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Top Spoon Stirs It Up

Having spiced up its earnings and margin growth, David Johnson is working on a new recipe for Campbell Soup it’s M’mm M’mm global. But does he have the patience and resources to build and sustain a global franchise?

On his first day on the job as Campbell Soup’s CEO in January 1990, David Johnson was heralded by trumpeters playing the “M’mm M’mm Good” jingle. However, the tempo of the tune may have seemed more like a dirge than a fanfare at the time. The Dorrance clan, which owned 58 percent of the company, was riven with disagreements since the death the previous April of John T. Dorrance Jr., Campbell‘s chairman and the son of the inventor of condensed soup. Although profitable, the company had been a dozing giant taking its celebrated brand for granted. Fed-up with tepid financial performance, dissidents pushed for the sale of the 127-year-old firm long known for its venerable soups in the familiar red and white cans, and brands including V-8 juice, Prego spaghetti sauce, Swanson, Godiva chocolates, and Pepperidge Farm.

The son of ranchers from the Snowy Mountain region of Australia, Johnson was known for his turnaround of Gerber Products, the baby food company also troubled by diversification and family control issues and now owned by Sandoz of Switzerland. After earning his MBA at the University of Chicago, he signed on with Colgate-Palmolive International as a management trainee in Australia and then in Africa, where he later became its managing director of operations in South Africa. In 1973, he moved to Hong Kong as president of Warner-Lambert/Parke Davis Asia.

At 64, the flamboyant Johnson is on one level a consummate showman and cheerleader firing up the troops. He does not shrink from donning a chef’s toque and red-and-white apron, calling himself “souperman” or “top spoon.” On another level, he drills the listener with numerical benchmarks, financial ratios, and market statistics in a rapid-fire delivery. Not for nothing is he dubbed “quantification Johnson.” The irrepressible Australian set stretch earnings and EPS targets, which at the time were considered over the top (see charts).”There’s no such thing as mature markets,” he’s fond of repeating, “only tired marketers.

“Since Johnson took up the chief ladle, net profits have bubbled at a compound rate of 17.4 percent. The company closed its 1996 fiscal year with $7.68 billion in revenues, up 6 percent from the previous year. Net earnings and EPS were $802 million and $3.22, respectively, both up 15 percent from last year. The stock has nearly tripled since 1990 to about $80 a share, with a market capitalization over $17 billion, giving the Dorrance heirs at least one less thing to squabble over.

Having moved from the bottom of the food industry chain to what Johnson calls “best in class”-to use one of his favorite “dog show” terms-the company now is poised, he thinks, for “best in show.” Recently, he revealed his recipe intended to push Campbell Soup into the ranks of other consumer goods icons such as Gillette and Coca-Cola. The ingredients include a $160 million management reorganization calling for the dismissal of 650 employees, including 11 percent of headquarters staff; the $210 million acquisition of Erasco, Germany‘s largest soup maker; a $2.5 billion stock buyback; and a 30 percent boost to $250 million in worldwide advertising aimed at vaulting Campbell into the front ranks of global consumer products.

While most analysts give Johnson high marks for his turnaround, several reckon it will be a long while before Campbell joins the ranks of Gillette and Coca-Cola. About 33 percent of Campbell‘s revenues are international compared with nearly 80 percent for Coke and 70 percent for Gillette. Also, 40 percent of its revenues come from one product whose demand remains fairly static. U.S. sales growth has been uneven, much of it coming from bold price increases. The company isn’t as diversified as CPC International and hasn’t the in-depth global marketing franchise of Nestle or Heinz.

Johnson brushes these points aside, saying, “six straight years of record results point to a future that brims with promise.” He aims to boost sales and earnings by building existing brands, buying additional ones, and lopping off those that don’t fit strategically. The company plans to “break away” from the food rivals by introducing more new flavors and tastes in both domestic and international markets. He points to Germany and central Europe, for example, as places keen to try the Mexican and Texas-style foods of the company’s Pace Foods, the market leader in the Mexican sauce category. In Hong Kong, consumers have warmed to its duck gizzard soup. (Don’t expect to find monkey brain consommé in Nepal, however. The folks in Camden, NJ, figure one must draw the line somewhere.) Expect to see premium soups in glass jars, a new line of frozen soups, and an upmarket canned pasta from Franco American called Superiore. Next year, Campbell‘s will test-market a frozen meals-to-your-door scheme delivered via UPS called Intelligent Quisine. Designed as a complete meal program for people with high blood pressure, high cholesterol, or diabetes, it was developed in consultation with the American Heart Association and the American Diabetes Association.

Can Johnson see it through? “There are no speed limits on the road to excellence,” says Johnson, rarely found without a ready aphorism. Recently CE caught up with him at Campbell‘s Camden headquarters.

FOOD FOR THOUGHT

How would you grade your and Campbell‘s performance since you became CEO in January 1990?

Here’s a report card: When I came on board, the market value was $6.9 billion. On July 31, 1996, it was $16.6 billion, with a stock price of $67. At today’s stock price of around $80, we’ve added several more billion. At the same time, dividends, cash margin, and cash flow all have increased. Net earnings as a percent of sales have increased from 4.9 percent to 10.4 percent; only Kellogg is ahead of us there. We could stop and rest if we wanted to. “Why wear a hair shirt, why make a rod for our back?” people ask. I tell them, “Because that’s life. That’s fulfilling your potential as an individual, as a management team, as a company.”

Like Coca-Cola, in some areas, such as soup, Campbell‘s is ubiquitous. How can you either advance your market share or grow the market?

First, we are going to pioneer frozen condensed soup in food stores. We’ll also give consumers what we call a “signature” soup that offers a superior taste and texture because it’s not cooked as long as the others.

We continually have to transcend ourselves in terms of technology and innovation, because there’s always the danger that somebody else will do it ahead of us. Clearly, we’re not going to be a Coca-Cola or Gillette in two years, but we’re inching toward that aim as we go into the next century.

Innovations and breakthroughs are so simple, but they come only if you’re immersed in your field and determined to make the necessary connections. For instance, take our Stackers, which are pickles sliced to lay flat on a sandwich. A simple idea, but it took off: The overall Stackers market grew 55 percent last year. In addition, we’re tapping into growing consumer segments, such as the healthy food category. For example, our new line of cream soups is 98 percent fat-free.

In addition to leveraging brand power innovation and making selective acquisitions, we want to become “best in show,” to use a dog show phrase. The art of winning was reaching the top of the mountain. We’re at that point now. The next part is leaping to move toward best in show. To do that, we have to make the investments behind the brands in new products and acquisitions. We also must build the top line by buying back shares, which will enable us to increase EPS.

Thus, we’re closing unproductive plants. We’re examining vertical integration-for example, processing our own poultry and making our own cans-and centralization of payables and purchasing. We’re also looking to sell off around $500 million worth of non-strategic, low-margin businesses over the next two years to generate cash profits.

Do you plan to expand into non-soup food areas that dovetail with your products?

We do that now. For example, we own a company called Fresh Start that supplies 20 percent of McDonald’s buns and muffins. We provide the filling in Kentucky Fried Chicken’s potpie, and Pepperidge Farm provides the crust. In fact, our food service division is the fastest-growing division of the company.

In that regard, Intelligent Quisine exemplifies our drive for innovation and creativity, because it encompasses telemarketing, home delivery, food pioneering, and working with the medical community to come up with a food program for people with high blood pressure, high cholesterol, or diabetes.

AROUND THE WORLD

What about international expansion?

We’re expanding in the U.K., Canada, and Australia, and trying to establish more beachheads in Asia Pacific. Our acquisition of Germany‘s Erasco increases our total international soup sales to 21 percent of total soup sales. We bought an operation in Malaysia called Cheong Chan, where we’re now making the investments that will enable us to produce soup instead of importing it. We’re looking for ventures in China and growing in Taiwan.

Wall Street always says, “If you’re not in the empire outside the U.S., you can’t be good.” I disagree with that notion. The U.S. is vital to us, particularly since we can’t make giant acquisitions to swing the pendulum of international sales from 33 percent to 50 percent overnight. I don’t want to make huge investments in factories overseas; I want to partner with people who know their business in overseas countries.

People ask why we aren’t in certain countries. I tell them, “because we do our homework.” We cannot be in all zones. We’re not in Africa, for example, but we are big in Argentina and Mexico. We have to choose areas where we think our core competencies have particular application.

FAMILY MATTERS

Some 56 percent of Campbell‘s is still owned by the Dorrance family. That’s sort of an 800-pound gorilla in the room in that they pretty much call the shots.

That’s not true. First of all, John T. Dorrance III has announced that he’s selling some of his shares, and he’s no longer on the board. Secondly, only four of the 15-person Campbell board are Dorrance family members. The interests of two other family members in a voting trust are represented by another board member. The family was a bigger factor in yesteryear, because John T. Dorrance Jr. was chairman of the board. However, at that time, the company wasn’t being run for the stock price. That’s not what the shareowners and family want today. I was hired to run the company for long-term vitality and longterm stock price.

How do you get along with the family?

Terrific. My key executives and I meet with the family, and we explain what we are doing and why. It goes with the territory. And, of course, I’d be the first one out if the company didn’t perform. That’s the accountability part of the bargain.

You’ve brought the stock higher than it ever was. What do you do as an encore?

I want to keep the stock there. The very essence of our being is continually growing the stock price. That’s what we all live for. That’s the challenge. That’s how we know whether we’re succeeding or failing in our mission as business executives and leaders in the business community.

Would you like to remain as CEO beyond age 65?

Sure. There’s so much we haven’t done. There’s so much opportunity unfolding, I’m consumed by it. I have the work harness strapped on. We’re all driving to set new records-and plow straighter furrows than anybody ever dreamed could be plowed.

About JP Donlon

JP Donlon is the Editor-in-Chief of Chief Executive magazine.