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Recent changes in the management team at Campbell (NYSE:CPB) show that the 140-year old soup company is looking to update its product approach and revamp its image as a means for appealing to a new consumer base in a wider variety of demographics. It might be the case that these proposed changes came by necessity rather than by choice, as the planned $23 billion purchase of Heinz Co. (NYSE:HNZ) by rivals 3G Capital and Berkshire Hathaway Inc (NYSE:BRK.A) (NYSE:BRK.B) has forced Campbell to reassess its cost structure, advertising approach and product offerings.

Recent comments from Campbell's new CEO, Denise Morrison, suggest that the company is looking to small-cap companies for new direction, with one of the key examples to be found in SoupMan Inc. (OTCQB:SOUP), which is a packaged food startup engineered by Tim Gannon (the former head of the Outback Steakhouse franchise). The SoupMan was made famous in the well-known Seinfeld episode featuring the Soup Nazi character, and his oft-repeated catchphrase "No soup for you!" This character was based on Al Yeganeh, the original SoupMan who opened a tiny Manhattan storefront in 1984, which quickly garnered international attention with a #1 Zagat rating and rave reviews from establishment food critics. The New York Times praised Yeganeh's product as "Art, not soup," and it wasn't long before the SoupMan became an industry standard and cultural icon.

CEOs like Campbell's Morrison have cited interest in the company's balance of high product quality, innovative product access and use of celebrity as a model to watch closely. All of this begs the question of whether Campbell will look to follow these innovative business models or simply buy the company outright, as a means for gaining exposure to the newer players in this traditional (and potentially outdated) market.

Looking to Diversify Product Outlets

Following the recent acquisition of Heinz, and the implantation of new expertise at top management positions at Campbell, the next question to consider is which product approaches will be modeled on what is seen in the smaller franchises. Because of this, it is important to look at these smaller players and with SoupMan, it can be seen that franchise operations are managed in highly visible locations (for example, in Connecticut's Mohegan Sun Casino). The branded soup is also offered at many leading QSRs (such as Earl of Sandwich and Tim Horton's).

This is one area that companies like Campbell and Progresso are deficient. At this stage, it should be noted that the business models at these smaller companies do not end with simple offerings in major supermarket chains (for example, SoupMan is also offered Safeway (NYSE:SWY), PathMark, Vons, and Waldbaum's). In addition to these common avenues, SoupMan uses the food service channel to distribute its products, with many sales made to health-conscious school lunch programs. The combination of all these sales outlet strategies builds on the model of traditional soup companies like Campbell and Progresso, and these innovative business models position the smaller company for substantial growth when compared to their more traditional rivals.

New Approaches to Tested Business Models

When looking at the overriding industry competition, companies like CPB start to look outdated and deficient. To be sure, CPB is a stable stock but it does not provide many movement opportunities as revenues and earnings remain relatively constant. This can be seen in the chart below, which tracks CPB's long term performance. Unsurprisingly, the stock finds itself in a tight trading range, with little evidence to suggest that true growth is a real possibility without some product innovation. 5-year chart in CPB:

Strategies for Generating Growth

In contrast to this, Soupman is building on proven business models as a means for generating growth. Specifically, this means testing synergies between operating a restaurant presence while simultaneously offering items to the largest grocery chains in the country. This reduces the amount of cost and effort needed to sufficiently brand the company and exponentially enhances sales prospects for a quality product. Restaurant operations encourage product recognition in supermarkets, and items bought in stores broaden the customer demographic for the restraints. It is a relatively new approach to these types of markets but we have already seen success stories in examples like TGI Friday's and Ben and Jerry's, so the downside risks are limited.

Recent development deals have been particularly encouraging for the small cap players as well: Nash-Finch (the number two publicly traded US wholesale food distributor) has added SoupMan to its brands portfolio, serving military commissaries in nearly 40 states and a wide variety of food distribution companies. In all, Nash-Finch services more than a thousand food retailers and reaches international markets in Europe, Bahrain, Egypt and Cuba. These developments now enable these companies to access the $6 billion market that has traditionally been controlled by the traditional industry heavyweights (Campbell and Progresso). With a general balancing of the playing field, there is little the traditional players can do, other than revamping the wider approach and base strategies on updated (and more diverse business models).

Building on Branded Celebrity

Another element that separates small-cap players like SoupMan from Campbell and other larger competitors is the company's ability to build on its branded celebrity and its reputation for quality and excellence. SoupMan's high-quality product lines (which include items like Lobster Bisque in addition to classic soup favorites like Lentil and Chicken Noodle) are packaged in the innovative Tetra Recart carton to ensure taste and freshness standards. These are features offer a major advantage over the traditional "soup in a can" that we are used to seeing from Campbell and this helps build on the quality standards which made the SoupMan products famous in the first place. This helps to separate the product from its competition and places Campbell at a disadvantage without some product innovation.

A final point that Campbell must consider can be seen in its lack of celebrity branding. Last year, SoupMan acquired branding and licensing company Excel Corp. as a means for promoting its internationally trademarked items. This has helped propel SoupMan into the $5 billion licensing category, with kitchen appliances and accessories, apparel, and souvenirs adding to the product line. Global recognition for the brand is further enhanced by support from its impressive contingent of media players, TV spots and celebrity endorsements. The public relations campaign is anchored by Shaquille O'Neal (helping focus customer attention on the product's health advantages) but also includes the famous tagline from Seinfeld's Soup Nazi ("No Soup for You!") and ad spots with actor Jason Alexander (helping focus attention on cultural familiarity). The combination of all of these factors will likely create sustained visibility for SoupMan, and provide a very attractive opportunity for investors looking to capitalize on a high-quality product offering and an innovative business model.

These very advantages have been cited by Campbell managerial team in recent interviews, so it is now becoming clear that the company is looking to its smaller competitors as a means for updating its product reputation and maintaining control of its large share of the market. Once we start to see Campbell implement some of these strategies, CPB will become a stronger growth play, start to remove its reputation for lackluster stock performance, and bring enhanced returns for its shareholders.

Source: Campbell Soup Looks To Small Caps For Product Reinvention