Q3 2020 Campbell Soup Co Earnings Q&A Conference Call
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Now, let Dan copper so what's your speaker today, Ms., Rebecca Gardy, Vice President Investor Relations Ma'am you may begin.
Thank you operator, I hope everyone has had the chance this morning to read our press release and listen to our pre recorded management presentation, both of which are available on the Investor Relations section of Campbell's soup company Dot Com and.
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Please note that during todays <unk> session. We may make forward looking statements, which reflect our current expectations about our business plans are twentytwenty guidance and the potential impact of the cobot 19 pandemic on our business.
These statements rely on assumptions and estimates, which could be an accurate and are subject to risk. We will also refer to certain non-GAAP measures. Please refer to today's earnings release available on the Investor section of our web site Campbell Soup company Dot com.
List the factors that could cause our actual results could vary materially from those anticipated in forward looking statements and for reconciliations of non-GAAP measures to their most directly comparable GAAP measures.
Joining me today are Mark Clouse, Campbell's president and CEO and Nick They cows and Chief Financial Officer, We kindly ask that you limit yourself to two questions and now with that I'll turn it over to the operator for the first question operator.
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And our first question comes from Andrew was our from Barclays. Your line is open.
Good morning, everybody.
Sure.
Looked to start off by picking up on some of your comments from today's slides and transcript around household penetration and repeat rate.
He described Super peak rates as exciting, especially for new household.
Some of the work we've done for just repeat rates for somebody these new Trialers is running ahead of the rates may be shown by this group at this time of year ago. So understanding we're not yet by any means any normalized environment with many still sticking close to home.
I would really like to your thoughts sort of on this what you find exciting about it specifically and maybe while early wonderful implies you about you know the potential stickiness.
Consumer purchases particular in light of fuel all the investment Campbell's making.
Got you wait this trip.
Yeah.
No. It's a it's a it's a great question and I think let me just start by you know, maybe providing a little bit of context.
And how we have seen.
The cycles of to manage through.
Through this period and third quarter I would describe as containing really two very distinct.
Phases of this I think the first phase more of a I would describe more as a psychological.
Phase, where you know not unlike you might see it a weather related.
Pantry load although in this case it would be the equivalent of a blizzard in every city in the country.
It becomes about bringing things into the home that that you know our shelf stable that are capable of sustaining time into being available when you need it and like I said that becomes a little bit more of a response and that was the early phase certainly that we saw and in those periods. It was dramatic.
Demands I mean, there were times, where we would see segments like ready to eat Sue.
Demand increases of 140%, which obviously significantly changes.
What the capacity in the manufacturing plant a team did an amazing job I believe through that phase and ensuring that we could prioritize getting product into the marketplace.
Into retailers and ultimately into communities and we made a fairly conscious decision not to constrain that in any way and ensure that that we could push is much out is we could you know certainly that depleted inventories and we'll talk about that at them in a moment I'm sure, but I think that was really the distinct first phase.
Second phase, though that we've seen and perhaps the one that for me one I'd describe it is exciting is it is giving us an opportunity to really bring consumers into our brands through behavioral demand and what I mean by that is changes and things that they are actually.
Doing within their life, whether that is the result of being sheltered in place whether that is the need to to build.
Quick scratch cooking as an example is a new skill set.
And the role that our products play with in those behaviors has really generated I believe the sustainment of demand and more importantly, the repeat and I think as we watch both the combination of the sustainment of that demand along with what we're seeing from can.
Consumer response and satisfaction with products that they may not have tried in the past we're feeling very good about that response and I think the positive momentum that has been built on the businesses.
So to say the least we are fortunate that I think we had done all the work. We did before this started in really establishing improved quality a lot of good marketing and resources around informing and helping with usage or recipes that also returning a lot of support to our bid.
Business, including ramping up Pacific All of this helped US then as this behavioral phase move forward I think as you then look forward from that and I'd say, there's probably a third phase coming here, which is a bit more of the let's call. It at least the immediate new normal.
I think we're encouraged for a couple of different reasons. One is I think some of the behaviors and consumer trends that we've seen.
I really do feel are going to have stickiness and continue as we go forward. So I think as consumers are building.
Skill sets and things like quick scratch cooking and another area within quick scratch I would call a simple lunches, where our products plant incredibly important role and so however, you see the economy opening back up I think there will be a slower migration to away from home I think there will maintain a level of remote working we're lunch.
Just maybe virtual schooling in some cases, where our products will continue to be highly relevant.
And that that behavior I think will continue.
Also think that as we come through this and whatever continuum of economic.
Environment, you might expect I do think there is going to be strain and I think value will play an important role for consumers going forward in our products. Historically speaking had been highly relevant in those moments of recession or economic pressure now I think there are other trends that we've got a move.
Moving on to really ensure that we're making the most of this opportunity and thats the shift the things like online behavior for shopping for media consumption for for buying and of course, whether its click and collect or home delivery.
We are on that case, working really hard because we do believe that will be a trend that will continue going forward and then I also briefly talked about the shelf in traditional retail. So the other work that we need to be doing right now is to really understand that optimal assortment.
And making sure.
The inventory remains kind of balanced with where demand is going to come from that were selective and thoughtful about what that assortment looks like while making room for innovation that we still believe is going to be important so as I look to the future. Although I can't tell you how the demand will hold up I do think those trends will be.
Consistent and those will be positive for us and even if they do slow a bit I do think we're going to be in a position through the balance of the fourth quarter and even into the beginning of the year. We're just simply the replenishment of our inventory levels and shelf are going to be a positive.
Tailwind as we as we work through the year so thats.
I think it a little bit perhaps a broader answer but that gives you the kind of the view of the cycle that we've been through and why we think that that there is still momentum ahead.
And of course, we're going to have to remain nimble because I do think it's difficult to predict with any certainty exactly what it will look like but I think those are all very positive indicators, great really helpful. I'll leave it there. Thanks, so much okay. Thanks, Andrew.
Thank you.
Next question comes from Ken Goldman from JP Morgan Your line is open.
Hi, Thank you and good morning, everybody.
I wanted to ask about the decision to.
Push hard on marketing.
Time when demand exceeded your production capacity I really do appreciate.
The unique opportunity you have to keep all of these news consumers to leaning on.
Retention efforts.
And I do very much appreciate the value in that but I also badging, there's no risk of overheating demand, which can lead to some out of stock disappointment. So to speak. So just curious how you thought about that balance during the quarter and and also how it informs your I guess implied fourth quarter guidance as well.
It's it's absolutely it is a balancing act I do think though.
You know what what is really the name of the game for US right now.
If we think about the ability to take what is such a unique opportunity.
And if you think about the strategy.
The company, especially on brands like soup.
Essentially our strategy was to try to build relevance.
Attract our lapsed users and open the door to younger households are coming into the franchise and as we said in our remarks, that's exactly what has occurred in this current moment and so I do you guys I don't want to Overdramatize the moment, but in the in thinking about.
Yes.
Kind of a once in a certainly a long period of time opportunity, we want to make sure that we solidified the relationship with these consumers in households, now I do think that is different than incenting purchase only so you may not see the same level of promotion.
I will support that we've had historically, but I do think where we're talking about usage quality and differentiation of our product.
How we're thinking about building equity, how we're communicating with consumers and different in relevant ways based on which cohort is we're working with whether it is kind of.
The textbook comfort food, that's associated with many of our products or whether it's a fantastic recipe idea targeting a younger household.
On different media and digital formats that explain how to make rizzo with tomato soup, which has been one of the really.
Interestingly very very high demand or a recipe we've seen in it I think the goal here is to not miss that opportunity to drive the equity in connection while not necessarily just spending into selling more product and part of this equation also.
It's not us in isolation, we're we're in a moment of probably the greatest level of collaboration I've certainly seen.
In our industry in a long time with our retail partners. So what we want to do is work together, we obviously don't want to be.
Pushing things that are going to create frustration or disappointment.
And their consumers their consumers in our consumers, but I do think there is a way to kind of thread that needle a bit.
And try to.
Do everything we can to retain while also.
Not over aggravating the situation. So I don't know Ken if that that gives you a context, but thats that is really how we're thinking about it.
No it does and I appreciate the the challenge we're in uncharted waters here.
I guess for my follow up speaking of uncharted waters.
As we think about your implied fourth quarter guidance.
We are drawing up an outlook in this kind of.
Environment, when we've never seen before I'm, just curious do naturally leave yourself a bit more wiggle room on the downside on the upside sort of just in case factor I know you said that the implied range.
Does it reflect your best estimate at the moment and as it should right, but I just want to understand kind of whats assumed behind the scenes maybe to get to the low and high ends of the range if I could.
Yes, I think Ken what we try to do is and of course. This is kind of some new muscle groups that were all building, where you've got such materiality of variables that can change the the outlook.
But our feeling was let's let's take a set of assumptions that we feel are best informed by what we're seeing today and what we believe the future were hold.
And then let's create some sensitivities around those for different circumstances and those sensitivities then kind of frame up if you will have.
Low side high side that we use to try to predict it and in this particular case because.
Were essentially with two months left of a three month quarter to finish the year I did feel a greater sense of obligation to try to give.
Better view of that world, while recognizing that there are some things that are tough to predict so I don't think we you know and to answer your question a little more directly.
Don't think we ever want to try to put ourselves in a position, where we don't have flexibility to react to certain variables that we can't see so we're always going to try to manage it in that way.
But I will tell you there are scenarios, where the guidance would not look conservative and there certainly scenarios, where it possibly could be but I think what we're trying to do is kind of give you our best effort.
Understood. Thank you so much.
Thank you.
Our next question comes from Brian Lane from Bank of America. Your line is open.
Thank you Hey, good morning, everyone Hi, Brian.
So two questions for me the first one mark in the prepared remark you talk a bit about.
And I get the future of the retailing landscape.
Just the potential.
For self it changed maybe limit limited assortment.
So could you talk a little bit about how that might affect.
New product development, especially in soup.
Going forward I think the expectation on our end with that moving into fiscal 21, we were we would see maybe more new products.
We're innovating versus renovation so.
If itself that's going to change that how does that really change the way you will approach new product development and then a follow up.
Yes.
I think it's early innings in really trying to process the data and the.
You don't projection of where we're going as it relates to the shelf, but I do believe that what we're going to want to do.
It is make sure and this is this would be true in many categories.
That are building or that have grown relevance, we want to really understand how to utilize that space in the most effective way and that's inclusive of supporting retailers as many are dealing with.
The realities of their shelf being both a reflection of what the retail shopping experience looks like while also the online click and collect environment is as it in essence becomes a bit of the warehouse. If you will for that that approach to shopping and so we have we have tackled a pretty extensive.
And very detailed work to try to put our best foot forward in collaboration with customers to try to really identify where that goes now the good news is.
Our knowledge in our understanding of the innovation platforms that were planning, we're very much a part of that and I think that as we look at the future forward, what you're more likely to see is not necessarily us not moving forward with innovation, although in fairness, there will be perhaps some play.
Forms that come a little later than others, just because of some delay as you think about implant trials and so forth as you go through this unique environment, we've been in although we're certainly getting that back online and moving forward.
But I think that will be part of that assessment. So I don't expect it to stop us from bringing what we believed to be relevant, especially as we're talking about some of these new consumers, where we know things like convenience and sipping and some of the flavor.
The better for you platforms that we've talked about in the past as being at the heart of where that innovations going to come from I think very much remains relevant and will be part of it but we may have to answer. The question of do we need item number 30, or 40, and some of the tales of our business.
Mrs. If you look at our ready to eat.
Portfolio I've talked about this before it actually if you look at our share loss in the third quarter, which I'm sure somewhat we'll we'll get to that and in a bit but the reality is that a large portion of that is in that tail of of ready to serve. So these are some items that that we've made the decision per.
Perhaps in the short term to rationalize and we need to really think about longer term what the right answer is and then I'm going to give you a little bit of a tongue in cheek answer here, Brian but the other thing is.
We've got a couple what is performing and behaving like new products in our core and now I'm going to stop short of calling condensed soup and new product launch, but that is the way we're trying to behave.
We're thinking about now.
So in a world where households are using this for the first time, how do we really support it as if we're in this kind of year two of new product launches and lets not.
Jump so quickly to the new item, if we think theres real opportunity to continue to build the relevance in the repeat rate in these new households on products that may have been all but is new to them and I think thats, a big part of our strategy to.
I think tomato soup Rizzo is probably knew to a lot of people on this.
Yes.
Don't docket until you try it Brian.
I'm going to do it.
Hey.
Just one follow up market.
Maybe to follow it up a little bit on Ken Goldman question, but.
I think you talked about refilling or.
Retailer inventory.
I think one question, we get quite a bit is just our we have we built a lot of.
Three inventory right. If you could just yet, but maybe a quick check on where pantry inventories where maybe before all this started and then where do you think they stand today.
Relative to just sell through and how that affects revenue going forward.
And we have a pretty decent mechanism.
For surveying that to get you know a bit more of a quantitative view of it and.
The numbers that were seeing or are very healthy levels that in fact.
In some areas we may be given the time of year we are.
A little bit heavier on inventory levels in the pantry on things like soup, but also given the underlying consumption in demand. If you were to equalize, let's call it days of supply or weeks of supply and the pantry in most cases, it's going to be below where it's been historically, we do not.
Believed that we're in a situation.
Where at some point you know the the lines going to be snap that and we're going to be de loading pantries. That's just not with the numbers are supporting so I think we're in pretty good shape, there and again I think we'll probably talk at some point about a little bit of the slowdown.
In recent weeks that we've seen in consumption in demand and part of it.
His office racing to try to rebuild some inventory and.
A lot of people of ask as we've talked about internally how do you know that's what's the evidence that there is a and out running of of demand to.
The supply and I think you see it in really in two ways. The most obvious is this the shipment in the orders that were getting so as you watch the third quarter roll forward, we really had from from essentially.
March to April we've really not had any variation.
In the order demand.
As we let me just let me just take a second to explain the so in the beginning right. We were hit in many ways the hardest with demand and we did a really good job I mean, I'm incredibly proud of the supply chain and even though we're talking about constraints remember this is a supply chain.
That was supporting businesses that had been relatively flat to declining for the better part of the last decade now we're reacting to 40, 50% increases.
Building that muscle group has taken a little bit of time, but I really am.
Incredibly impressed and proud of the team and what they've done but that initial surge. We did very well you know if you see it in our share you see it in the consumption, but as we went through that really first phase we depleted a lot of inventory.
We've now been in the process of recovering so.
Part of of what we know is that that shipment request has not gone down at all it's really been a more about us working with customers to get it right. The second area and where you can see it isn't TDP. So if you want a more external quantification of where that impact is you can look at the trending of PD.
Repeat declines from the beginning of the crisis to where we are now and essentially what you'll see is and what that does is it reflects what's not on shelf and so 3% to 4% decline in tdps. During the surge has now gone to double digits. We are starting to see that recover as we said I expect through the fourth.
Quarter and in some cases it may be as late as the beginning of next year, but we will be back would that inventory in place and so thats a little bit of the way you can tell from a quantification standpoint, it's not really your question more on retail inventory versus pantry, but I think in both circumstances.
We we've got a a bit of a vacuum here that we're going to need to fill with supply over the months ahead.
Thanks Mark.
Thank you.
Next question comes from Nik Modi from RBC capital markets. Your line is open.
Thanks, Good morning, everyone.
Mark I was hoping you can comment on just given the current state of affairs, how you think about.
The cost structure longer term.
Andy here to reshape just given some of the look probably won't change maybe.
Some incremental opportunity.
Just thinking about some of the upside that you see it is an opportunity to accelerate initiative that maybe help.
A year or two years now you feel like you can maybe pull forward now any thoughts on what we will help.
Yes.
And you see it in our numbers and the operating leverage that we're experiencing and maybe I'll, let in a second Mick highlight a couple of the areas, where we're seeing that that leverage come through.
There's no question.
That a more optimized or full supply chain is going to be more efficient.
At the same time, we don't want to be an extended periods of time, we're not able to supply to meet demand. So I think what we're trying to do is all stay where we also don't want to end up in as a situation where were.
Spending and investing in capital.
Ahead of confirmation of the Sustainment of some of the demand. So these are all the variables that we juggle to try to put together the our best foot forward. So some areas are simple so us accelerating and Ics for example, ensuring that even through this period of remote working we find a way.
Safely move as fast forward as we can on goldfish.
Capacity, where we're adding a new line.
In our Willard, Ohio facility and we've we've really worked.
Through the crisis to keep that initiative moving on that one is an easy decision to make.
As it relates to areas like soup, what we've done the is we have gone through first and as we've talked in the past about optimizing assortment, but I do think.
There are some particular areas, where we want more flexibility.
Even if it's an anticipation over the next year or so God forbid we have another bounce back of the virus, we need to be in a position, where we've got a little bit more flexibility and so what we're looking for there are appropriate investments to give us that flexibility without necessarily putting substantial infrastructure.
And that we may or may not need over time, and we're going to kind of think of that is more of a pay as you go model right. So we're we're kind of investing as we move forward to try to meet those needs as it relates the other initiatives where growth opportunities.
I think we are trying to jump forward as quickly as as possible as you think about again our strategy.
In essence, what we've seen in this crisis is not a need for us to ship strategy. It's just pushed us forward and if you think about all the things we've done as a company.
Whether it's focusing the company.
Bye bye really locking down into one geography, and two divisions and returning focus to our core businesses, where we believe that there was relevance and and that we could build and expand the user base of of these businesses like soup.
Pasta sauces and.
Pace on the on the Mexican.
Side. What this is essentially done is pushed us down that path faster. So we need to be also as nimble as possible and this is a little bit back the kens question on.
How you're balancing the investments in the fourth quarter, we are trying to move some of those initiatives forward and move as quickly as we can to make sure that we've got the quality all of the further quality improvements done that we're ramping up some of the new packaging formats that.
We're doing the things that we had planned we're just doing it at a quicker pace as we're a little bit.
Or significantly further down the road than we might have expected at this point.
Thank you Super helpful.
On Q.
Our next question comes from Jason English from Goldman Sachs. Your line is open.
Hey, good morning folks and.
Welcome to your first call.
It really times your entrance well congrats on the quarter.
Okay. So.
A couple of a couple of quick questions for you.
First and I'll kind of building off of other topics you pretty touched on you Mark you mentioned, a few times the need to replenish inventory out there.
If we assume that maybe there is like a week of inventory catch up that's pretty much going to get to the midpoint of the organic sales guide for the fourth quarter.
And clearly we've seen a lot of residual consumption strength. So far main you're talking to your give us plenty of reasons to believe that some of that's going to stick to move forward. So I guess question one is.
Why shouldn't the fourth quarter in terms of organic sales strength in context of potential inventory catch up look a lot like the third quarter.
What's what are some of the assumptions underpinning your outlook there yes.
Jason So the most significant one is just the pace at which we imagine and see that recovery occurring now I in all fairness I think what what were.
Seeing or what we what we expect to occur is one of two things right either demand through the summer remains at a.
A substantially escalated level and if that happens.
We are going to be chasing a bit that inventory through the balance of the fourth quarter and probably really into the first quarter of next year if that demand.
Slows or moderates in the summer then we will take advantage of that window to replenish inventory as you described.
I don't think both what will I don't think we can support both at the same time, if that makes sense. So I think.
We kind of see the calibration of this a little bit on understanding where the capacity.
In the in the supply chain sits and I do think we will will certainly make up ground as we go because I also do think there will be some.
Relative slowdown in demand as we go into the heart of the summer on certain categories, albeit I would still see at elevated versus where we would have been say a year ago.
But I think it's going to be the combination of those two things together that is what we're trying to calibrate to the assumptions and of course at the same time.
We continue to work and are seeing improvements all the time in our capacity in output and.
Again, a little bit of this is just trying to be.
Pragmatic or thought fall about how we set expectations as we have confirmed or no certain things.
Does that make sense okay.
It kind of does but I guess I'm just looking at monthly consumption now comparing the consumption during the key season.
And while you're up big year on year, you're not you're not as big as you are monthly in key season. So I guess I hadn't impression that your capacity would be able to keep up with the type of demand that we're now seeing.
It sounds like that's the wrong impression, but I don't want to burn that as my follow up question.
The question is related to cost because.
And this is probably a question, but just a few.
There is some concern that given the strength that you're delivering this year you may not be able to deliver earnings.
Earnings earnings are going to have to reset run. This elevated level next year. However, there is clearly a lot of expenses enrolling European out right now you stack up the mark to market stack up the cobot related charge in Cogs stack up the other corporate I get the $60 million at one time expenses really quick or nonrecurring expenses really quick just this quarter is that sort of.
The right math is that what we should expect in the fourth quarter in is it reasonable to believe that most of that is likely to fall into next year.
Yes, so I don't really want to go into kind of what next year is going to look like but if I kind of come back to Q3, which is a good question and kind of beating that back Youre right. We obviously have the impact of the mark to markets right, which we also highlighted in the prepared remarks in the guy.
Gross margin and the impact that it had there.
Give or take about a 100 basis points of the 300 basis points, so inflation and other and then the other piece, which obviously a big chunk of it is within our cost of goods and as I mentioned.
With regard to be gross margin the cope with 19 incremental costs are obviously cap to death, but they're also capturing other parts of the FPN out I say if you look at this third quarter that comes in it from a total dollar perspective just.
Acuity kind of incremental cope with 19 expense us you'll get to about mid twenties about $25 million. Obviously that was only four in its only impacted Q3 for about half the quarter. So maybe just give you a little bit of incremental perspective.
That does thank you very much.
[music].
Thank you.
Our next question comes from Chris Farley from Stifel. Your line is open.
Hi, Good morning, Hi, Chris.
Hi.
I had a question for you if I could first the on on E. Commerce, we've seen a significant development there that's channel.
And I just want to understand how you think you're keeping pace relative to the category development need ecommerce and then how your margins are performing in that and that business. That's in there you've invested in over the last several years or your margins up near where they are in.
Products sold through the store for example.
Yes, well, let me let me start by saying you know as we know.
What I would call more online.
Shopping order delivery to click and collect there's quite a bit of differences between the vary between those various channels.
I would tell you on the click and collect side I think we have done a fairly good job of of keeping pace in working directly with our retail partners and as you can imagine one of the challenges that is.
You know easier to manage on click and collect is inventory and assortment.
I think on the more direct ecommerce side.
We have I think done.
Equitably in those channels to similar companies and businesses, but I think there is opportunity there I think theres opportunity as we think about.
How we manage.
The route to market there, how we make sure that our in stock levels, improving and clearly that being a challenge more universally in the last quarter, but I think even before that really getting the formula right for our ecommerce customers is extremely important and then as you think about our business.
Where are where our businesses tend to be a bit more staples, we do well I think when you're talking about impulse purchases. That's an area, where we really are trying to work hard to learn a bit about how do you.
Create that impulse environment.
An online world and that that is not as simple.
As just being available or or being at the top of the page you you've got to create a little bit more of a unit unique dynamics. So one of the other areas that we're investing in the third quarter and into the fourth quarter is really out there trying to test and learn in that space, because we do expect that as consumers become more comfortable.
No.
Utilizing these tools and this is also inclusive of areas like Instacart.
Where you've you've got a third party essentially as the intermediary, but between traditional retail and the consumer but a lot of engagement with the interface on how consumers are ordering or shopping. So there's a lot of places where right now we want to be experiments.
On a bit more to try to understand some of these dynamics to make us more effective and I think the great News is there are a lot of our resources and the universe, whether it is our traditional retailers working online or more dedicated companies in that space.
Is there isn't real openness and willingness to partner and I think thats always been something that's been a bit more challenging is to access data, but we're finding it to be more open dialogue and partnership and that's really going to help us figure it out as it relates to margins you know the question I think.
Is there is no doubt that that no matter how efficient it may be the cost structure in supporting some of these models is is creating areas, where we have to try to figure out how to mitigate that so whether it is.
The fee you pay a third party shopper, whether it is the additional labor that a traditional retailer has or whether it's just the infrastructure cost of managing a supply chain that may not be organic to the company. That's doing it I think we have to work together to try to figure out what that looks like it it may be more limited assortment it may be.
[music].
You know different pack sizes it may be.
As a variety of different ways that we want to look at working together, but we do recognize that that is a reality, that's coming and we need to figure out how to do that so it's not a material drain and now we have looked at the kind of immediate projections and although I would say I do expect it to be a bit of a headwind I don't see it as a significant.
Barrier to us continuing to prop progress on our financial commitments.
Okay. Thank you for all that the colors. The quick one for you if I could.
You talked about some market share losses, and soup I think a lot of that related to inventory and product availability and then ultimately goldfish. For example, as well is that just competitors are able to get more probably themselves have you lost some of these consumers to other categories as we sit around for meals or snacks I'm just curious there.
Hi level, it's a really good question and it's it's a little bit of a different.
Situation. So if you look at soup for example, you know one.
No one wants to see share declines ever and certainly we've made a lot of progress this year on that front coming into the third quarter.
I do think there are.
Two areas that that youre seeing that are impacting that number.
The first is that that there is no question that supply has been a challenge and that's been more of a share pressure of late than it was necessarily throughout the whole quarter and again.
When you think about a world of a.
A contains set of supply on the shelf.
When we are not able to fully meet demand that does opened the door to other businesses or other brands that may be left on the shelf or available.
That has filled in a little bit and if you watch our cycle as I've said coming out of that unprecedented push in the beginning.
Where we did pretty well and held up well.
We've certainly seen that way now the good news is I think in more recent we're beginning to see that cycle back and I think over time, we're going to we're going to get back to a better place. The other thing that's happened within soup is theres been a greater.
Gration into the ready to serve.
Segment of soup, which actually.
Has more competition. So just as a perspective on the condense side, we have an 85% share on the ready to serve side, we have a 44% share. So just inherently is a larger percentage of consumers are spread out in that ready to serve area. It's impacted our overall share what I am encouraged.
By is in the third quarter, our chunky business was actually up on share within ready to serve which of course is our focus while the kind of all other area of ready to serve was down about seven tenths of a share point, so I think where we want to be focused.
That looked a little better but theres no.
That dynamics occurring and then I think the third area on share within soup that that's important to continue dimension I think even coming out of Q2. The one area. We talked about is we've got more work to do on differentiating or broth business and that's the other area, where you would've seen some share erosion.
In that segment, especially to.
Private label, where where again I think we've got to continue to work harder on establishing what the point of difference really are for Swanson, Although I did feel great about the resurgence of Pacific and we know that's a big part of that equation is getting the supply backup on Pacific, where we've done quite well.
And there you see pretty significant movement in share on the goldfish side. It is more of a have a circumstance, where we came into the virus not necessarily on.
The high level of inventory and with that initial demand, it's been very dramatic and aggravating at a bit more has been the shift where we normally have a better balance between.
Portion packs that are more on the go.
And larger bulk sizes that are used more in home and as you might imagine in this environment. The demand is really shifted to the bulk side. So we've made that pivot and we're addressing it but not necessarily at the rate that we've seen and then once that supply challenge.
It was in place on goldfish didnt require us to do some reductions in promotions collaboratively with customers, which puts some further pressure on the business I'm not concerned long term because really the share loss you're seeing.
On gold fish is to other crackers that are really not substitutes for goldfish. It's just we share gold fish against the broader cracker category. I think you know our ability to recover that and continue to move goldfish forward I feel good about we've just got to catch up and I think again, we will do.
That over the course of the fourth quarter, you'll even start to see some promotional activity coming back in June.
And I think by the time, we're through the summer we're going to be in good shape.
Thank you.
Thank you Bill.
Our next question comes from Robert Moskow from Credit Suisse. Your line.
Hi, Thank you and market Rebecca I really like this new format. Thank you for making the change.
I have.
Hi.
Eric in your prepared remarks, Mark I you were I think what was very positive is when you said that soup is going to be a much more relevant category going into this fall than normal.
Can you talk a little bit about how retailers are viewing at AAD or maybe you just get back to I guess an inherent tension.
Coming to the retailer with and price too.
Have have reduced variety I guess rationalize sort of the skews, but also.
It also indicate that it will be a stronger demand season, the normal our retailers concerns that they lose a sale if you reduce the variety.
Yes.
Honestly it is a it is truly a collaboration in in discussion and part of this is.
I think everybody is certainly reacting a little bit to the here and now and wanting to make sure that as we go into the next soup season that we're able to do our best job in supplying demand.
And so what we've also said, though is and there's no doubt that.
Some of the skew rat odd that we did you know although it accomplish the goal of.
Increasing perhaps capacity in the short term.
It is not the right answer longer term with what consumers are looking for especially if you imagine.
These households, working through.
You know the variety needs of what cooking looks like in the desire to have greater numbers of options in place. So it really is a balancing act I by no means expect us not to come back with a fair number of the skews that we have.
That we rationalized in the short term that we think have long term merits and I think the customers with us are working to try to figure out what that balance is in part of it is us being able to provide some confidence and conviction to them on what our ability is to supply during a greater.
What we anticipate to be a greater demand season, So I think Rob.
You know again, where I, where I view this being.
Most effective is if we get the facings and the shelf inventory right for them for the S.K. use that are really going to be in high demand and we know that and then the appropriate level of assortment to give the variety that consumers are looking for and perhaps that may not just mean.
You know us.
Giving up some space, but it may be that theres not as much need for some of the redundancy that may be on the shelf and so and again, we want to be able to get.
Our balance right. So I think it's going to be a little bit of a give give and take there, but I think so far.
It's a pretty.
I guess consensus perspective between retailers and kind of what we're thinking.
Okay. Thanks, Mike My follow up is happy here the bat between the retail consumption growth that you had.
Versus your shipments it comes out to about $250 million.
Or 3% for the year.
Are you quantifying at the same way.
The inventory burn that occurred.
And so are you assuming that it's fills up gradually in terms of your shipments in the next few quarters, it's a big number.
Yeah, well I think you know sadly.
Part of that.
That number is relative to some of the share.
Declines, we've seen where our lack of availability enabled other brands are businesses, perhaps to consume some of that.
Demand that was there overtime, but our inventory levels and I remember this is it to a certain degree it's kind of a continued pressure to refill inventory. So I don't think mathematically I would say, it's quite that big but I do think certainly in the quarter, we were about 10 points lower than.
Then what.
From a comparison the consumption and shipments.
And I think there is a good chunk of that that will be inventory, but the way I would approach. It Rob is kind of thinking about okay. Most of the retail universe is going to be looking for anywhere from two to four weeks of supply and that's probably the way mathematically were more thinking about what that number ultimately is and then to.
Answer kind of the second part of the question.
I think it comes a little bit back to what what we were talking about before what Jason on Okay, where does demand remain versus what our full capacity is.
On how long does it take us to get back to kind of fully loaded it in place and so I think that my sense is that we will see great progress in Q4, but we may.
It may take us a little bit of time in some categories to get all the way back to bright.
In Q1.
Okay. Thank you.
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Thank you.
Take our final question from Michael Lavery from Piper Sandler Your line is open.
Good morning, Thank you.
Hi, Michael when when you talk about the the trends that you're seeing.
In consumer and retail.
Characterize that I think as as in the immediate future. Just curious if you could give a little sense of what kind of time horizon, you see and maybe specifically just getting at some early thoughts on the second half of calendar 20 and into fiscal 21, obviously not fiscal 21 guide, but just some sense of how you're thinking.
About it and what shapes your planning there.
Yes, I think Michael I tended to qualify it is that as immediate because I do think theres still a lot less to prove although very encouraging.
To see the of the stickiness if you will.
Of the household penetration in the repeat.
I think we need to kind of get into that third cycle that I described to really understand kind of where we'll be ongoing now I do think though it's safe to say that we we would certainly expect as we kind of go into next winter.
And as we watch the behaviors, we do think those behaviors, we'll continue to be highly relevant and there's a there's a series I think of of indicators that we're watching closely to try to get a sense of.
How how much of this really is sustainable beyond kind of the next six to 12 months, but I do think that there are going to be some lasting impacts out of this and I think a lot of it will depend to on our ability to really convert on these windows of opportunity to establish.
That relevancy in a sustainable way and I think.
That has a lot to do with our ability to drive that usage.
And and relevancy, while also bringing the right innovation to continue to build out.
That that category and try to really truly return it back to a position of playing a relevant role and a variety of different consumers' lives.
And just a little bit related can you can you touch on some of your thinking on seasonality. We've we've obviously normally seen that in soup in particular.
And this year.
We've all been locked in during some of the weather.
Possible and yet soup, certainly has surged and part of what I'm curious.
If that continues in this summer on a smaller base should we be mindful of.
Potentially bigger uptick obviously again, depending on your capacity and those constraints, but has seasonality theme, what how do we think about that.
I think I think there's two things that that we've said all along.
We thought could be a little bit of an expansion of the seasonality of soup.
And that was the movements into.
Bigger role within cooking, which of course does change through the summer months, but.
That that need that ingredient demand and that role. We can play we always felt like there was a bigger opportunity there that might expand deeper.
Into the year than just what we would consider the traditional soup season, I think the other areas that that we've experienced a lot of growth and behavior.
Is the role that that soup can play in lunches and I do think the ability for that to be a little less seasonal.
As possible and so although I do expect the demand to dampen a bit in the summer.
You think will remain an elevated level and so I think those are all areas of opportunity that we're going to continue to work on to try to solidify.
Those behaviors and I think if were effective it doing that we do have the potential to expand the season, but again. These are all things right now.
That we're still kind of in those early moments and trying to learn from it and I guess just going back to the Eurs. Your starting point that is why I attended the categorize it is immediate but we'll continue to provide those mile markers as we go to try to help everybody understand how how we see this going forward.
I certainly would expect.
As we see you for the for the end of the fiscal year.
And we start talking about 21, we'll we'll have a more robust perspective on that as we look forward.
Okay, great. Thanks, a lot.
Thank you and that does conclude our question and answer session for today's conference.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a wonderful day.
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