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

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Presentation on theme: "The J.M. Smucker Company: PEST and Industry Analyses By: Kati Wilkerson."— Presentation transcript:

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

2  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  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.

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5 FactorTrendEvaluation (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 Economical Volatility in commodity market prices Foreign exchange risk Natural disasters Union unrest T T/O T Social Changes in customer coffee preference Transition to healthier foods Increasing employment of women T/O O Technological Technological advances in “going green”O36

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

10 FactorEvaluation Intensity of RivalryStrong Force Buyer PowerStrong Force Supplier PowerBenign Threat of Substitute ProductsStrong Force Threat of New EntrantsBenign

11 Industry Participants LargeSimilar 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 FactorTrait of Buyer Power Number of BuyersMany Volume of purchase relative to size of single vendor Small Nature of Vendor’s ProductStandardized or lacking differentiation Buyers and switching costsLow Costs Threat of backward integration by vendor Weak Buyers recognize strong bargaining power, overall, thus causing lower profitability in the industry.

13 FactorTrait of Supplier Power Concentration of IndustryModerate to Fairly High Dependency on Industry for Revenues High Switching Costs for Industry Participants High Availability of SubstitutesModerate Differentiated ProductsLow Ability for Forward IntegrationModerate Suppliers do not recognize high levels of bargaining power, giving some level of power to industry participants.

14  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 Nature of BarrierExtent of Barrier 1. Supply-side economies of scaleHigh: most companies enjoy large economies of scale 2. Demand-side benefits of scaleHigh: consumers recognize the larger brands and generally purchase based on who the know 3. Capital requirementsHigh: 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 costsModerate: 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 PolicyLow: the government’s involvement is low in the industry, aside from government regulating agencies Threat of new entrants is low.

16  Buyer Power:  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  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  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  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

21  ConAgra Foods, Inc.  Kraft Foods, Inc.  Unilever  Nestlé  General Mills, Inc.

22 Competitor LocationMarket SegmentsCompeting 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 FoodsPam, Fleischmann’s, Blue Bonnet, Parkay, Peter Pan, Swiss Miss Kraft World-wide presence 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 Global giant 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 World-wide presence U.S. Retail; International; Bakeries & Foodservice; Emerging & developing markets Betty Crocker, Bisquick, Gold Medal, Jus-Rol, Pillsbury, Cascadian Farm

23 Competitor 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 B22.54,8508/52$21 M.457% ConAgra$745 M$12.1 B ,4005/52$77.9 M.644% Kraft$4.1 B$14.4 B ,000N/A$583 M 4.05% Unilever$2.6 B€22.8 M $32.1 M ,0001/52N/A Nestlé CFH 37.5 B $40.8 B CFH 71.1 B $77.26 B ,000N/A General Mills $1.53 B$2.74 B0.6733,0003/52$218 M 7.96% * from 2010 annual reports

24 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 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 Nestlé experiences most of its sales in emerging markets General Mills experiences most of its sales in the U.S. retail market

27 ?$ CowsDogs Market Share Market Growth Smucker’s Kraft General Mills Unilever Nestlé ConAgra Low High

28 ?$ CowsDogs Market Share Market Growth Kraft General Mills Smucker’s Unilever Nestlé ConAgra Low High

29 ?$ CowsDogs Market Share Market Growth Kraft General Mills Smucker’s Unilever Nestlé ConAgra Low High

30 ?$ CowsDogs Market Share Market Growth Kraft General Mills Smucker’s Unilever Nestlé ConAgra Low High

31 ?$ CowsDogs Market Share Market Growth Kraft General Mills Smucker’s Unilever Nestlé ConAgra Low High

32 BeveragesIngredientsSpreadsBaking mixes Juices: - Nestlé Flour: - General Mills Fruits: - Smucker’s Pancake Mix: - General Mills Coffee: - Smucker’s Evaporated Milk: - Nestlé Mayonnaise: - Unilever Instant Potatoes: - Smucker’s Tea: - Unilever Oils: - Smucker’s Peanut Butter: - Smucker’s Cake, Muffin, etc. Mix: - Smucker’s 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 CompetitorCore CompetencesStrategies 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 FactorConsumer Markets Characteristics of PeopleFemale; 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 SituationSingle 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 FactorIndustrial / 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  Brand Loyalty  Coupon Availability  Vendor Relations  Marketing  Television ads, newspaper articles/ads, social media (Facebook, Linked-In)  Acquisitions and Divestitures  Economical / Environmental Advances

37  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  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 The J.M. Smucker Company: Internal and SWOT Analyses and Competitive Positioning

40  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 Growth: Sales:

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43 Division2009 Sales (in Millions) 2010 Sales (in Millions) 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 CountryU.S. (Domestic) CanadaOther International Sales (in $ Million) 4, Growth from 2009 (%)

45  Agriculture (Raw Materials):  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  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)

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48 StrengthsWeaknesses 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 OpportunitiesThreats 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” Food safety regulations Volatility in commodity market prices Foreign exchange risk Natural disasters Union unrest Changes in consumer preferences High intensity of rivalry

49 ? $ CowsDogs Market Share Market Growth High Low Smucker’s

50 ? $ CowsDogs Market Share Market Growth Low High Crisco Jif Pillsbury Eagle Brand Dunkin’ Donuts Folgers Hungry Jack Martha White Millstone

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

52 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 “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 Variety-BasedNeeds-Based Provides variety of flavors of products Markets and manufactures products based on consumer preferences Provides variety of brandsMaking products healthier Providing products at affordable prices: issuance of coupons, vendor deals

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

56  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 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  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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