Processed Food Corporations Think They Have a Marketing Problem

And not an inflation one. Plus: Walgreens could close thousands of stores.

By Eric Gardner, More Perfect Union

In the face of falling sales and declining profits, major processed food manufacturers are choosing to boost marketing efforts to spur sales instead of lowering prices, despite American consumers shifting toward more affordable alternatives after years of constant price increases. 

“I'm not yet seeing a compelling call to action to necessarily lower pricing,” Campbell Soup CEO Mark Clouse told investors in a conference call earlier this month.

In the last full fiscal year, the company —  which, in addition to its namesake soup, owns Goldfish crackers and Pepperidge Farm cookies — saw sales volume decline after raising prices by 10 percent in 2023. So far this year, the company has continued to increase prices by 2 percent, helping drive organic revenue down 1 percent. 

“We're not going to win this fight on the longer term by taking price down dramatically,” Clouse said when asked if the company would follow fast food operators like McDonald’s and lower prices after consumer complaints.

Instead, Campbell Soup, like many other major food manufacturers, is doubling down on marketing. Campbell executives project to spend over $850 million on advertising in 2024, nearly a 35 percent increase in absolute terms from 2021.

The idea is that high prices aren’t driving consumers away, as much as a lack of knowledge of a product’s value. The thought itself is somewhat bizarre, as nearly every American consumer knows what Campbell’s soup is, but it is a proven strategy. “The biggest function of advertising for a well-known brand is reminding people to use or consume the product,” Jagdesh Seth, a marketing professor at Emory University told Marketplace.

The other consideration is that retailers ultimately set shelf prices, and a manufacturer’s price decrease may not be passed to consumers—but instead pocketed by retailers. 

PepsiCo said in March that it would combat sagging revenue by increasing marketing by $500 million. General Mills, the Minnesota-based giant behind Cheerios and Totino’s pizza rolls, admitted a similar strategy last June when CEO Jeff Harmening told investors that marketing was up 35 percent over pre-pandemic levels.

This week, General Mills stock dropped after it announced profit for the quarter fell 9 percent as consumers flocked to cheaper alternatives. But so far, Harmening doesn’t seem convinced high prices are the issue.

“We talk about value, a lot of people immediately go to price, and that certainly is a component, But it's not the component,” Harmening said this week. “The key is to make sure that the value that we offer as we think about it is commensurate with the brand itself.”

Walgreens could close thousands of pharmacies

Walgreens, the large retail pharmacist that dispenses 15 percent of American prescription drugs, said this week it will potentially close one in four of its 8,600 U.S. stores after a dismal quarter. 

The announcement comes after a recent quarter saw same-store retail sales drop over 2 percent relative to last year. Management said that consumers were “increasingly selective and price-sensitive in their purchases,” which caused the company to lower prices of 1,300 items in May while also replacing brand-name products with cheaper, store-brand options. 

“This quarter’s results were not in line with our expectations,” CEO Tim Wentworth said during Thursday’s investor call.

The Chicago-based retail pharmacy giant has announced a series of budget cuts since Wentworth, a former CEO of pharmacy benefit manager (PBM) Express Scripts, took the helm last year. Since November 2023, the company has laid off 10 percent of its corporate workforce, and Wentworth said this week that 25 percent of the company’s stores were no longer profitable and could potentially be closed after review. 

Wentworth took aim at his old industry, telling investors that the current pharmacy model is “not sustainable.” 

PBMs originated as companies that negotiate drug prices with retail pharmacists and pharmaceutical companies on behalf of insurers but have evolved into opaque middlemen, skimming billions of dollars in price concessions intended for consumers while pushing patients into more expensive drugs. 

“We are in active discussions with our PBM and payer partners to align incentives and ensure we are paid fairly,” Wentworth said.

FedEx spends billions on buybacks

FedEx management said this week the delivery services giant will buy back $2.5 billion worth of stock during the next fiscal year, after posting nearly $1.5 billion in profit in the last one. 

This is on top of $3.8 billion in “share repurchases” the company spent last year. Chief financial officer John Dietrich credited the decision to do the latest round of buybacks to “improved earnings and enhanced capital discipline.” 

Watch our video on the history and corporate abuse of stock buybacks:

The median worker income at the non-union company, meanwhile, was roughly $46,000 compared to $53,000 at UPS, its main unionized competitor. And in March, Dietrich said that the company had laid off more than 22,000 workers over the previous year and expected “additional opportunities [for layoffs] in the future as we move forward with our transformation.”

Though stock buybacks fell sharply last year from 2022, U.S. companies still purchased $773 billion of their own stock last year, according to London-based asset management firm Janus Henderson.