Campbell Soup to Buy Garden Fresh for $231M

Campbell Soup Co. is expanding its reach in the fresh-food aisle with a deal to acquire Garden Fresh Gourmet Inc., a maker of salsa and hummus with about $100 million in annual sales.

Campbell, which has been contending with stagnant sales growth for core brands like its iconic canned soups and V8 juices, said it will pay $231 million for Michigan-based Garden Fresh and expects to complete the acquisition in a few weeks.

Chief Executive Denise Morrison said in an interview that the deal is part of a broader strategy to increase Campbell's stake in fresh, natural and organic foods—a strategy that she hinted will involve additional acquisitions.

"We follow consumer trends which are pointing us in the direction of fresh food, organic food," Ms. Morrison said. "We have earmarked some other areas in the [fresh-foods section] of the store that are interesting," she added, declining to give specific examples.

Ms. Morrison has emphasized the importance of consumers' growing preference for foods they deem fresher, healthier or less processed than traditional packaged foods like Campbell's canned soups and Pepperidge Farm snacks. Campbell initially jumped into packaged, fresh food in 2012 with the $1.55 billion acquisition of Bolthouse Farms Inc., known for its baby carrots, refrigerated juices and high-end salad dressings.

Over the past year, sales of packaged, fresh food rose 4.9% to more than $19 billion, according to market research firm IRI. Overall packaged-food-and-beverage sales fell 1.8% in 2014, according to Credit Suisse.

Garden Fresh, founded in 1998 by Jack and Annette Aronson, has expanded from niche grocery stores to a mainstream audience, and is now the best-selling brand of refrigerated salsa in the U.S., according to IRI. But it is still largely concentrated near its home in the Great Lakes region.

"We can leverage our distribution capabilities to get Garden Fresh to national distribution," said Jeff Dunn, the former Bolthouse chief who now leads the Campbell Fresh division. It also "increases our scale in deli, where grocery stores are looking for companies who can be their partners and help drive innovation."

Campbell created Mr. Dunn's unit, known internally as C-Fresh, by combining what was the Packaged Fresh division, including Bolthouse, with the soups Campbell sells in bulk to supermarket delis, as part of a broader reorganization of the company early this year into three divisions.

Campbell made clear at the time that it expected the fresh division to drive sales growth, setting it up for further acquisitions, while elsewhere it would focus on cutting costs and increasing operating profit margins.

"Declaring that C-Fresh will be full-force growth implies that we will be investing in talent and resources to build that business," Ms. Morrison said.

The cost-cutting plan is designed to eventually reduce Campbell's annual budget by $200 million, in part by eliminating layers of management, to make the company more nimble and better able to respond to what Ms. Morrison has called a tumultuous time for big food companies. Several top food companies have given grim outlooks lately, including Campbell, which said its fiscal 2015 sales will come in at the lower end of its "1% decline to 1% increase" guidance.

The Garden Fresh acquisition is subject to regulatory approval. Campbell said it will fund the purchase with commercial paper and that it won't affect its guidance for fiscal 2015, which ends Aug. 2.