Campbell Soup Failed To Attract Healthy Consumers. Was Its Strategy Doomed From The Start?

Denise Morrison, the Chief Executive Officer of the Campbell Soup Company, suddenly and unexpectedly resigned yesterday. Why did she do it?

Some analysts believe that she was compelled to resign because she failed to turn around a brand that is stale with age. Campbell’s was founded in 1869, and its canned products gained universal fame in a 1962 painting by pop artist Andy Warhol.

But our perception of Campbell’s hasn’t modernized in the half-century after Warhol created his signature work. Although Morrison and others made many attempts to update its product line and introduce healthier complementary products, consumers continue to associate the Campbell’s brand with sodium-packed cans of soup.

That’s why Morrison lost her position. But was she truly to blame?

On the one hand, the contemporary consumer is undoubtedly demanding healthier foods and beverages. A persuasive argument could certainly be made in favor of improving the health content of Campbell’s product line.

But on the other hand, let’s try to identify other firms that have successfully implemented this strategy. How many purveyors of unhealthy goods have transformed their product lines into healthy ones? Has McDonald’s, for instance, truly succeeded with its offerings of salads? What of its ill-fated McLean Deluxe sandwich?

Alternative examples abound of such purveyors “doubling down” on the unhealthy pleasures of their product lines. Burger King, for instance, unapologetically sells a Rodeo King sandwich that contains 82 grams of fat, 2,270 milligrams of sodium, and 1,250 total calories. Yes, you can order a large side of fries with that!

Likewise, it’s hard to imagine that many consumers would be attracted to a healthy version of a deep-fried Twinkie. Even if a small niche of customers were to demand such a product, they might not trust Hostess Brands to create it.

So let’s be fair to Denise Morrison. It’s easy to blame her for failing to execute Campbell’s transformation into a healthy foods brand. But it’s possible that this strategy, adopted by Campbell’s Board of Directors, was doomed to fail from the start.

Perhaps, in contrast, Campbell’s should have embraced the authentic and unalterable image that it has earned over many decades of canned soup production. And perhaps, like Burger King, it will only find future success by being true to its image.

Why The Post Office Might Choose To Continue Delivering Amazon Packages While It Loses Money On The Contract

If you support the United States Postal Service, you must have experienced mixed feelings about last week’s fiscal announcement. On the one hand, package volume increased significantly over last year’s comparative levels. But on the other hand, financial losses worsened significantly.

Huh? How can an organization serve more customers and yet suffer more losses? There are usually two possible reasons why such a mixed outcome is possible. The first is that the entity may be losing money on each customer served, and thus more volume generates worse financial results. And the second is that the entity may be facing a problem that is unrelated to customer volume, and that is suddenly generating losses.

Evidently, President Trump has not taken a position on this question, having simply tweeted that “Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed.

But the President has not considered the possibility that the Post Office might choose to continue its relationship with Amazon while it continues to incur losses on the contract. Why? Imagine, for the sake of argument, that you decide to pay freelance drivers to deliver packages in competition with the Postal Service.

Let’s assume that your only significant operating payments are $100 per day to rent a small office, and $10 per delivery for each service rendered. You charge and collect $15 per delivery, and thus earn a gross profit of $5 per delivery before paying the rent. You would thus need to deliver 20 packages per day to pay the rent and break even.

That arithmetic is not difficult to follow, is it? But now let’s assume that Amazon offers to guarantee you $600 per day to deliver 50 packages. You might estimate that you’re charging your customer $12 per package. On a per-delivery basis, that’s a loss of $3 in comparison to your normal $15 price!

But now look at the situation in total. You’ll earn $600 from Amazon alone. You’ll pay $100 in rent and $500 (i.e. 50 packages @ $10) for deliveries, yielding total payments of $600. You’ll actually enjoy a guarantee of breaking even on the Amazon contract alone! And you’ll start to earn a profit on the very first package that you deliver for any other party.

So when you read that the Postal Service is losing money on its Amazon deliveries, it may indeed be true. And yet, perhaps paradoxically, the government agency might choose to continue serving Amazon while it loses money on the contract.

Why? Because, as we can see from our example, it might be reasonable to do so.

GE’s New Business Model

Thirty years ago, it was easy to describe the business model of General Electric (GE). They were the legacy organization that was originally founded by Thomas Edison, the inventor or developer of classic electrical products like the light bulb, the phonograph, the motion picture projector, and the power generator. A century after its founding, GE still manufactured a wide array of industrial and consumer products, ranging from washing machines to jet engines.

But then GE aggressively developed its financial services division to help customers finance their purchases. And the division grew, and grew, and grew into a $600 billion banking organization.

At its peak, GE Capital accounted for more than half of its parent corporation’s profits, and was designated a Systematically Important Financial Institution (SIFI) by the federal government. In other words, it had grown so massive that it was deemed “too big to fail” as a global finance organization.

GE also diversified into other ventures that were barely related to its core identify. The NBC television network became a GE division. So did the film studio and theme park operator Universal Pictures. Even the Weather Channel became a GE service!

For some time, the disparate business units helped GE manage its profits by engaging in a smoothing technique known as “earnings management.” Instead of simply reporting the profits of each division, the firm would rely on the unusually profitable years of certain units to off-set the unusually unprofitable years of other units. That technique enabled the corporation to present an ostensibly stable overall profit picture to investors.

But as the years dragged on, the unwieldy conglomeration of unrelated divisions became more difficult to manage effectively. Thus, GE has recently reversed its strategy, opting to divest and streamline its business portfolio.

And now this new business strategy raises a vexing question. Once an organization begins to divest itself of unrelated units, when should it stop doing so? After all, if it cuts too deeply, it might endanger its own existence as a going concern.

It’s been a little difficult to understand how GE is answering this question. Although it sold off much of its Capital portfolio, it kept much of it too. Likewise, the firm disposed of its household appliance business, but it kept its medical imaging division. And last week, it announced the sale of its Industrial Solutions business to Switzerland’s ABB Group, founded in 1883 as an inventor and developer of electrical products.

1883? At that very time, GE founder Thomas Edison was developing his American firm. And today, more than 130 years later, his corporate descendants are selling Edison’s “heritage business” unit to their Swiss rival.

It’s certainly possible that GE’s divestiture strategy is part of a clever business plan to recapture its traditional global dominance in the electrical products industry. And yet it’s also possible that, after expanding far too broadly without regard to its long term sustainability, GE is now contracting a bit too extensively for its own well-being.

A Naming Rights Thanksgiving

Last week, on Thanksgiving Day, all Americans gathered to honor our nation’s forefathers. Even Charlie Brown and his Peanuts friends came together to commemorate the first turkey dinner that was shared by our European and Indian ancestors.

Thankfulness, however, was not foremost on the minds of the students of Princeton University. They continued to demonstrate for the removal of the name of American President (and former University President) Woodrow Wilson from their School of Public and International Affairs.

Why remove the name of Wilson from the University’s government program? In other words, why stop giving thanks to the man who led America to victory in the First World War, i.e. the war to make the world “safe for democracy”?

Apparently, the students are protesting against Wilson’s history of blatant and virulent racism. A fervent believer in racial segregation, Wilson aggressively utilized his power as America’s President to deny rights to African Americans.

But he did win the war that made the world safe for democracy. So should Princeton continue to utilize its naming rights to thank him for protecting global principles of self-government, while simultaneously condemning his racist legacy?

This naming rights conundrum has surfaced in many other human endeavors as well. In professional baseball, for instance, when the owners of the New York Mets sold the naming rights of their park Shea Stadium to the global bank Citigroup, they moved William Shea’s name to a meager pedestrian foot bridge.

Who was William Shea? He was an attorney who helped apply competitive pressure to major league baseball to create new teams. When the Brooklyn Dodgers and the New York Giants left the Big Apple for California, Shea led a group of business and political leaders that forced the National League to accept the Mets as a replacement franchise.

In gratitude, the owners of the fledgling Mets team named their new ball park Shea Stadium. But four decades later, when Citigroup offered the Mets $400 million for naming rights to the park, the team accepted the money and transferred William Shea’s moniker to a modest walkway.

Nevertheless, even while the Mets played in Shea Stadium, very few fans recalled the identity of its namesake. And likewise, few Americans still remember the name of William Bradford, the leader who ensured the survival of the Pilgrim colony, and who presided over the first Thanksgiving meal.

So if Woodrow Wilson, William Shea, and William Bradford ever meet in the afterlife to celebrate the Thanksgiving holiday, they might agree on one conclusion. When descendants wish to honor the accomplishments of their forefathers, it would be unwise for them to rely on naming rights to convey their appreciation in perpetuity.

Sadie Hawkins Day For Fiat Chrysler

Have you ever heard of Sadie Hawkins Day? A fictional holiday that first appeared in the comic strip L’il Abner, it is the day when single men must run and hide from women.

Why? Because, according to tradition, any woman who catches a man on that day is legally entitled to wed him, whether he wishes to be married or not.

The image of weak and delicate women chasing down strong and powerful men spawned decades of humorous tales in the comic strip. In the business world, though, mergers and acquisitions are usually proposed by large corporations that seek to gobble up smaller competitors, and not the other way around.

And yet that hasn’t been the case for Fiat Chrysler, itself a relatively unusual alliance that was formed in an awkward shotgun marriage during the depths of the global economic crisis of 2008/09. The Italian-American firm has been conspicuously flirting with the much larger General Motors in pursuit of a merger.

Last week, though, GM head Mary Barra firmly rebuffed its embrace. Her rationale? General Motors is progressing with its own corporate turnaround strategy, and shouldn’t be diverted by opportunities that will only produce increases in absolute size. Most industry analysts agree that, except for the inevitable growth that would result from a merger with (or acquisition of) Fiat Chrysler, General Motors would achieve no other significant benefits.

It is interesting, though, that so many recently proposed corporate mega-mergers appeared to offer no benefits, other than increases in size. Did its recently consummated merger with US Airways, for instance, truly improve American Airlines in any other manner? Or would its recently discontinued merger proposal with Time Warner have truly improved Comcast in any noticeable fashion? It is quite difficult to name any business benefits of such consolidations at all, except for those that would result from the elimination of market competition.

Thus, even though Ms. Barra has been castigated for GM’s recent legal difficulties, it might be appropriate to praise her for avoiding a corporate marriage to Fiat Chrysler. By making this choice, Ms. Barra is likely improving GM’s long term prospects and the health of the competitive marketplace at the same time.

Assuming, of course, that Fiat Chrysler CEO Sergio Marchionne decides to drop his amorous pursuit of his far larger rival. If he should continue to pursue a merger or acquisition, Ms. Barra might be well advised to maintain a very low profile …

… especially on Sadie Hawkins Day.

Break Up The Techs!

You’ve heard the cry break up the banks, haven’t you? Politicians like Senator Elizabeth Warren of Massachusetts continue to press the argument that our global banks are too large, too diversified, and too complex to continue in their present forms.

If that’s what they assert about the global banks, though, what would they say about our global technology companies? Just last week, the telecommunications giant Verizon bought internet pioneer AOL for $4.4 billion. And at roughly the same time, Facebook announced its entry into the business of publishing original news stories.

Why are firms like General Electric and Citigroup shedding their non-core businesses and shrinking down to their core competencies, while others like Verizon and Facebook expand aggressively beyond their fundamental services? Most proponents of expansionary strategies offer the justification that seemingly unrelated businesses can be aggregated in order to recognize underlying synergies.

On the other hand, the potential for synergies was the driving force behind AOL’s ill-fated merger with Time Warner. That 2001 transaction, executed just ahead of the bursting of the millennium era technology bubble, is often judged to be one of the worst merger decisions in business history.

So how are firms to know when diversification is a sound strategy? And how are they to judge when it is a foolhardy one?

There’s never a foolproof way to know the answers to such questions with absolute certainty. Nevertheless, it’s easy to understand why Verizon believes that it can strengthen the revenue potential of its telecommunications backbone by integrating AOL’s online advertising function. And, likewise, it’s a cinch to envision Facebook expanding its online market share by leveraging its existing platform to publish news stories.

Conversely, it’s difficult to envision how GE’s ownership of NBC Television could have helped it sell more jet engines. And it’s hard to argue that Citigroup’s ownership of a Japanese retail bank network could have helped it expand in the United States.

So, at least in retrospect, we appear to be quite capable of differentiating between sound and foolhardy expansion strategies. Regrettably, though, it appears to be far more difficult to proactively foresee such results.

An Enron Nightmare: Andersen Returns!

Do you remember Arthur Andersen? Once one of the largest and most respected public accounting firms in the world, it collapsed under the weight of a federal conviction for obstruction of justice in regards to its activities during the Enron scandal. Although the conviction was later overturned, Andersen’s reputation was destroyed, and its employees assumed that the reputational stain would last forever.

It now appears, though, that “forever” barely lasts a decade. Earlier this month, WTAS LLC — a firm that was founded by former Arthur Andersen partners — bought the rights to the name and rechristened their firm AndersenTax. CEO Mark Vorsatz reminisced, “Our issues with Enron were the mistake of a few. Irrespective of Enron, we thought we were the benchmark in the industry.”

Vorsatz continued, “This was a fairly thoughtful, deliberative decision. I had colleagues who worked there for 30 years and retired, and they are walking around with a big stain on their chest. We’re going to change that.”

But can they really succeed? Is it possible that the Andersen brand will still generate some value for WTAS? According to certain brand valuation methodologies, Mr. Vorsatz may have a reason for optimism.

Interbrand, for instance, is a global consultancy that defines brand value as the product of: (a) the economic profit of a firm, (b) the role of the brand in its industry, and (c) the strength of its own brand.

Imagine a firm with economic profits of $100 million in an industry where the role of the brand determines 80% of those profits. Even a weak brand that scores a mere 10 on Interbrand’s 0-to-100 scale would be worth $100 million x 80% x 10% = $8 million.

Although $8 million might not sound like a significant valuation for a tainted asset, it is important to note that such a lowly regarded brand might be available for purchase at very little cost. Thus, a firm that purchases the brand might be investing very little in exchange for the acquisition of an $8 million asset.

You may not necessarily agree with the Interbrand valuation methodology, or with WTAS’s decision to acquire the Andersen name. According to theories of brand valuation, though, its transaction may yet prove to be a profitable one.

Marketing Dissonance

A century has passed since the consumer advertising industry first emerged to sell brands like Cadillac automobiles and Lucky Strike cigarettes. In all that time, wouldn’t you assume that the industry would have achieved some level of consensus on a common strategy for resuscitating mature and declining products?

During the past few weeks, for instance, the retail industry has been abuzz about the continuing declines in consumer demand for formerly ubiquitous products like soda, soap, cereal, and orange juice. One would assume that brands like Diet Coke, Ivory Soap, Lucky Charms, and Tropicana would implement common (or, at the very least, similar) marketing campaigns to recover lost sales.

Interestingly, though, the parent companies of these brands are taking wildly dissonant approaches to addressing their sales declines. Coca Cola, a firm that has always emphasized the social aspects of sharing soda, is doubling down on this theme with its new Share a Coke campaign. Conversely, General Mills is repositioning the Lucky Charms brand from its traditional adolescent focus to a nostalgic adult emphasis.

And what of Ivory Soap and Tropicana? It’s hard to ascertain the direction in which Proctor & Gamble and PepsiCo will take these brands. Rumors abound that P&G will simply divest itself of Ivory, an iconic brand that it has produced and distributed since 1879. And as for PepsiCo and its Tropicana brand, after a disastrous juice carton redesign led to a 20% sales decline in 2009, it has shied away from any major marketing initiatives.

Only time will tell whether a traditional marketing message, a new “retro” nostalgic message, a divestiture, or a product redesign will prove to be the most effective method for managing such declining household staples. Nevertheless, we already know one fact for sure: after a century of active engagement with American consumers, the marketing sector remains at a loss to identify — let alone implement — an effective strategy.

The Metropolitan Opera’s New Business Import

Puccini. Verdi. Wagner.

When New York City’s grand Metropolitan Opera wishes to pack its Lincoln Center home with an enthusiastic audience, what does it do? It follows the time-tested tradition of importing the great European classics that were written by these composers and customizing them for American audiences.

Sometimes, American composers become so enthralled with these European classics that they transform them into uniquely American standards. Giacomo Puccini’s 19th century La Boheme, for instance, was originally written as a paean to the starving Parisian artists who lived in unheated attics in the Latin Quarter and died of tuberculosis, sacrificing their lives for their art.

In the hands of the New York Theater Workshop, though, Paris became the Big Apple. The Latin Quarter became Alphabet City in the East Village of Manhattan. Unheated attics became uninhabited, deserted buildings. And tuberculosis became HIV / AIDS.

The result of this transformation was Rent, a “rock musical” on stage and on film that won the Pulitzer Prize and the Tony Award for Best Musical. At the time of its closure, it was the tenth longest running Broadway show ever.

Last week, the Metropolitan Opera of New York City announced a different kind of high-profile European import. Faced with the same financial pressures that drove its sibling New York City Opera into bankruptcy, the Met and its labor unions jointly announced the importation and adaptation of Germany’s famed business – labor collaboration business model.

In essence, management and labor each agreed — in accordance with a principle entitled “equality of sacrifice” — to absorb several painful financial reductions and restrictions, while granting unions “a voice in decisions” regarding future business practices. Each side also agreed to welcome an independent financial analyst to the management table to help monitor the Met’s fiscal budget.

In the United States, of course, the power and influence of labor unions has long been in decline. And even during the heyday of the labor movement, critics of American unions charged that they focused mostly on negotiating more lucrative compensation terms for their members, instead of demonstrating concern for their employers’ economic competitiveness.

Will the German model of business – labor collaboration actually succeed in its original form at the Met in the United States? Or, like La Boheme and Rent, will it be transformed into a uniquely American model that is based on an original European foundation, but that is thoroughly customized for a different culture?

Apparently, the Met and its employees have decided to take a chance on a new European model. If Rent was able to succeed with an American audience, perhaps there is reason to hope that this newly transplanted business model will succeed as well.

A Player’s Solution For World Cup Corruption

The World Cup of football (i.e. soccer in the United States) kicked off in Brazil this past week, with the host team defeating Croatia in a rousing match.

How rousing? Well, the crowd inside the main stadium rooted lustily for the home team. And concurrently, social protestors throughout the nation continued their boisterous (and, at times, violent) demonstrations against government expenditures on the event.

Brazil, an emerging nation, has spent over $11 billion on facilities and supporting functions for the World Cup, monies that the protestors believe could have been more appropriately spent on hospitals, schools, and other socially responsible investments. At times, the vociferous protests reportedly threatened the stability of President Dilma Rousseff’s national government.

Feeding the discontent was the emerging news of a bribery scandal involving the awarding of the 2022 World Cup to Qatar. Many players and fans are dreading the arrival of that event, which will require summer matches to be staged in the 122 degree Fahrenheit (50 degree Celsius) heat of the Arabian Desert.

Many believed that FIFA officials took a “bold gamble” when that event was first awarded to Qatar. Last week, news of lavish gifts and other expenditures bestowed on FIFA football federation representatives were revealed in the global press; they provided an alternative explanation for the designation of Qatar by FIFA officials.

Considering New York City Mayor Bill de Blasio’s refusal to even offer a proposal to stage an upcoming Olympic Games, and given the dismal history of corruption at the International Olympic Committee, one cannot help but wonder whether all such international competitions have become far too bloated and too immersed in corporatism and global politics.

In fact, one wonders what might occur if future football players simply organize themselves and sell admission tickets and television rights to their own matches. Could they avoid the problems that are now being faced by their owners and governing bodies? And has such a “Player’s Solution” ever been attempted in a professional or amateur sports venue?

One needs to look back more than a century for such a solution. In 1890, during the emergence of the union movement in the United States and the socialism movement around the globe, approximately two thirds of the baseball players in America’s National League formed an entity known as the Players League.

Star player (and future Hall of Famer) John Montgomery Ward led the Players League. A graduate of Columbia Law School, Ward developed a complex team structure that provided each player with a profit sharing benefit and allowed private investors to share in the earnings by financing the operational and capital needs of the teams.

The Players League succeeded in drawing fan support from its established rivals, but the privately owned teams hired replacement players and worked to undermine its new competitor. Because anti-trust law in the United States was only first introduced in 1890 with the Sherman Act, the National League owners could engage in a number of anti-competitive activities that would later be ruled illegal.

So, regrettably, the Players League collapsed after a single season. Nevertheless, with anti-trust laws in place throughout today’s global economy, could a similar approach prevent the corruption scandals that are now tainting the world’s most prestigious sporting events?

We may never learn the answer to that question. Nevertheless, it may be helpful to recall the recent on-court protest of the Los Angeles Clippers of the National Basketball Association. By engaging in the protest and then raising the possibility of a player’s boycott, the players compelled League Commissioner Adam Silver to expel their racist owner Donald Sterling from the team and the game.

Might the world’s greatest football players possess similar collective power in regards to the expulsion of corruption from The Beautiful Game?