ORRVILLE, OHIO – The J.M. Smucker Co.’s US Retail Coffee business is benefiting from more people working from home and shifting their coffee drinking habits to more at-home occasions. Sales across most of the platform have continued to rise even as COVID-19 restrictions have eased nationwide.
The business unit, the company’s second largest behind pet food, had net sales of $645 million during the third quarter of fiscal 2020, ended Oct. 31, up 8% from the same period of the previous year. Segment profit rose 3% to $208 million.
Business unit net sales increased $50.4 million during the quarter and volume/mix contributed 5 percentage points of growth, driven by the Dunkin' and Café Bustelo brands. Net price realization increased net sales by 3 percentage points, primarily reflecting list price increases and trade spend reductions for roast and ground products, according to the company.
“In coffee, net sales growth of 8% was driven by all brands in our market-leading at-home coffee portfolio,” said Mark T. Smucker, president and chief executive officer, during a Nov. 23 conference call to discuss quarterly results. “Our portfolio gained over a half point of dollar share in the quarter, more than any other manufacturer, as we outpaced the category in all segments, including mainstream, premium, one cup, and instant.
“Growth was led by Dunkin’ and Café Bustelo, which grew 10% and 15%, respectively in retail sales. In the K-cup segment, we continue to grow at over 2.5x the category rate and gained over a point of share in the quarter. Our K-Cup growth was led by the Folgers brand, which delivered the largest share increase of any K-cup brand in the category. We are confident in continued K-cup growth, as household penetration for new brewers is expected to increase by 2 million households annually.”
US Retail Coffee segment profit increased $5.7 million, primarily reflecting higher net pricing and the increased contribution from volume/mix, partially offset by higher commodity costs.
“We remain optimistic in the momentum for our total coffee portfolio,” Mr. Smucker said. “At-home coffee habits formed during the pandemic continue to persist, as at-home consumption now represents 72% of all coffee drinking occasions, compared to two-thirds pre-pandemic.”
The Dunkin’ brand is benefiting from full distribution, seasonal innovation and the halo of marketing efforts by both Smucker and Dunkin’ Brands International, Mr. Smucker said during a presentation at the virtual Morgan Stanley Global Consumer & Retail Conference on Dec. 1.
The Bustelo brand is growing as it gains more distribution.
“Its appeal is largely driven by the fact that it is truly an authentic Latinx or Cuban coffee that was long embraced by the Latinx community but has more recently been very strongly embraced by non-Hispanic millennials,” Mr. Smucker said. “And so that demographic continues to drive the growth there. We continue to put dollars and resources behind it. And we think that the Bustelo brand has a lot of growth potential still left to go.”
When asked at the Morgan Stanley conference about a future coffee acquisition, Mr. Smucker said that if there were emerging or growing brands that came to market Smucker would look at them. He specifically noted that he sees opportunity to “continue to push out on ready-to-drink items.”
While Dunkin’, Café Bustelo and Folgers continue to perform well, Smucker’s 1850 brand is struggling. Launched in 2018 in bagged, K-cup and ready-to-drink varieties, the brand was positioned as a premium option to Folgers that Mr. Smucker called a “stumble” during the quarterly conference call.
“Our 1850 brand notably is still in the market and is sort of steady,” he said. “What we learned through that process is that you have to have a combination of smaller and larger bets and if you get the mix right, it works.”