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Smucker’s The J.M. Smucker Company: PEST and Industry Analyses

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1 Smucker’s The J.M. Smucker Company: PEST and Industry Analyses
By: Kati Wilkerson

2 Snapshot of Smucker's (I)
Incorporated Orrville, OH by Jerome M. Smucker 2010 Sales: $4.6 Billion 80% coming from U.S. Markets Industry: Packaged and Processed Goods Sector: Consumer Goods Products: fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and health and natural foods beverages Acquired U.S. Brands: Crisco, Dunkin’ Donuts, Eagle Brand, Folgers, Hungry Jack, Jif, Martha White, Millstone, Pillsbury, Kava, Nature’s Peak, Knott’s Berry Farm, Santa Cruz Organic, and many more Acquired Foreign (Canadian) Brands: Bick’s, Double Fruit, Europe’s Best, Golden Temple, Robin Hood, and Shirriff Target Market: Working mothers of the middle class

3 Snapshot of Smucker’s (II)
CEOs: Timothy P. Smucker and Richard K. Smucker Employs 4,850 full-time employees Market Share: 17.31%  9/52 Operates in U.S., Canada, and Australia with consumers in 65 countries Competes in the U.S. Retail Coffee Market, U.S. Retail Consumer Market, U.S. Retail Oils and Baking Market, and Special Markets Products sold via direct sales and brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, health and natural food stores, restaurants, schools and universities, and healthcare operators Key Competitors: ConAgra Foods, Inc.; Kraft Foods, Inc.; Unilever; Nestle; General Mills, Inc.

4 Smucker’s sales by market: 2010 Sales

5 Pest analysis Factor Trend Evaluation Impact Political Economical
(Threat = T; Opportunity = O) Impact (1 = low; 5 = high) Rank in Terms of Importance Political Food safety regulations NAFTA regulations Trade Regulations T/O O T 1 2 4 11 10 7 Economical Volatility in commodity market prices Foreign exchange risk Natural disasters Union unrest 3 5 9 Social Changes in customer coffee preference Transition to healthier foods Increasing employment of women 8 Technological Technological advances in “going green” 6

6 Political influences Food Safety Regulations NAFTA Regulations
Regulations by FDA could increase costs for R & D Having natural products, rules & regulations easily met NAFTA Regulations Free trade between U.S. & Canada Easier to conduct business with Canadian brands

7 Economic influences Volatility in Commodity Market Prices
Increasing costs of raw materials (farmed produce & crude oil) Higher prices encourage consumers to buy generic Foreign Exchange Risk International operations and assets in foreign currency Currency fluctuations could negatively impact foreign investments Natural Disasters Draughts, flooding, etc. Cause poor quality goods, low production, and destruction of produce Union Unrest: Strikes & Work Stoppages 32% of employees of 10 facilities are covered by union contracts Results of collective bargaining, the financial situation, the business itself, and operations severely affected

8 Social influences Change in Consumer Coffee Preferences
Coffee represents significant portion of sales Lost market share if consumers change preferences Opportunity: differentiate coffee brands from competitors to make its brands preferred Transition to Healthier Foods Opportunity: offers 100% natural foods Increasing # of Women in Work Force Women are holding high employment numbers Products are working-mother “friendly – save time for moms on-the-go

9 Technological influences
Technologic Advances: “Going Green” Brands, including Santa Cruz Organic, utilize environmentally friendly means of energy Appeals to consumers concerned with the environment

10 Industry analysis Factor Evaluation Intensity of Rivalry Strong Force
Buyer Power Supplier Power Benign Threat of Substitute Products Threat of New Entrants

11 Intensity of rivalry: High
Industry Participants Large Similar costs Highly Committed Participants Seek market leadership Compete on same/similar dimensions High Entry & Exit Barriers New entrants not likely Exiting industry requires liquidation of assets Not what participants want Favorable Cost Strategies Participants distribute coupons Vendors have specials on participant products Determines which brand is chosen

12 Buyer power Factor Trait of Buyer Power Number of Buyers Many
Volume of purchase relative to size of single vendor Small Nature of Vendor’s Product Standardized or lacking differentiation Buyers and switching costs Low Costs Threat of backward integration by vendor Weak Buyers recognize strong bargaining power, overall, thus causing lower profitability in the industry.

13 Supplier power Factor Trait of Supplier Power
Concentration of Industry Moderate to Fairly High Dependency on Industry for Revenues High Switching Costs for Industry Participants Availability of Substitutes Moderate Differentiated Products Low Ability for Forward Integration Suppliers do not recognize high levels of bargaining power, giving some level of power to industry participants.

14 Threat of substitute products
With rising costs of raw materials, the prices of products in the industry are likely to increase, causing the consumer to: Do without; Buy a different, less expensive product that has the same effect Buy generic brands; or Make similar products themselves (this requires time and resources), which could be the less attractive alternative to consumers; Purchase other grocery items in place of those of industry participants

15 Threat of new entrants Nature of Barrier Extent of Barrier
1. Supply-side economies of scale High: most companies enjoy large economies of scale 2. Demand-side benefits of scale High: consumers recognize the larger brands and generally purchase based on who the know 3. Capital requirements High: all major players have invested in several subsidiaries 4. Incumbency advantages independent of size High: major players have claimed their resources, limiting availability; brands are established and well-known 5. Customer-switching costs Moderate: companies switching suppliers could be severely costly; customers switching brands wouldn’t prove to be dramatically cost efficient 6. Unequal access to distribution channels High: major players have claimed their distributors, limiting availability for new entrants 7. Restrictive Government Policy Low: the government’s involvement is low in the industry, aside from government regulating agencies Threat of new entrants is low.

16 Strongest forces Buyer Power: Threat of Substitute Products:
Consumer demand is the driver for sales; without demand, profits will cease Switching costs are low, having adverse effects on the industry Threat of Substitute Products: Because products in the industry aren’t necessities, consumers could easily do without or utilize their resources in other ways Consumers have the ultimate power in the industry Intensity of Rivalry: Industry participants are large and distinguished Competitors in the industry are fighting for market share and leadership

17 Industry summary Overall, the Packaged and Processed Goods Industry is an industry that does relatively well, achieving a semi-attractive rating: Products within the industry will always be in demand Buyers have significant power, posing a threat to the industry Rivalry intensity is contingent on consumer preference for product, price, and availability While new entrants are unlikely, participant growth and expansion are highly likely, posing an opportunity for industry participants

18 Suggestions to the industry (I)
Aim to differentiate products to reduce buyer power, and increase power in the industry Substitutes are difficult to avoid, so participants should attempt to emerge into other markets to increase ability to reduce the threat of substitutes by gaining “substitute market share” Continue to transition products into healthier options for consumers In the event of natural disasters, have a fall-back plan In the event of indirect natural disasters, make products readily available to the affected region Differentiate products to better suit consumer preferences

19 Suggestions to the industry (II)
Consider other alternatives to cutting costs to combat increasing commodity prices Keep in mind the rules and regulations of the FDA when performing R&D of new and existing products Perform focus groups to determine customer preferences Determine “what women want” in terms of products for their families Continue making transitions to “going green”

20 The J.M. Smucker Company: Competitor and Market Analyses
Smucker’s The J.M. Smucker Company: Competitor and Market Analyses

21 Key Competitor Evaluation
ConAgra Foods, Inc. Kraft Foods, Inc. Unilever Nestlé General Mills, Inc.

22 Competitor Comparison (I)
Location Market Segments Competing Brands Smucker’s Strong presence in North America, competing globally U.S. retail coffee; U.S. retail consumer; U.S. retail oils & baking; & Special Crisco, Dunkin’ Donuts, Eagle Brand, Folgers, Hungry Jack, Jif, Martha White, Millstone, Pillsbury, Kava, Nature’s Peak, Robin Hood ConAgra World-wide presence Consumer & Commercial Foods Pam, Fleischmann’s, Blue Bonnet, Parkay, Peter Pan, Swiss Miss Kraft U.S. beverages, cheese, convenient meals, grocery & snacks; Canada & N.A. food service; Kraft Europe; & Kraft developing markets A1, Capri Sun, Claussen, Crystal Light, Maxwell House, Gevalia, Good Seasons, Kool-Aid, Lunchables, Nabisco, Sure-Jell, Yuban Unilever Global giant Savoury, dressings and spreads; ice cream and beverages; personal care; home care products Lipton, Blue Band, Rama, Country Crock, Knorr, Hellman’s Nestlé Powdered & liquid beverages; water; milk products and ice cream; nutrition; prepared dishes and cooking aids; confectionary; pet care; pharmaceutical; Emerging markets Nescafe, Thomy, Carnation, Juicy Juice, Nestea, Minor’s General Mills U.S. Retail; International; Bakeries & Foodservice; Emerging & developing markets Betty Crocker, Bisquick, Gold Medal, Jus-Rol, Pillsbury, Cascadian Farm

23 Competitor Comparison (II)
Net Income* Net Sales* (consumer goods) Growth from 2009 (%) Full-Time Employees Market Rank 2010 R & D Expense (& % of Sales) Smucker’s $494 M $4.6 B 22.5 4,850 8/52 $21 M .457% ConAgra $745 M $12.1 B -2.79 24,400 5/52 $77.9 M .644% Kraft $4.1 B $14.4 B 7.25 127,000 N/A $583 M 4.05% Unilever $2.6 B €22.8 M $32.1 M 8.38 165,000 1/52 Nestlé CFH 37.5 B $40.8 B CFH 71.1 B $77.26 B 6.44 281,000 General Mills $1.53 B $2.74 B 0.67 33,000 3/52 $218 M 7.96% * from 2010 annual reports

24 ConAgra experiences most of its sales in the consumer foods market
Sales By segment Smucker’s experiences most of its sales in the U.S. coffee retail market ConAgra experiences most of its sales in the consumer foods market

25 Sales by Segment Kraft experiences most of its sales in the U.S. beverages, cheese, convenient meals, grocery & snacks market Unilever experiences most of its sales in the savoury, dressings, & spreads market

26 Sales by segment Nestlé experiences most of its sales in emerging markets General Mills experiences most of its sales in the U.S. retail market

27 Overall Competitor Position
Market Share ? $ Cows Dogs High Low High Smucker’s Market Growth Low Kraft ConAgra Unilever Nestlé General Mills

28 Competitor Position: U.S. Retail coffee market
Market Share ? $ Cows Dogs High Low High Nestlé Market Growth Low Kraft Smucker’s General Mills ConAgra Unilever

29 Competitor Position: U.S. Retail consumer market
Market Share ? $ Cows Dogs High Low High Market Growth Smucker’s Unilever Low ConAgra General Mills Kraft Nestlé

30 Competitor position: U.S. retail oils & baking market
Market Share ? $ Cows Dogs High Low High Market Growth Nestlé Smucker’s Kraft Low General Mills ConAgra Unilever

31 Competitor position: special markets
Market Share ? $ Cows Dogs High Low High Smucker’s Market Growth Low ConAgra General Mills Nestlé Kraft Unilever

32 Strategic business groups: Leading competitors of Processed & Packaged Goods
Beverages Ingredients Spreads Baking mixes Juices: - Nestlé Flour: - General Mills Fruits: - Smucker’s Pancake Mix: Coffee: Evaporated Milk: Mayonnaise: - Unilever Instant Potatoes: Tea: Oils: Peanut Butter: Cake, Muffin, etc. Mix: Smucker’s enjoys the leading position within the Spreads and Baking Mixes strategic business groups, while they also hold the lead in Coffee and Oils segments.

33 Core Competences & Strategies
Competitor Core Competences Strategies Smucker’s Quality, people, ethics, growth, and independence Own & market food brands that hold #1 market position in their category Expanding portfolio Embracing a global perspective ConAgra Establishing a demand-driven supply chain; reducing complexity; achieving plant optimization; extracting value from SAP implementation; insight-based approach; platform innovation; making higher-quality, and more nutritious food Divesting commodity-based and lower-margin businesses Innovate and reduce costs to drive sales growth Kraft Product quality; brand recognition; brand loyalty; service; marketing; advertising; price; and performance-driven, values-led organization Growth in developing markets Global Snacks powerhouse iconic heritage brands and culture Unilever N/A Nestlé Unmatched product and brand portfolio; R & D capability; geographic presence; and people, culture, values, and attitude Nutrition, water and rural development General Mills Innovation; brand building; leading customer growth; international expansion; and margin expansion Brand-building with innovative merchandising and consumer-based marketing - Building global platforms

34 Market segmentation: Consumer Markets
Factor Consumer Markets Characteristics of People Female; years old; middle, to upper-middle class; at least 2 family members (one being a child); family in developing stages; living in urban or suburban areas; time-sensitive, busy lifestyles Purchase / Use Situation Single purchase; brand loyalty is high; Use: consumption; Purchasing behavior: best quality for best price; Importance of purchase: low; Choice criteria: nutrition, price, quality, availability User’s Needs & Preferences for Product Characteristics Differentiation from consumer perspective needed; Price preference: low; Brand preference based on environmental concerns, taste, price, availability, quality

35 Market Segmentation: Commercial markets
Factor Industrial / Organizational Markets Characteristics of Organizations Food industry: Restaurants, bakeries, etc.; Globally based (with large focus in the U.S.); Large organizations with many locations; No significant technology; Moderate levels of profitability Purchase / Use Situation Ingredient use - compliment to products; Importance of purchase: high; High volume purchases; Weekly – monthly purchases; Purchase through mass distributors; Choice criteria: best price/quality based on size of purchase User’s Needs & Preferences for Product Characteristics Proper consistency; Not much assistance needed from suppliers; Brand preferences based on price, quality, availability; Best quality for lowest price; No service requirements needed – unless recalls on products

36 Methods of competition
Brand Loyalty Coupon Availability Vendor Relations Marketing Television ads, newspaper articles/ads, social media (Facebook, Linked-In) Acquisitions and Divestitures Economical / Environmental Advances

37 Conclusions (I) Smucker’s Key Competitors:
ConAgra Foods, Inc. Kraft Foods, Inc. Unilever Nestlé General Mills, Inc. Consumer goods companies have similar strategies: focusing on innovation and becoming more prevalent in developing markets Competitive Methods: consumer loyalty, coupon distribution, vendor relations (specials), marketing, acquisitions and divestitures, advances in environmental friendliness

38 Conclusions (II) Market Segmentation: working mothers of the middle – upper-middle class; businesses requiring the products within the industry required for business performance Smucker’s recognizes market leadership in the U.S. Retail Coffee Market, U.S. Retail Oils & Baking Market Room for growth in Special Markets and overall market share

39 Smucker’s The J.M. Smucker Company:
Internal and SWOT Analyses and Competitive Positioning

40 Smucker’s Business model
Marketing and Manufacturing Company Focused in U.S. markets Sells its products in over 65 countries Prides itself on acquisition of large brands Focuses products on bringing families together at mealtime Driven to make products healthier Basic Beliefs: Quality People Ethics Growth Independence Hold the belief that building trust and confidence with constituents in the company, brands, & products

41 Smucker’s past performance: historical sales by market (in Millions)

42 Smucker’s Past performance: Historical Profit

43 Changes in distribution of sales: By division
(in Millions) 2010 Sales U.S. Retail Coffee $855.6 $1,700.5 U.S. Retail Consumer $1,103.6 $1,125.3 U.S. Retail Oils & Baking $995.5 $905.7 Special $803.6 $873.8

44 Distribution of Sales: By Geography
Country U.S. (Domestic) Canada Other International Sales (in $ Million) 4,167 385.9 52.4 Growth from 2009 (%) 24.3 8.3 8.5

45 Smucker’s resources Agriculture (Raw Materials): Oil: Foreign Exchange
Fruit Grains Dairy Oil: Transportation of products Foreign Exchange Hedge against currency exchange risk Diversified Portfolio of Brands Folgers, Dunkin’ Donuts, Crisco, Pillsbury, Eagle Brand, Hungry Jack, Jif, Millstone, Martha White, etc.

46 Smucker’s key assets in thousands
Current Assets: Cash generated from operations ($283,570) Trade Receivables ($238,867) Inventories: Finished Products ($413,269) Raw Materials ($241,670) Property, Plant, & Equipment: Land ($62,982) Buildings & Fixtures ($308,358) Machinery & Equipment ($997,374) Construction in Progress ($31,426) Noncurrent Assets: Goodwill ($2,807,730) Intangible Assets ($3,026,515) Other ($5,892,910)

47 Breakdown of Assets

48 Swot analysis Strengths Weaknesses Opportunities Threats
Ownership of industry-leading brands Diverse portfolio Aggressive acquisition of major brands Leader in U.S. markets Low market share Low global presence Smaller scale of operations compared to competitors Target market is too concentrated Opportunities Threats NAFTA regulations Food safety regulations Natural disasters Changes in consumer preferences Transition to healthier foods Increasing full-time employment of women Technological advances in “going green” Volatility in commodity market prices Foreign exchange risk Union unrest High intensity of rivalry

49 Smucker’s BCG Matrix: competitive Position
Market Share ? $ Cows Dogs High Low High Market Growth Smucker’s Low

50 Smucker’s BCG Matrix: competitive brands
Market Share ? $ Cows Dogs High Low High Millstone Eagle Brand Hungry Jack Market Growth Dunkin’ Donuts Crisco Low Martha White Jif Pillsbury Folgers

51 Smucker’s Value Chain Analysis
Smucker’s key primary activities are its operations, outbound logistics, and marketing and sales.

52 Smucker’s Value Chain Marketing & Sales Service Inbound Logistics
Relationship with Suppliers Receiving, storing, & disseminating supplies Operations Transform supplies into products Ready products for consumer consumption Outbound Logistics Activities for collecting, storing, & distributing Ready products for product distribution Marketing & Sales Inform consumers of products, provide coupons Make products more appealing than competitors’ Service Consumer support Adjusting product & services based on consumer’s needs

53 Smucker’s strategic vision
“The Company’s strategic vision is to own and market food brands which hold the number one market position in their category, with an emphasis on North America while embracing a global perspective.”

54 Smucker’s Competitive Position
Variety-Based Needs-Based Provides variety of flavors of products Markets and manufactures products based on consumer preferences Provides variety of brands Making products healthier Providing products at affordable prices: issuance of coupons, vendor deals

55 Smucker’s Generic Strategy
Competitive Advantage Overall Cost Leadership Differentiation Cost Focus Differentiation Focus Low Cost Higher Cost Low Cost Leadership: Smucker’s competes by providing consumers with low-cost goods, while providing consumers with coupons and vendor specials Broad Competitive Scope Broad Competitive Scope: Smucker’s owns a variety of brands, providing consumers with an array of products Narrow

56 Smucker’s Grand Strategy
Acquire large house-hold brand names Build family moments by providing products that bring families together at mealtime Provide low-cost products for its consumers Provide the healthier products consumers prefer Utilize advances in technology in making products more environmentally friendly

57 Smucker’s Strategic Clock
Smucker’s provides its products to its consumers at low costs. Smucker’s provides its consumers with high quality products Smucker’s has a low cost base & reinvests in its product quality & low-cost products

58 Conclusions Smucker’s Business Model:
Focused on U.S. markets Diverse portfolio of brands Products focused on bringing families together at mealtime Driven to make products healthier Profit over the past 5 years has increased Its coffee segment has proven to be its most profitable Sales are primarily in the U.S., while international growth is increasing Generic and grand strategies focused on the consumer

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