Smuckers Co. Case Analysis
Mission/Vision Analysis The Smucker mission statement (appendix) is weak from an investment standpoint. It is clearly targeted at the consumer. It vaguely mentions cultural values and a tradition of “success” not measured financially but by factors such as an impact on society. The vision statement is concise and clearly states Smucker’s objectives of growth, ethics, independence, and quality that will guide all future strategies. Their vision statement gives Smucker’s an opportunity to inform future investors on their intention to grow. External analysis In February 2010, the US Food and Drug Administration (FDA) sent letters to more than a dozen food or beverage manufacturers, looking for them to correct or change such label items as health or nutrient claims. In the future, product labeling and advertising will receive additional reviews from the FDA, the US Federal Trade Commission (FTC), and other agencies” (Graves). For Smucker’s this will translate as increased research and development costs as they strive to meet the health and wellness needs of the US consumer. This is an opportunity for Smucker’s to be an industry leader in more healthful processed food choices.
It will be costly preemptively taking measures to ensure labels are up to the FDA’s standards will save us money in the future. Currently, the state of the recovering economy is a major threat to Smucker’s market share for processed goods. Consumer confidence is low and commodity prices are on the rise (table 1). Unemployment rose from 9. 3 in 2009 to 9. 6 in 2010, this coupled with weakness in the job, real estate, and stock markets, and a large population approaching retirement, has made US consumers more cautious about spending. Price sensitive buyers are likely to continue buying less expensive private label products.
The increased value of personal health in American society is an opportunity for Smuckers. Many manufacturers promote both what their products contain (e. g. , antioxidants) and what they don’t (e. g. , trans fats). Several companies such as Cambell Soup have reformulated their foods to lessen the amount of sugar and salts in them. This trend is an opportunity for Smuckers to develop new product lines with healthier options. The increased inventory and price monitoring capabilities of large retailers poses a threat to Smucker’s in a competitively priced environment.
This technology allows retailers to see what consumers are buying and what price differential it took to get them to switch from name brand to private brand products. Technology is also changing the way people shop. Websites and apps allow cost-conscious consumers to create and manage shopping lists, count calories as they shop, and stay on budget. By putting coupons and promotions on the web we will not have to compete for attention at the point of purchase. Developing markets like China, India, and Brazil, offer long-term opportunities for higher sales and profits.
Income growth and lifestyle changes such as more women in the work place will increase the appeal of the packaged goods that are popular in more developed markets. Because the retailers in America have so much power and are quickly gaining economies of scale, the opportunity for manufacturers overseas is attractive. The USDA’s low expectation for crop yields in the US in 2010, drought and heat hurting the Russian wheat crop, and higher demand for food in developing markets caused the commodities prices to rise (Graves).
Obviously, such fluctuation in the cost of direct materials is threatening to the price structure of Smucker’s. However, entering into a contract with suppliers could be an opportunity for an advantage if prices continue to rise at a steady pace. Industry Analysis The processed foods industry is highly consolidated. There are three factors causing this—rapidly consolidating retail outlets, slowed growth in the food sector, and increased competition between brand name and private label products. 70 percent of industry sales are accounted for by Walmart, Kroger, Safeway, Supervalu/Albertson’s, and Ahold USA.
This gives them a large advantage as far as buying power and allows them to demand slotting fees for good shelf space in their isles. The growth rate in the food industry in developed markets hung around 2 percent whereas in developing markets, the growth rate was around 3-4 percent. Developments in inventory monitoring technologies, increased capabilities to match brand name quality, and scale economies shifted power decisively towards retailers and escaladed competition with manufactures. For a list of Smucker’s competitors see table 3. Internal analysis (non-financial) The company operates 4 divisions (see Table 2).
Their three part corporate strategy consisted of growing the market share of its existing brands, introducing new products, and making strategic acquisitions such as the 2009 acquisition of Foldgers. Smucker’s spent between $50 million and $77 annually between 2006 and 2009 on advertising. In 2010, they increased this by 70 percent to $131 million, developed 15 new commercials, and utilized digital marketing through search based ads, banner ads, and adds on social media sites. Financial In 2010 gross profit increased by 43 percent from 2009, and improved to 38. 8 percent of net sales from 33. percent over the same period (exhibit 1). Much improvement is due to the Folgers acquisition business and other coffee-related impacts in 2010 compared to 2009, such as low Green Coffee costs and volume-related plant efficiencies. Driven by gross profit improvements, operating income increased 75 percent in 2010 compared to 2009, and improved from 12. 0 percent to 17. 2 percent of net sales (Annual). Restructuring, merger, integration costs were $43. 5 million lower in 2010 compared to 2009, as integration activities related to Folgers were near completion and restructuring costs had minimal impact.
Broad general environment For packaged food manufacturers, higher food commodity prices heighten the prospect of profit margin pressure ahead. Demand has risen but price elasticity remains strong for this reason, it would be unwise to adjust prices to absorb the rising costs of commodities. In the processed foods industry, consolidation will continue for both retailers and manufacturers. Growth will continue to be higher in developing markets than in developed markets. Critical Issues The increased buying power of retail chains presents a threat to Smuckers.
As they have an increased ability to charge stocking fees and make quality products for much less than we are able to. Another critical issue is the increasing price of commodities (Table 1). Objectives The strategic objectives are to increase the market share of its existing brands, introduce new products, and make strategic acquisitions. Financially, Smucker’s should increase its gross profit by 50% in 2010 and increase its market value by 2 million in order to overtake Hersey’s Co. (Table 3). Alternatives The first alternative is to invest in the developing market of India.
The second alternative is to focus on developed markets and increase advertising. The third alternative is a supply contract with suppliers to lock in commodity prices. Analysis of Alternatives The advantage of expanding into the Indian market would be the increased sales revenue and the long term growth of the processed foods industry in developing markets. The disadvantages would be the increased costs of distribution and research. The risks would be to lose money in more than two consecutive periods after having invested in this or having a competitor enter into the market.
The obstacles would be the Indian culture and developing a product that would be widely accepted. The advantage of protecting our market share with advertising is increased gross profits and higher customer retention. The disadvantage would be that if we don’t meet our sales goal, we will have lost a significant amount of money. The risk is that we have already invested a company record in advertising in 2010. The obstacle to this would be that we would not have any room to adjust the price down to compete with private brands as we would have to cover extra marketing costs.