum is not the only baby food maker eyeing international growth, as just-food learned when we caught up with Anna Rossier, MD of the Hero-owned Organix brand. Click here to view this month's just the answer interview with Rossier.