SoupMan: A Great Play For The Long Term?

Super Bowl XLVIII has come and gone, but its memory is still with us. The game itself made history. Big public companies were there to advertise their products, as always. However, contrary to what you may be thinking, it wasn’t only the companies that paid $4 million that had their products promoted. SoupMan (SOUP), for instance, had its soup promoted without having to pay $4 million. This singular advantage opens up great opportunities upon which SoupMan can capitalize.

The NFL selected SoupMan to serve cups of soup at the event as one of New York’s iconic brands. I do find it fascinating that the NFL identifies such a small company as an iconic brand. In addition, I believe that, by serving its soup at the biggest event on TV, SoupMan got the best kind of promotion at the event.

Bear in mind that SoupMan competes against a company like McDonald’s (MCD). The truth is only a few people would take SoupMan seriously if all it did was play some jingle to attendees who are already addicted to well-established fast foods like McDonald’s. What it needed to do was to let its target customers taste its soup for free, which is exactly what it did. This would certainly play to its advantage considering that trials drive more sales than mere advertisement. Interestingly, investors can benefit from the free promotion that SoupMan enjoyed too.

Investment highlights
The first thing is that this free promotion will help SoupMan widen its reach. Considering the importance of the Super Bowl in the US, it is certain that every state were sufficiently represented at the event. In addition, it’s next to certain that attendees from other states tasted SoupMan’s soups. This, therefore, lays a basic marketing foundation for SoupMan to build on. As such, it should be relatively easier for SoupMan to expand into other states.

Another benefit that the free Super Bowl promotion presents is brand loyalty, which is needed to thrive in the food services industry. Judging from the positive reviews SoupMan has had, it’s safe to say that its soups are well accepted. Moreover, the fact that big grocers like Wal-Mart and Whole Foods are displaying its soups on their shelves also suggests that its soups are delicious. Therefore, anyone who tasted its soup during the event and liked it would most likely want to buy it again, which is how brand loyalty grows.

In addition, brand loyalty would foster a capital-efficient business. Overtime, I’ve found that businesses that have high brand loyalty are usually the most capital-efficient ones. You just need to look at likes of Coca-Cola Enterprises Inc, (CCE) and, again, McDonald’s to understand what I’m saying. These companies don’t have to spend a fortune on advertisements.

The truth is you don’t buy a bottle of Coke because you saw a Coke advert. You buy it because it’s what people drink. This gives them the ability to cut down costs when need be, without really hurting their businesses. Moreover, this is why a company like Coca-Cola was able to survive the last recession easily. Therefore, with brand loyalty, SoupMan will be able to build a capital-efficient model.

Interestingly, while the said brand loyalty is not huge at present, it appears SoupMan has already established a capital efficient business.

The first thing that shows this is the way it markets its soups. The company understands that it doesn’t have huge cash reserves. So instead of building its own stores, it went for the option of partnering with big supermarket across the country to display its soup on their shelves. It’s easy to say that this is the only option it has since it doesn’t have the capital. But NO, there are other options. Some companies would have taken on some debts to build or rent stores. Therefore, that SoupMan has taken this route shows that its management is quite prudent.

Another thing that shows this is the fact that the company was able to reduce its operating expenses on a year-over-year basis during the first quarter by 15%. You’d appreciate this better if you think of the fact that most companies of its size are used to seeing their operating expenses increase at this stage.

Looking at the performance of its products also shows that the company is expanding. During its first quarter ended November 30, 2013, the company reported a 48% increase in revenue. The company said, “Our quarter-over-quarter revenues increase of approximately 39% was primarily attributable to the continued introduction of our new Tetra Recart line of soups.”

Whenever a single product has such a huge effect on a company’s growth, one should know that there is something special about the product. Simply put, the special thing about this particular line of soups is the Tetra Recart packaging. With information spreading around that canned products contain a cancer-causing agent, consumers are beginning to avoid canned foods.

Fortunately, it has been proven that Tetra Recart packaging doesn’t carry this cancer-causing agent. This gives SoupMan a competitive edge in the fast food market, something that’s already apparent in its financial figures. For the first quarter, the company reported that its Tetra Recart soups accounted for 78% of its total revenue. And considering the free publicity that SoupMan enjoyed from the Super Bowl, I expect that the company will sell more of the Tetra Recart line of soups this year.

Final words
I would like to make it clear that I’m taking a long-term view for the company. Therefore, you should note that everything I discussed above is more feasible over a long-term. As such, if you’re always on the lookout for long-term investment options, SoupMan could turn out a great play. In addition, you should note that its stock is a quite volatile at the moment. But that shouldn’t be a problem if you’re investing for the future.