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Daniel J DiAngelo

DanDiAngelo.tripod.com

3924 Schiller Place, St Louis MO 63116 DanielDiAngelo@hotmail.com BBA -Marketing

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The J.M. Smucker Company:

Jamming the Industry!

 

Vince Butler, Zach Chasen, Thiago Lazarini

Stacy Westerhold, Dan DiAngelo

 Cleveland State University

MLR 465; Raji Srinivasan

May 5, 2004

 

 Table Of Contents

  1. Background

  2. History

  3. Key Issues

  4. Mission Statement

  5. Five Forces

  6. Internal Strengths and Weakness

  7. External Opportunities and Threats

  8. Cost Efficient Differentiator Strategy

  9. Industry Life Cycle and the Nature of Competition

  10. Global strategies

  11. Corporate Strategy

  12. Conclusions and Recommendations

  13. AppendixóFinancial Graphs and Data

Background

 The J. M. Smucker Company is a manufacturer and market leader of fruit spreads, ice cream toppings, health and natural foods beverages, and natural peanut butter in North America. The J. M. Smucker Company was founded in 1897 when the Company's namesake and founder, Jerome Monroe Smucker sold his first product, apple butter, from the back of a horse-drawn wagon. The Company, headquartered in Orrville, Ohio has been family run for four generations.

Smuckerís has over 2,000 employees worldwide, 12 manufacturing plants, four fruit processing facilities, and distributes products in more than 70 countries. Grocery stores, specialty retailers, restaurants, hotels, and other food product manufacturers comprise their worldwide customer base. Because Jerome Monroe Smucker made a quality product, sold it a fair price, and followed sound policies, the Company prospered.

Today, Smuckerís continue to grow by adhering to their basic beliefs of quality, people, ethics, growth, and independence. These time-honored principles have served as a strong foundation throughout their history, and serve as the guideposts for all their future strategy, plans, and achievements. The J. M. Smucker Company was recognized as the top company in FORTUNE Magazine's 2003 annual survey of The 100 Best Companies to work for, and has ranked consistently in the top 25 companies each year since FORTUNE began the list in 1998.

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History

In 1887, Jerome Monroe Smucker opened a cider mill in Orrville, Ohio producing apple butter and cider. In 1920, the J.M. Smucker Company incorporated and two years later began producing preserves and jellies. In 1935, Smuckerís expanded its fruit processing to Washington, which was known for its beautiful production of grapes, cherries, and berries. In 1942, the national distribution of Smuckerís products began. In 1945, during World War II, Smuckerís supported the war effort by supplying Apple Butter overseas to American troops. In 1959, Smuckerís went public carrying a product line of apple butter, jellies and preserves, spoonable ice cream topping, and a line of gift boxes. In 1962, the slogan ďWith a name like Smuckerís, it has to be goodĒ was coined. 

During the 70ís, Smuckerís introduced fruit syrups, opened a shop in the market house of Walt Disney World, and introduced low sugar and natural peanut butter product lines. By the end of the 70ís, Smuckerís acquired Dicksonís line of gourmet preserves and jellies gaining market leadership in the preserves and jellies category. In the late 80ís, Smuckerís began to expand internationally. It started in Canada with the acquisition of Good Morningís line of marmalade shirriff dessert toppings. In 1989, Smuckerís entered the Australian market acquiring a leading manufacturer of jams and jelly.  During the 90ís, Smuckerís continued to expand its product line with light preserves, prepackaged peanut butter sandwiches, and cracker snacks. In 1999, a Smuckerís Museum opened in Orrville, Ohio.

Today, over a century later, the Company is the market leader in fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods and beverages in North America under such icon brands as Smucker's, Jif and Crisco. The J.M Smucker Company continues to grow by producing products in seven U.S food categories, including the latest acquisition of Multifoods Corporation in a transaction valued at $840 million. Multifoods' primary U.S. brands include: Pillsbury baking mixes and ready-to-spread frostings; Hungry Jack pancake mixes, syrup and potato side dishes; Martha White baking mixes and ingredients; and Pet evaporated milk and dry creamer. In Canada, Smuckerís will significantly increase its existing presence with the addition of No. 1 brands such as Robin Hood flour and baking mixes, Bick's pickles and condiments, and also participate in the growing ethnic food category with Golden Temple flour and rice.

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Key Issues

             The most urgent issue facing Smuckerís is managing the merger with International Multifoods Corporation (IMC). Smuckerís has successfully acquired and integrated the Jif and Crisco brand product lines into their operations, but the current merger is on a much larger scale and includes more product lines.

            The integration step is the most crucial of the acquisition process. If improperly managed, it could weaken the company and lead to financial losses. The acquisition of IMC will add an additional 16 plants and offices in the United States and Canada. Smuckerís will need to carefully analyze the operations of these facilities to determine which can be integrated into existing operations. Any operations that cannot be successfully integrated should be discontinued or sold in order to avoid the increased costs associated with retaining them.

            Another challenge arising from the acquisition, will be integrating IMCís employees into the Smuckerís corporate culture. An unsuccessful transition could result in reduced employee productivity and higher turnover which would translate into higher operating costs at those facilities. Investing in employee education programs should help these employees in the transition process and keep productivity levels stable.

            Continued improvement of domestic operations is another key to maintaining corporate success. Smuckerís has been making efforts to optimize their supply chain and consolidate manufacturing facilities. This year, Smuckerís will be closing three plants: Watsonville, California, Woodburn, Oregon, and West Fargo, North Dakota. This process will allow Smuckerís to consolidate resources to further reduce product production and distribution costs.

In order to optimize their production processes and further streamline operations, Smuckerís is also investing in capital improvements to existing plants. This strategy will allow Smuckerís to achieve higher asset productivity and economies of scale which will increase efficiency and reduce per unit cost.

            The food industry in the developed world is a mature market and therefore, development of new products that appeal to the changing tastes of consumers is central to increasing market share. The current low carbohydrate trend is creating a new market segment in the United States and Smuckerís should focus their product R&D in this area. A successful launch of a low carbohydrate product line will capitalize on the current trend and keep consumers purchasing Smuckerís branded products.

            Due to the maturity of the fruit spread industry, Smuckerís has adopted a growth strategy of acquiring existing brands in other product categories that are well known and have the potential to be the top seller in their category. By acquiring products in additional categories Smuckerís can continue corporate growth which will prevent stagnation of stock value and increase corporate profits.

            Smuckerís Australian operations have been challenged due to new market entrants and fluctuating currency exchange rates. While Smuckerís Australian brands continue to hold the number one share of the market, growth has been lower than expected due to increased competition in the fruit spread segment. Smuckerís should focus on streamlining its operations in order to achieve lower per unit cost and gain competitive advantage. The companyís generic strategy of differentiation has been successful in the US market and should also serve it well in Australia. Increasing advertising spending in this area will help to further this strategy in the Australian market and increase market share.

            Over the past few years, Smuckerís has spent more than $20 million to upgrade its IT infrastructure. With the current acquisition of IMC and plans for additional acquisitions in the future, Smuckerís must continue to invest in this area in order to keep pace with corporate growth. By utilizing appropriate information technology Smuckerís can further streamline processes within the organization and better track overall corporate performance. Having the means to better monitor performance across all operations will allow quick intervention in problem areas resulting in better management and higher profitability.

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Mission Statement

Smuckerís basic beliefs are an expression of its values and principles which guide the companyís strategic behavior and direction.  These beliefs are tied to the companyís founder, Jerome Monroe Smucker, who sold a quality product at a fair price, and followed solid policies.  Therefore, the company prospered.  In this decade, Smuckerís continues to grow by adhering to the basic beliefs of quality, people, ethics, growth, and independence.  These time honored principles have provided a strong foundation throughout its history, and serve as the guideposts for all future strategies, plans and achievements.

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Five Forces

The risk of new entrants to the food industry is low because the industry is in the mature stage. The intensity of rivalry among established companies in an industry in the mature stage is high.  There are few players battling for market share, hence, a degree of price cutting exists.  The bargaining power of buyers is low because there are too many buyers to gain an aggressive power over the manufacturer.  This power may be rising with the growth of superstores like Aldi and Wal-Mart.  The bargaining power of suppliers is high due to the commodity nature of inputs and the impact of a poor growing season upon price of inputs.  Finally, the closeness of substitutes to the industryís product is high because there are many alternatives for lunch.  The next section will go over in more detail these forces as they relate to Smuckerís.

In the lunch product industry, there is a low risk of new competitors.  This industry is a highly saturated industry with a substantial amount of competition.  .  For example, the market share in this industry is diverse.  Many small companies share the total market.  Hence, if another firm successfully enters, industry incumbents absorb the impact by losing market share.

This industry is consolidated, meaning a small number of large sized companies exist.  Therefore, the intensity of rivalry between these companies is fierce.  Most of these consolidated industries are characterized by high entry barriers and commodity-type products that are hard to differentiate.  Smuckerís is successful in differentiating its products on the basis of quality which allows it to charge a higher price for its products.

Since food products are considered a necessity, buyers have low bargaining power making this a weak force.  For example, almost every household has at least one jar of jelly which is most likely Smuckerís.  Most of these jars of jelly are around the same price; therefore, unless the cost of Smuckerís jellies sky rocket, people will continue to buy Smuckerís along with the other brands.   Most likely, individuals will not stop buying jelly.  Prices should remain stable because this product is already a commodity and people will continue to purchase jelly in the future.

Smuckerís does not own its suppliers or distributors.  It doesnít grow its own fruit, nor does it manufacture its own labels or storage containers.  Hence, Smuckerís is directly affected by its suppliers.  Therefore, if their raw materials increase in price, Smuckerís will directly have to adjust prices to make up for this change.  For example, if the cost of aluminum goes up, Smuckerís would have to absorb this cost or pass it on to the consumers.

The value of substitution in the industry is somewhat high.   In the food industry companies are continuously trying to improve upon or develop new food products which appeal to consumers.  Many substitutes exist for fruit spreads such as, butter, peanut butter, and cream cheese.  However, fruit spreads will maintain a significant portion of market share in the food product industry.

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 Internal Strengths and Weakness

            Analyzing the J.M. Smucker Companyís internal strengths and weaknesses reveal several key strengths that the company can use as being lynch pins to success.  It will also reveal weaknesses which are components that need to be fixed to improve internal operations. Smuckerís strengths include; being the market leader in fruit spreads, a well established name, a Fortune Magazine top 25 company, and the ability to keep employees happy. The weaknesses include; a very weak distribution system which isnít a major player internationally, lack of an in-house sales force, lack of effective marketing for their low sugar/sugar free jams, and susceptibility to lawsuits from product mislabeling.

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External Opportunities and Threats 

            The external environment plays a major role on how Smuckerís does business. These factors which are demographic, economic, technological, political, and social give way to business opportunity and threat. The opportunities include; co-branding with companies which use fruit filler, the buyout of Multifoods International, increasing the market share of the younger consumers (contracts with schools), targeting baby boomers looking for sugar free jelly/peanut butter substitutes, and increasing overall profitability. Threats from the external environment include:

        Major competition from industry players such as ConAgra, and Kraft

        Increased fruit prices from growers which lead to less real fruit in the product.

        Consumer tastes which can substitute Smuckerís products with other spreads such as butter or cream cheese.

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Cost Efficient Differentiator Strategy  

            As Smuckerís grows into a bigger corporation it must recognize the importance of being a differentiator. However, it must not lose sight of factors that control cost. The industry Smuckerís operates in is an industry which is very price sensitive, with the larger corporations who are very price competitive.

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Industry Life Cycle and the Nature of Competition 

            The sauces and condiment industry, which the J.M. Smuckerís corporation operates in, is in its mature stage. The industry can be defined by companies who make and sell refrigerated sauces, condiments, pickles, preserves, peanut butter, jellies, and jams. Competitors include; Kraft, ConAgra, Mars, Del Monte, Unilever, Dean Foods, and several others.

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Global strategies 

Smuckerís operates 4 international manufacturing operations: Australia, Canada, Scotland, and Brazil as well as 5 sales offices in Australia, Mexico, Brazil, Canada, and England.

Net Sales (USD)

2003

2002

2001

US Retail Market

1,190,190

590,327

557,921

International Markets

121,554

96,821

93,321

Total Sales

1,311,744

687,148

651,242

 The international focus of Smuckerís is a very low priority of the company.  International only contributed 9% of $1,311.7M net sales or $117,000 in 2003.

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Corporate Strategy 

The Company operates in one industry: the manufacturing and marketing of food products. The Company has two reportable segments: U.S. retail market and special markets. The U.S. retail market segment includes the consumer and the consumer oils businesses. This segment represents the primary strategic focus area for the Companyóthe sale of branded food products with leadership positions to consumers through mainstream domestic retail outlets.

Smuckerís is in the process of a horizontal integration in which they are purchasing complimentary product lines from competitors such as Proctor & Gamble, and diversifying to the pastry industry with acquisitions like International Multifoods, owner of Pillsbury and Hungry Jack.   Through the Proctor & Gamble deal Smuckerís has acquired the Jif peanut butter division as well as Crisco oils.  The addition of JIF gives Smuckerís the industry leaders in the lunch aisle, as Smuckerís calls it, referring to the grocery aisle that the two products occupy.  Peanut Butter is now Smuckerís primary source of revenue with Jif Peanut Butter accounting for 26% of sales, while fruit spreads account for only 20%

Smuckerís has several strategic alliances with other companies producing complimentary products and buyers of its fruit fillings.  Smuckerís is currently a supplier of fruit fillings for PopTarts, Breakfast bars, and Dannon yogurts.  Smuckerís also works with Mars Inc to supply fruit toppings in the ice cream market.  This alliance gives Smuckerís a 61% share of the Ice cream toppings market.  Smuckerís currently does not have any Vertical integration. It distributes through wholesalers and is not directly involved in the growing processes for its fruits and peanuts.  Smuckerís doesnít even have its own sales force to service its product lines.  Look for this to change with the recent growth in company size.

Smuckerís corporate strategy is to sell a quality product at a fair price and to follow sound business policies.  Its business strategy is to continue pursuit of a low cost structure due to the cost sensitivity of their industry, to that end Smuckerís plans to trim its existing operations with limited plant closings and divestment of less profitable operations. 

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Conclusions and Recommendations

            The recent additions of Crisco and Jif, as well as the pending acquisition of IMC, create many concerns for the Smuckerís way of life.  The company founded on family values now closes in on a massive corporate structure.  Smuckerís must take some time to reorganize its operations.  In 2001 Smuckerís sales were $600M, once IMC has been added to the family, sales projections are well over $2.2B, nearly 4 times larger.  Such rapid growth and expansion can cause a number of problems in a small company like Smuckerís.  Items for Smuckerís to consider in the next few years are:

  • Corporate culture and management problems, who is in control now?
  • Product divestment, which product lines gained in the acquisition will stay and which will go.
  • Lack of Sales force.
  • Three distribution networks. 

As the three companies begin to operate under one name, Smuckerís must consider the different management styles and ensure that the Smuckerís culture is the one that the new company embraces.  Management of each unit will need to be reorganized and the entire organizational structure must be promulgated throughout the new divisions. 

A second decision Smuckerís must make is which products to keep on the market.  A full consideration of profitability should be done to realize and remove the products and divisions not adding value to the companyís operations.  In order to avoid losing control of its operations, Smuckerís should hold back on further horizontal integration until it realigns its current practices.

To ensure the future success of Smuckerís, a focus on research and development will be important.  R&D has produced Smuckerís largest US growth segment in their Un-Crustables product.  Continued innovation in product offerings and package design will guarantee Smuckerís a place at the lunch table. 

While continuing to pursue new products, Smuckerís should also consider its processes.  Since the markets for Smuckerís are quite cost sensitive, they should continue to investigate cost saving measures in production, marketing, and distribution.  By balancing product and process innovation, Smuckerís can be a cost efficient differentiator.

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AppendixóFinancial Graphs and Data

  

 

 

  

  

Data from Smucker's 2003 Annual Report

 

 

 

Data from Smucker's 2003 Annual Report

 

 

 

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Questions or interview requests can be mailed to: DanielDiAngelo@hotmail.com