The world’s largest seller of ready-to-eat soups, Campbell Soup Co. (CPB), is striking a joint venture deal with Swire Pacific Ltd to give a new stature to its business in the world’s most heavily populated country, China. The company is not new to the Chinese market with operations in the country dating back to 2007. Interestingly it further seeks to expand its soup business in a country where people still prefer homemade soups. The new joint venture company, due to begin operations in early 2011, is named Campbell Swire.
Swire Pacific Limited is one of Hong Kong’s leading listed companies, with varied interests in Property, Aviation, Beverages, Marine Services and Trading & Industrial segments. Swire has been a successful distribution partner for Campbell since the company came into operations in China.
The alliance of Campbell’s brands, recipes and consumer insights with Swire’s sales force, logistics competence and overall market understanding will make the joint venture the right vehicle to promote the commercial soup market in the country, in keeping with local traits and tastes. Campbell will have a 60.0% share in the joint venture with its new business office located in Shanghai.
Foreign companies perceive China as a destination full of promise as the country continues to grow well in a stable and sustained manner. To add to Campbell’s allure, the world’s second-largest economy, China, is also the home of the highest per capita consumption of soup in the world with 355 billion servings annually.
Campbell’s business in the U.S. soup market has, however, not been doing well since the last few quarters as consumers looked for lower-priced alternatives amid an extremely competitive and promotional market.
In the last quarter, Campbell’s sales of ready-to-serve soup dropped 13%, attributable to stepped-up promotions by rival brand Progresso, owned by General Mills Inc. (GIS). Consequently, Campbell hinted at shifting its focus of trade, in the domestic arena, to items like V8 juices and Pepperidge Farm Goldfish crackers.
Campbell’s shares maintain a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation. Our long-term recommendation on the stock remains ‘Neutral’.
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