There’s only so much Andy Warhol can posthumously do for Campbell Soup Company (NYSE:CPB). Even if the iconic artist rose somehow from the dead and re-branded Campbell Soup’s entire portfolio of products, CPB stock and its peers in the “big food” business would still face a crippling dilemma: changing consumer tastes.
CPB stock is up just 7% in the last year, trailing the S&P 500 by a full 7 percentage points. Its returns also trail the S&P by 45% in the past year.
Kellogg Company (NYSE:K) stock and ConAgra Foods Inc (NYSE:CAG) stock also lag the performance of the S&P in the latest 5-period. Coincidence? Probably not.
Taste Buds Touting Organic, Fresh Food
Before the dawn of the industrial revolution, before food cravings were driven by ads rather than sustenance, humans ate food that came directly from the earth. But as time wore on, we learned how to grow food more efficiently and distort it more deliciously.
Today, we can buy pizzas with 3 1/2 feet of bacon wrapped around the crust, or indulge ourselves in sandwiches with slabs of fried chicken where the bread should be.
I’m truly grateful to live in such an age.
But consumers are increasingly paying more attention to what they put in their bodies, and that means increased skepticism towards companies like CPB, Kellogg, and ConAgra. CPB CEO Denise Morrison cited a “mounting distrust of so-called Big Food, the large food companies and legacy brands” during a meeting with analysts on Wednesday.
This aversion to Big Food is, not surprisingly, mirrored by the consumer’s increasing distaste for Big Beer. Companies like Anheuser-Busch InBev (NYSE:BUD) are desperately trying to grab a piece of the growing pie that is craft beer — a process that’s resulting in attempts to grow through acquisition.
Stock market talking head Jim Cramer argues that CPB or one of its Big Food peers should have been snatching up smaller, organic-focused companies like Hain Celestial Group Inc (NASDAQ:HAIN) and WhiteWave Foods Co (NYSE:WWAV) years ago, but with HAIN and WWAV now worth around $6 billion to $7 billion apiece, the opportunity is gone.
While HAIN and WWAV investors may want to trim their hopes for an outright acquisition at the hands of Big Food, analysts expect both companies to grow revenues at double-digit rates this fiscal year, in stark contrast to the declining revenues expected from CPB, Kellogg, and CAG.
So hey, there’s nothing wrong with organic growth, either.
The bottom line is that consumer tastes are changing rapidly. Rather than re-brand, Big Food needs to adapt. If it can’t innovate, it’ll have to acquire, as General Mills, Inc. (NYSE:GIS) did with its acquisition of organic food company Annie’s last year.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
