Strategic Thinking: Why Campbells Bought Rao’s Sauce for $2.7 Billion


Prior to the major announcement last week that Campbell’s was purchasing Rao’s pasta sauce, therao-sauce company generated about $580 in top-line revenue which means their revenue-to-value ratio (the relationship between revenue generation and market value was 4.66 which is extremely high for a consumer-packaged food product.

But then again, Rao’s is not just another pasta sauce. Please note that for the sake of this blog post, I call it a pasta sauce and not a “gravy” as that is a different post for another day. Rao’s is considered by the “experts” and consumers as one of the best products in the market and the story from a small restaurant to purchase by Campbell’s is an incredible success story.

In many of Advantexe’s Business Acumen learning journeys, we spend a significant amount of time teaching participants concepts related to the value proposition, the value equation, and the value dashboard and often it’s challenging to understand the concepts without context. Experiencing and learning by doing in a digital business simulation experience is great, but having a real-world case study like Rao’s can add even more insights into the concepts.

Below, I share some thinking related to applying some core business acumen concepts to a real-world situation like Rao’s.

The Value Proposition of Rao’s Pasta Sauce

One of the most important concepts in all of business acumen is establishing a value proposition for your customers. The most successful companies choose one of three (Product Leadership, Customer Intimacy, or Operational Excellence) and they establish themselves as the best in their market with that value proposition.

Rao's is an extraordinary Product Leader. Every aspect of their product is based on high quality and performance in terms of taste and consumer satisfaction. From the meticulous process of preparation to sticking with the same original recipe created in 1869, Rao’s has been able to drive home a consistent message. It’s interesting to note that one of the primary drivers of growth was the dramatic increase in Marketing which is a nice lesson in terms of pulling that lever with a consistent message that hits on what appeals to the consumer.

The Value Equation of Rao’s Pasta Sauce

In our business acumen programs, Advantexe uses a concept called the value equation where the perception of value to the customer is based on the relationship between the perception of the benefits received by the customer relative to the perception of the cost of ownership. When you do the math, you always want that ratio to be as high as possible, meaning that the perceived benefits far outweigh the price. Rao’s has always been a premiere-priced product and in many instances is more than double and sometimes triple the price of other competing, widely popular sauces like Prego.

The Value Dashboard of Rao’s Pasta Sauce

One of the most important elements of learning business acumen is to understand how customers make decisions to buy your product/service. A value dashboard looks at all of the possible drivers of the decision including but not limited to price. A typical value dashboard looks at a combination of factors such as quality, consistency, availability, taste, brand, healthiness (things like preservatives and salt and sugar content), and of course price. As the marketing dollars increased and more and more people tried Rao’s they were able to increase their consumer base steadily over the past decade to the peak of where it is today.

In summary, concepts of business acumen can be as foundational as a good pasta sauce. The story of Rao's establishes that setting a value proposition, understanding the needs of the voice of your customer, and then executing flawlessly is a recipe for success!

New Call-to-action


Robert Brodo

About The Author

Robert Brodo is co-founder of Advantexe. He has more than 20 years of training and business simulation experience.