Small Brands Are Taking a Thousand Little Bites Out of Campbell's Business

Ever had a Figgy Pop “supersnack”? Dr. McDougall’s tortilla soup? Living Intentions “sprouted” pumpkin seeds?

These are some of the brands taking residence in my cupboards on a typical afternoon, and they are products I didn’t know existed even a month ago. Onetime staples like Kraft mac-n-cheese or Heinz Ketchup, meanwhile, are nowhere to be found.

As Americans become more adventurous with the grocery cart, food aisles are undergoing a transformation that is no less significant than marketplace changes sparked by Amazon, Spotify, Uber or Netflix. But the disrupters in food are more likely to look like a guy at the farmers market selling some unique recipe from the bed of a pickup than a snazzy startup working in an office full of ping-pong tables—and this presents a unique challenge to publicly traded giants struggling to cope in an era where buying mainstream grub is increasingly passé.

“Sure we’re talking about $2.5 million in revenue, but there are hundreds of them taking hundreds of millions of dollars from the big guys and that’s a problem,” Caitlin James told me this weekend when I asked why her Detroit-based cold-press juice company could be a threat to companies like PepsiCo Inc. Ms. James is co-founder of Drought, a scrappy local operation that routinely commands more than 10 bucks for a 12-ounce fruit drink that tastes like it just spilled out of a countertop juicer and is now expanding to grocery giants, including Whole Foods.

The latest victim in the food wars is Denise Morrison, the longtime Campbell Soup Co. chief executive who stepped down last week after a series of trials failed to shake the existential crisis the 149-year-old company’s brands face. Ms. Morrison pushed for change, experimenting with everything from lentil in a bag to a string of acquisitions. She established an internal venture fund to scout for promising mom-and-pops and last month launched an innovation accelerator.

Campbell’s strategy was disjointed, swinging from a focus on fresh food to a focus on snack food. The recent $6.1 billion purchase of Snyder’s-Lance pretzel and potato chip empire, for instance, turns Campbell into company far more focused on the supercharged snack sector than on luring people back to a soup can.

The creativity struggle transcends the food business as a number of consumer-product giants are fending off the little guys on everything from razors to laundry detergent. Procter & Gamble Co. has been under pressure from investor Nelson Peltz to look to smaller, niche brands, which he thinks represent the future of the consumer business.

Dove soap maker Unilever PLC, outfoxed by more nimble rivals, has decided to imitate smaller competitors rather than swim against the tide.

The grocery aisle is constantly changing as barriers to entry are low and social media can help create overnight sensations. Snacking is on the rise as busy people look for smart and convenient options. Big Food is responding: Hershey Co. recently bought Amplify Snack Brands, maker of chic and healthy SkinnyPop, for $1.6 billion; Mondelez International (which also recently had a CEO change) this month bought Tate’s Bake Shop, paying $500 million for a Long Island-based company known for thin crispy cookies that taste more sophisticated than an Oreo.

Ms. Morrison’s interim successor, Keith McGloughlin, has to figure out how to take Campbell beyond chasing the obvious trends. Although he readily admits he isn’t a gourmet chef, he did spent plenty of time with foodies while he ran Electrolux AB and worked to invent cooler appliances.

What will executives like Mr. McGloughlin learn if he hangs around the kitchen? It is going to be tough to please investors and taste buds at the same time.

“Things that taste better aren’t usually more affordable,” Drought’s Ms. James said. Campbell and Coca-Cola Co. have product lines that directly compete with Drought, but “our product is priced twice as much.”

Drought’s 12-ounce bottle requires three-to-five pounds of fresh fruit to produce, for instance, and they are made in small batches that aren’t pasteurized. High-pressure processing can extend shelf life from the three days that is typical for a Drought cold-press to 45 days, but that still pales in comparison to the kind of time one of Campbell’s Bolthouse Farms fruit smoothies can last.

“When you have shareholders, you have to play by certain rules,” Ms. James said.

Jack Aronson, founder of a company called Garden Fresh Gourmet Inc. that was purchased by Campbell for $231 million in 2015, said Ms. Morrison made some right moves after buying the company. She sought, for instance, to let the smaller Garden Fresh keep an independent vibe, while trying to integrate its agile operating environment into the parent firm.

It is tough to be as nimble as a startup, however. Campbell has had to take major write-downs on its fresh business unit, which includes Bolthouse.

I first met Mr. Aronson in 2012, at a time when he was experimenting with myriad recipes for hummus, salsa and dips and shipping them off to grocery chains all over the world. He was ditching bad ideas as quickly as he was coming up with new ones, answering only to customers, who were welcome to pop in the factory at any time.

“It was just me and George Vuteakis in the kitchen, we didn’t have 50 chefs working throughout the day,” Mr. Aronson said in a telephone interview Friday. Mr. Vuteakis is now a Campbell’s chef, while Mr. Aronson is a consultant to Campbell and running other companies, including a packing plant on Detroit’s west side.

Greenwich Capital Group’s Andrew Dickow, a former General Mills Inc. employee now advising middle-market food companies, said the food industry’s entrepreneurial boom, which began around the U.S. financial crisis, caught the incumbents by surprise.

Mr. Dickow said he remembers General Mills “completely ignoring” Chobani yogurt’s rise, causing its own yogurt division (anchored by Yoplait) to tumble from hundreds of million in revenue to about $50 million. Public companies may respond to market pressures by dialing back on ingredients to save costs. Think fewer marshmallows in a box of Lucky Charms, for instance.

Says Mr. Dickow: ”Meanwhile, the small companies are just thinking about how to put out the best products.”

Write to John D. Stoll at john.stoll@wsj.com

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