Smucker's Essay

Smucker’s Case Study 1) Smucker’s corporate strategy is to build a portfolio of brands that are sold in the center of every grocery store. They plan to execute this strategy through the organic growth of their products, the development and introduction of new products, and by acquiring brands. The majority of Smucker’s brands share two strategy elements. First, they are ‘middle of the store’ processed foods. Second, they are often high margin products. Another common element among the brands they acquired is the fact that the brands were all industry leading name brands before they were acquired. Such acquisitions were beneficial to the firm not only by diversifying their product line-up, but it gave the firm more leverage when dealing with chain retailers. The type of products they diversified into made sense for the firm as it did not go against their corporate strategy. Any brands that went against the strategy were divested.

2) Since 2002, Smucker’s has acquired brands such as Jif, Crisco, Hungry Jack, Pillsbury, Carnation, and Folgers, to name a few. I believe Smuckers has made very smart acquisitions
especially in the coffee industry. Smucker’s Coffee segment appears to the fastest growing segment for the company given their expansion in the k-cup market and the joint venture with Dunkin Donuts. Looking at Smucker’s Nine-cell Industry Attractiveness-competitive Strength Index, one can see that the firm’s coffee segment has been very beneficial for the firm’s health as the Processed Foods segment has not been that attractive as of late. In 2011, the segment lost revenue over the prior year. While the firm’s Specialty Markets segment has been an average performer, it is still more attractive than Oils and Baking. All segments are competitive and hold a strong market share.

Industry Attractiveness
LOW HIGH Industry Attractiveness
LOW HIGH
Nine-Cell Industry Attractiveness-Competitive Strength Matrix
Nine-Cell Industry Attractiveness-Competitive Strength Matrix
Coffee Segment | | | Special Markets Segment | | | Consumer Retail SegmentOils & Baking Segment | | |
Strong Weak
Competitive Strength/Market Position

Strong Weak
Competitive Strength/Market Position

3) Sucker’s has done an excellent job ensuring that the majority of their brands exhibit a good strategic fit and have value chain match-ups.
The example of Smucker’s buying Hungary Jack and later acquiring Pillsbury demonstrates this. The firm was already involved in the pre-made baking mix industry and used their industry knowledge to their advantage and presumably created synergies between the two brands. By growing the segment with the purchase of Pillsbury, Smucker’s was able to take advantage of cost sharing through a previously established sales & marketing, distribution, and customer service segments. In addition, Smucker’s can use the addition of Pillsbury to strengthen their bargaining power relative to their suppliers. Skill transfers between the brands is also an added benefit of Smucker’s expansion of their product
offerings.

4) In chapter 8, Figure 8.6, financial resource fit is explained as primarily 1) a company in vesting in ways that strengthen or grow the existing business and 2) making acquisitions to expand operations into new industries or to complement existing businesses. Smucker’s has successfully done both of these financial resource fit actions and has integrated them into their business strategy. Furthermore, the brands they acquire and the brands they started organically are all cash cows – at least when broken down into the four business segments. Each segment has been reporting a profit over the last three years ending in 2010 (as indicated in the appendix of the case). Not only did net income increase each year from 2008 to 2010, but so did the firm’s cash generated by operations.

Looking at Smucker’s leveraged free cash flow for 2010 (and a basic leveraged free cash flow for 2009 and 2008 given the missing working capital numbers) Suckers has successfully grown their cash flows to a level that permits reinvestment in the company by means of organic growth or acquisitions. The firm can also payout a large amount of cash shareholders if they so choose to.

5) I believe Smucker’s should continue to implements its three part strategy in order to further increase the company’s financial and market performance. Smucker’s has introduced new products such as Smucker’s Uncrustables, but the firm has focused most of its efforts on acquisitions instead of R&D of new product offerings. To best allow for organic growth, cash flow should be allocated to R&D, marketing, and plant upgrades and expansions should be considered. To better prepare for the consolidation of grocery chains as well as the processed foods industry, Smucker’s should look to acquire brands that continue to complement their current offerings (e.g. Jif and Pillsbury), and they should seek brands that differentiate their product base (e.g. Folgers). These strategies give the company more leverage when dealing with retailers, but it also allows them to compete for market share as the industry continues to consolidate. Examples of such could be the expansion into condiments such as mustard and mayonnaise. Smucker’s already has products that have long shelf lives such as peanut butter and jelly. Another item to complement current offerings is tea. Smucker’s may want to consider the acquisition of Lipton. Looking at products unrelated to their current offerings yet still ‘middle store’ processed foods, the firm could expand into chip dips, salsa, or hummus. Furthermore, if trends continue in the cooking oil segments, and more pressure is placed on margins, Smucker’s should consider divesting out of certain products. It would not be advantageous for any of their cash cows to turn into cash hogs.