Smucker in midst of ‘most robust period of innovation’ in company history

by Eric Schroeder
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BOCA RATON, FLA. — The J.M. Smucker Co. is in the midst of “the most robust period of innovation” in the company’s history, Richard Smucker, chief executive officer, told participants at the Consumer Analyst Group of New York conference held Feb. 19 in Boca Raton.

The Orrville, Ohio-based company launched more than 60 new items in fiscal 2012, and plans call for an additional 90 new product launches in fiscal 2013. New products are expected to deliver more than $550 million, or nearly 10%, of fiscal 2013 net sales. The totals include the company’s K-Cup offering, which is expected to generate nearly $300 million in sales, Mr. Smucker said.

He said the company will launch a new line of flavored coffees for Dunkin’ Donuts, a gourmet line of coffee under a licensing agreement utilizing “The Life is Good” brand, an expansion of the company’s specialty nut butters and a natural fruit spreads product line.

Vince Byrd, president and chief operating officer, said K-Cups and their nearly $300 million in sales have exceeded most expectations. The product debuted in six varieties in fiscal 2011, and Smucker has expanded the line to include 10 varieties, with plans to add two more in fiscal 2014. But single-serve innovation is not limited to K-Cups, he said, adding that Folgers Fresh Breaks, a premium instant coffee with more roast and ground-like taste was introduced earlier this year.

Elsewhere in coffee, Smucker expects the premium segment to remain a key growth engine. Mr. Byrd said innovation efforts have contributed significantly to the growth of the Dunkin’ Donuts brand, and include the success of seasonal offerings where fiscal 2012 sales more than doubled over the previous year. The company also plans to launch a new year-round platform for the Dunkin’ Donuts Bakery brand inspired by the Dunkin’ Donuts franchise.

“We will introduce five new and unique flavors to the premium coffee segment later this summer,” Mr. Byrd said. “This initiative represents the latest effort in expanding the breadth of our overall Dunkin’ Donuts offerings, which has increased from six varieties launched in 2007 to nearly 20 sold today.”

Smucker later this year plans to add a fourth premium coffee brand: Life is Good.

“Our ability to forge strong relationships enabled us to license the brand from the Boston-based apparel company whose brand continues to gain popularity with its simple message of the power of optimism,” Mr. Byrd said. “Furthering our sustainability initiative, this launch represents our first line with 100% certified coffee. Additionally, a portion of the royalty payments will benefit kids in need through Life is Good’s Playmakers’ public charity. We believe this brand will resonate with consumers in the growing premium segment.”

 

Prospects for peanut butter

Mr. Byrd was equally upbeat about the prospects for the company’s peanut butter business. Led by Jif, the company’s peanut butter sales have grown at a 7% compound annual growth rate since 2008, and Smucker has a 46% share of the $2 billion category. The launch of Jif to Go has been a success, with volume for the product doubling in fiscal 2012 and up more than 75% through the first nine months of fiscal 2013.

“Jif to Go capitalizes on innovative ways to liberate peanut butter from the jar providing consumers added convenience and a snacking alternative,” Mr. Byrd said. “Furthering these efforts, we are introducing (Jif Whips) later this spring. Jif Whips expands the breadth of our peanut butter offerings and furthers our role as the only company participating in all peanut butter segments.”

The company plans to take the Jif brand beyond peanut butter as well. Earlier this year Smucker launched Jif Hazelnut, the first expansion of the brand into the fast growing specialty nut spreads.

“This is a $250 million segment growing in excess of 50% this past year,” Mr. Byrd said. “We are pleased with the launch with the product line being incremental to the Jif business and remain enthusiastic about its growth potential. The next phase in expanding into specialty nut comes later this spring when we launch Jif Almond and Jif Cashew Butters. While representing smaller segments, almond and cashew butter are also increasing at rates well in excess of traditional peanut butter. These Jif offerings will represent the first national brand within these segments. We look forward to the opportunities they present.”

With the investment in the long-term growth potential of the company’s peanut butter and nut butter businesses, Smucker announced it will expand its manufacturing footprint by converting its Memphis, Tenn., fruit spread facility into a peanut butter plant.

“Since acquiring Jif a decade ago we have invested nearly $100 million in our plant located in Lexington, Ky.,” said Mark Belgya, senior vice-president and chief financial officer. “The brand has grown tremendously in the process doubling in sales since we acquired it. While these capital enhancements have allowed us to keep pace with Jif’s growth to date, the expectations we have to grow the peanut and nut butter businesses require us to further expand capacity in Lexington while adding a third facility. To address this need, we have made a decision to convert our Memphis, Tenn., fruit spread facility into a peanut butter plant.”

Mr. Belgya said the Memphis location originally was scheduled to close as part of the company’s fruit spread’s restructuring project but provides Smucker “a viable alternative in terms of both cost and location.”

“We will also continue to produce a small amount of fruit spreads at this site,” he said. “Upon completion of this expansion we intend to move production of our specialty nut butters, which are currently being co-packed into our facility in New Bethlehem, Pa. Today this plant produces our line of natural peanut butters under the Smuckers’, Laura Scudder and Adams’ brand, which will now transition to our Memphis facility.”

The total capital investment related to these peanut and nut butter projects is estimated at $80 million while restructuring costs will total about $10 million with the majority of the spend occurring over the next two fiscal years, Mr. Belgya said.

 

Looking to gain share in spreads

Gaining share remains a primary avenue for growing Smucker’s brands in the fruit spreads category, said Mr. Byrd. The company is attempting to enhance its position in the category in three ways: building brands through innovation; being the low-cost operators supported by supply chain initiatives; and addressing price points and price gaps on shelf.

In the near term, Smucker is set to enter the growing natural segment with the March launch of Smucker’s Natural, which is made with naturally sourced fruit, sugar and other ingredients. Mr. Byrd said natural fruit spreads have been well received by consumers, and Smucker’s offering of four flavors will position the brand to regain market share by providing another growth platform.

Beyond traditional fruit spreads, Smucker continues to explore opportunities to extend the equity of the Smucker’s brand into other categories and offerings. Sales of the company’s Uncrustables sandwich line have grown at a 6% compound annual growth rate since fiscal 2007, reaching nearly $125 million in sales in fiscal 2012.

“The combination of a high quality product and low household penetration rate presents substantially upside opportunities for Uncrustables,” Mr. Byrd said. “The historical growth of this business has been somewhat constrained due to capacity limitations. As a result, a significant capital outlay to expand the capacity of our Scottsville, Ky., manufacturing facility began this year and will continue into fiscal 2014.”

Elaborating on the expansion in Scottsville, Mr. Belgya said Smucker will invest $80 million to expand the capacity for baking bread and making Uncrustables sandwiches, an effort that was started earlier this year and will continue through fiscal 2014.

“While we clearly expect to grow this brand, we recently made the strategic decision to exit a portion of the school’s Uncrustable business at the end of the 2013 school year,” Mr. Belgya said. “This represents sales made to the school systems, which participate in the U.S.D.A.’s commodity peanut butter program. The decision is in the best long-term interest of the brand but in the short term will reduce food service sales by about $30 million in 2014. We ultimately expect to offset a good portion of this with increased sales of Uncrustables through our retail channels.” FBN

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