Soup Analyst Doesn’t Understand Just-In-Time
Campbell Soup Cools as Grocers Cut Stocks – WSJ.com:
Saw an article yesterday about Campbell Soup sales falling because retailers, including Wal-Mart were being more efficient in their supply chain and inventory management. Makes sense to me.
Tom Schoewe, chief financial officer of Wal-Mart Stores Inc., told analysts last week that the company “clearly exceeded our objective of increasing inventory at half the rate of our sales growth.” Earlier in the month, Kraft Foods Inc. reported that sales in its fourth quarter took a hit as retailers such as Wal-Mart cut inventories.
Wal-Mart could have better forecasting or more frequent deliveries — tactics that would support sales growth with relatively less inventory.
Poor Wall Street analysis was flummoxed — why do they earn so much again for their “insights”?
Still, analysts were baffled that supermarkets would curb their orders for condensed soup during the height of soup season, especially because it is a high-margin product.
“What do these retailers say to you guys? Do they just say, ‘Hey, we just didn't want the sales?' Because it seems to make zero sense,” Citigroup analyst David Driscoll said during the earnings conference call.
Mr. Driscoll — do you not understand that Wal-Mart could possibly be selling just as much, if not MORE soup, while Campbells sells less to Wal-Mart? Do you understand how supply chains work?
If Wal-Mart has reduced inventory, that hurts Campbells in the short term, but it doesn't mean Wal-Mart says “we don't want the sales.” Quoting Napleon Dynamite…. Gosh, Kip, this guy's a flippin' idiot!
He, and other analysts, should have taken an MBA operations course or they should play the Beer Game. Or he can keep drinking real beer from his gold-plated Citigroup goblet that I picture him having.
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Supply chain and inventory management is a huge part, but also do not forget that many people are turning to WalMart’s Great Value brand of soup that costs 60% of the price of a can of Campbell’s soup. IMO, people are either poor or saving money for a rainy day and grabbing the “tastes almost as good as the name brand” Great Value product over the brand name options.
Any chance there is also a dip[ because people have realized how easy and cheap it is to make their own soup?
Nah. That’s just crazy talk.
Analysts are trained to think growth or contraction. The two are not supposed to happen simultaneously in the mind of an analyst. It is so paradoxical: the pain Campbell’s may feel is but a nanosecond in the lifetime of this company, yet analyst and traders make hay over these blips on a daily basis. However, I believe the sharper point is made by CGarison, on top of supply chain efficiencies that Wal-Mart relentlessly pursues, the market may be changing their buying habits. That could be the double whammy for soup mfg’s and perhaps the article misses this point altogether?
I wonder who makes the Wal-Mart house brand? Could it be Campbells in disguise?
Also, it’s *possible* that rather than impementing lean, intelligent inventory control, some of the retailers just screwed up. I recently heard a story about a Starbucks store manager who said he was unable to get enough of a popular item to keep it in stock…apparently, they have implemented a “push” inventory system which decides how much of what is required by each store based on demographics, without input by the store manager. Not clear whether it tunes itself over time based on actual experience, or not. I’ve also heard about large chain retailers whose inventory planning is so inflexible that they ship snow-blowers to stores in South Florida.
There was a really good article about Wal-Mart in one of the NY papers recently and I’ve been meaning to blog about it.
It sounded like Wal-Mart store departments have a ton of leeway in placing their own orders based on their knowledge of the local market. Definitely not completely centralized. I was impressed.
The Starbucks supply chain always seems to hiccup when I want something there and even though they are supposedly using Lean methods, everything I read about them on the “Starbucks Gossip” blog onlne makes the company management style seem VERY VERY top down.