Plans to convert the humble bowl of soup into a sexy, expensive lifestyle food seem to have gone off the boil. New Covent Garden Soup Company, which introduced high-priced chilled fresh soup onto supermarket shelves in the late Eighties has been hit hard by the supermarket chains’ own-label products and a confusion strategy perpetrated by multinational food companies. This week, its owner, S Daniels, is trying to salvage what it can from the wreckage, and is looking to persuade investors to accept a £10m bid for a quarter share of the company from Singapore Foods Industries.
That is not the only development to have gone off the boil in the soup sector, which is worth £375m in grocery sales. Earlier this summer Soup Works, a chain of premium soup bars, was forced into administration after it failed to secure sufficient funds to expand the number of outlets to reach critical mass. The chain has since been sold by the administrators to BV Hospitality.
Nevertheless, marketers have had considerable success in turning soup – once associated with cheap and cheerful cream of tomato, or powdered soup in a cup – into a premium product. It is part of a wider trend to find products suitable for premium positioning and high prices. Tropicana has built its pasteurised orange juice business with prices three times those of rival, concentrated versions. Coffee has become an international craze, with bars such as Starbucks and Coffee Republic in the UK charging over £2 for a cup of, well, froth. Premium ice cream brands have propelled prices in the sector into the stratosphere.
Croutons losing their crunch
But some of these gravity-defying developments are coming back to earth with a bump. McDonald’s has announced that it is selling the Aroma coffee chain, bought just three years ago. Instead it is putting its faith in sandwich bar Pret a Manger, another brand that has used slick packaging and quality ingredients to drive up prices. But promoters of high-priced soups are finding the going tough. The sector is suffering from price deflation in the supermarkets, and questions are being raised about how economically viable soup is as a take-away product.
Some observers do not believe soup bars can replicate the enormous growth that has been achieved by coffee bars over the past three years. “Soup doesn’t have the same social aspect as coffee,” says Mark Cramphorn, managing director of BANC, former ad agency for New Covent Garden. “I think soup is a comfort food – you eat it in the comfort of your own space. It is a very different economic model from coffee as a take-away product – soup sells for one hour a day at lunchtime, but the company has to pay rent on the premises for 24 hours.”
Compounding this, soup is a seasonal product. When temperatures drop, soup sales soar, but they do not perform so well in mild weather. In 1999 the soup-bar sector was worth £10m, according to Mintel. Whether it has the potential to climb much higher remains to be seen.
But there are those still hoping that soup bars will eventually deliver a tidy profit. Soup Opera, a chain of 12 soup bars in and around central London that was founded by former investment banker Janie Dear, has puts its expansion plans on hold for the present. But Dear believes there could be room for dozens of the soup bars, each charging £4.80 for a beaker of soup with bread and a piece of fruit.
“We have had a fast growth phase, but now we are taking stock. Growth has been driven by customers and technology. A few years ago, soup came in a tin – now it comes in a carton. The next phase is to get soup competing with the sandwich for lunch,” says Dear.
While existing outlets are concentrated in central London, and are aimed predominantly at office workers, she says there is no reason why the format should not work in provincial towns. She says the problems of seasonality and lunchtime rushes can be overcome by bars selling breakfast goods and, later in the day, sandwiches and rolls.
New Covent Garden is launching its own chain of soup bars, and hopes to have 15 outlets in place by the end of this year. But some wonder whether this will be an important revenue stream, or just a clever sideline that is good for promoting the brand but doesn’t turn a big profit.
Since the original purveyor of fresh soups was bought by holding company S Daniels in 1998, it has come under ferocious attack from supermarket own-branded soups, which have undercut its prices and undermined its margins. In 1999, the company launched a £1m ad campaign in response to the own-label challenge, and while this has done much to keep sales buoyant, it has eaten into the company’s margins.
The £71m chilled fresh soup market is currently growing in value at just two per cent a year. This compares to a growth rate of 27 per cent in 1997, and according to broker Williams de BroÃ«, attempts by New Covent Garden to innovate by launching a range of organic fresh soups have been undermined after supermarket chains delisted the range in favour of own-label lines. Added to this, Williams de BroÃ« says Campbell and Heinz confused consumers by launching their own long-life soups in packaging that suggested they were fresh. This attack by the supermarkets and the multinationals on New Covent Garden’s business is exactly the sort of reason why investors have shied away from food companies, seeing them as vulnerable to retailers’ own labels. S Daniels’ share price has plummeted, and it is now seeking to sell out to a larger concern. It bought New Covent Garden for £22m, but now the whole company, which also includes a juice brand and other businesses, is not valued at much more than this figure.
One step ahead of the supermarkets
Marketers are always on the lookout for the next area to build premium brand values and soar above the margin-slashing regime of value retailing. Packet and tinned soups are in a period of long-term decline, along with many other packaged groceries. Development in chilling technology has facilitated the boom in fresh soups, though the concerted efforts of supermarkets to nobble the market mean consumers will have to make do with potentially lower-grade, cheaper versions.
Soup makers, meanwhile, will be praying for a harsh winter. According to Mintel, the icy winter of 1996/7 boosted soup sales by eight per cent. The milder conditions of the following year led to a one per cent fall in sales. A repeat could leave soup companies’ bowls empty.
A finger in every bowl
Since Audrey Baxter took over the family firm, aiming to double turnover in five years, Baxters has launched a stream of new products. Four years later, turnover is up only a fifth. By Gary Thurtle
Audrey Baxter, chief executive of Baxters, the family business, has a vision for the company. The 39 year-old wants to turn the company into a global player in the soup market, and create new premium products in the process.
Innovations have certainly been streaming through. In May the company launched its fresh soup range in the UK, backed by a £2m marketing campaign. And in August it launched a range of long-life oriental noodle soups in plastic pouches, priced at £1.49.
While the fresh range does feature traditional favourites such as chicken and vegetable, there is evidence that the company is willing to look further afield than its Scottish roots for inspiration, with the introduction of a Thai chicken noodle variety. The price is again a departure from Baxters’ tinned versions, with 600ml pots costing from £1.69 to £1.99.
Baxter, who became chief executive last year, was determined to stamp her personality on the business when she joined as managing director in 1992, after leaving merchant bank Kleinwort Benson. Her arrival coincided with the resignation of marketing director Bill Brand.
One source says: “When Audrey got involved in the business she wanted to have her own people around her. Bill was of a different generation. And if you’re not a member of the family you’re never going to have any real power at Baxters anyway.”
The source adds: “There was a sense of impatience in Audrey. She wanted to make Baxters a bigger brand. She wanted to expand internationally and make her mark, rather than just carry on from the old generation.”
Another source says she keeps tight control over marketing: “She’s very much hands-on. The marketing department has to tread a difficult path. If Audrey doesn’t like it you can forget it.”
Evidence of the importance placed by Baxter on marketing is shown by her willingness to follow in the footsteps of her mother, Ena, and star in a generic Baxters ad, which broke earlier this year. The ad, created by the Union, emphasised the cosy family appeal of Baxters.
However, the new fresh soups represent a step away from this image. Packaged in trendy crisp white pots, with advertising based around the freshness of the vegetables, the company is going up against the likes of New Covent Garden Soup Company.
Jaine Mehring, senior food analyst at Salomon Smith Barney, believes Baxters is well placed to nip at the heels of larger rivals such as Campbell’s through product innovation.
She says: “Campbell’s remains committed to condensed cans and processed foods. Its infrastructure is so tight around these products it’s hard for it to pull away. This allows smaller companies such as Baxters to come in with new products.”
Fresh soups are a big commitment for Baxters, which has invested £10m in a plant in Grimsby to manufacture the range. However, the £71m fresh soup market will be a tough one to crack. According to Williams de BroÃ«, Geest, which makes fresh soup for the likes of Tesco and Waitrose, has 38 per cent of the market while New Covent Garden has 35 per cent.
What’s more, the fresh soup market has slowed down dramatically. The market grew by 27 per cent in 1997, compared to two per cent last year. According to Williams de BroÃ«, some of this decline in the rate of growth has been triggered by the launch of long-life “ambient” soup in cartons by Campbell’s and Heinz, causing confusion among consumers who think they are buying fresh soup. While not actually entering the sector, these companies are trying their best to scupper it.
One analyst says: “It will be hard for Baxters to get a foot in the door, because it really needs a niche product, and I don’t think these new soups will be offering anything new. It’s tried to go into the ambient sector, but I’m not sure if the products are right. Is it a soup or a Chinese meal?”
Baxter last month attempted to strengthen her company through diversification, acquiring Garners Foods for an undisclosed sum. Garners has a turnover of £5m and produces pickles, chutneys and salad dressings.
She is also ambitious about expanding the company’s export market – currently about ten per cent of turnover – by adding South Africa and South America to existing markets in Australia, Canada, the US and Scandinavia.
But Baxter will have to ensure her ambition doesn’t cause her to over-reach. For example, she said in 1997 that she wanted to double turnover – to £100m – within five years. Turnover is currently £60m.
Baxter has reaffirmed her desire to make a mark on the company and the industry, but she must ensure that Baxters’ original brand values are not eroded in the process. The company makes 50 tinned soups, accounting for 82 per cent of the UK’s premium soup sector by volume.
If the Baxters name drowns in a sea of variants, customers who value the traditional tinned soups and their 133-year heritage may start turning to other products.