UPDATE: Campbell-Swire Venture To Market Soups In China
January 12 2011 - 12:08PM
Dow Jones News
Campbell Soup Co. (CPB) is trying to jump-start its China
business by forming a joint venture with the conglomerate Swire
Pacific Ltd. (SWRAY, 0019.HK) to sell soup and broths in the
world's second-largest economy.
Campbell, which has slowly been building its business in the
emerging markets of China and Russia, will control 60% of the joint
venture, called Campbell Swire, which will launch early this year.
The partnership will manufacture, distribute and market Campbell's
soups, broths and stocks in China. Profits and losses will be
shared according to ownership.
Faced with slower growth in the U.S., food companies have
focused on developing markets to inject growth into the business.
China represents one of the biggest opportunities with 1.3 billion
consumers that have the spending power of the U.S. population,
according to a recent PricewaterhouseCoopers LLP report. But
challenges lurk in trying to develop enough scale to turn a profit
and navigate a complex distribution network.
Campbell's joint venture will deepen ties with Swire, which has
been the company's distribution partner in China. Swire has varied
business lines--it is also the largest Coca-Cola Co. (KO)
distributor in China--giving Campbell access to broad distribution
channels in China.
The arrangement has the potential of helping Campbell accelerate
its growth there without having to pay most of the costs, although
it is sacrificing some potential profits.
"This is the way to increase your non-U.S. exposure and your
growth profile more quickly," said Robert Dickerson, food analyst
at Consumer Edge Research. "You usually have to sacrifice some
margin to do so, but capital expenditures should be lower versus
growing organically."
For Campbell, the prize in China is a demographic with one of
the highest rates of per-capita soup consumption in the world,
although most of it is homemade. Campbell says Chinese consumers
have nearly 355 billion servings of soup a year.
Campbell will keep ownership of its brands and recipes, and
license them to the joint venture.
Campbell shares rose 1.3% in recent trading to $35, mirroring
gains in the broader markets.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
--Drew FitzGerald contributed to this article.
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