The Rising Influence of Rising Affluence

[DewDiligence]

Not every foray into emerging markets works
out; Campbell Soup in Russia is a case in point.

http://online.wsj.com/article/SB10001424052702304447804576414202460491210.html

›M’mm, M’mm Good—Nyet!

JUNE 28, 2011, 7:25 P.M. ET
By JULIE JARGON

Campbell Soup Co. said it is exiting Russia just four years after betting it would be a simmering new market for the company.

On Tuesday, Campbell Chief Operating Officer and CEO-elect Denise Morrison said results in Russia fell below the company's expectations.

"We believe that opportunities currently under exploration in other emerging markets, notably China, offer stronger prospects for driving profitable growth within an acceptable time frame," Ms. Morrison said.

The Camden, N.J., company knew when it entered Russia in September 2007 that it would be challenging to persuade a country of homemade soup eaters to adopt ready-made soups.

Chinese and Russians eat soup more than five times a week, on average, compared with Americans' once-a-week habit, Campbell learned when it first studied the overseas markets. In China, about 320 billion bowls of soup are consumed each year, compared with 32 billion in Russia and just 14 billion in the U.S.

It may be just as difficult to sell Chinese consumers on prepared soup. Campbell exported its condensed soups to China in the 1990s, but consumers didn't bite, and Campbell pulled out.

Campbell has since reformulated the broth it sells in China to have a stronger chicken flavor, which the company's research shows is preferred by the Chinese. It re-entered China at about the same time that it embarked on its Russia venture.

The soup maker employed cultural anthropologists to study the soup-making habits of customers in both Russia and China. The anthropologists spent two years watching consumers prepare and eat soup. [LOL—can you imagine having that job?]

The company found that as consumers in Moscow and China's Guangdong province—which Campbell targeted with early rollouts— have become busier, they've grown more willing to use "starter soups" and broths as a base for their own soup and for other cooking. With a rising middle class in both countries, the company figured its products would be increasingly affordable.

But because sales in Russia didn't fare as well as the company hoped, it said it would close its Moscow office, eliminating about 50 positions, and wind down its business there. Campbell didn't say how much it invested in the market.

Campbell on Tuesday also announced other measures to cut costs, such as automating some packing operations and switching production plants. In total, the company plans to cut 770 jobs worldwide, including the positions in Russia.

All of the initiatives, including the exit of the Russian business, will result in pretax costs of approximately $75 million, most of which will occur in its fiscal fourth quarter ending July 31.‹