NEW YORK – Much has been written about the recent success of the J.M. Smucker Co.’s entry into the single-serve coffee category through its agreement with the Dunkin’ Brands Group to manufacture and market Dunkin’ branded K-Cup pods. But company management also is working to reinvigorate other parts of its U.S. Retail Coffee business in an effort to boost segment profits.
Internal company research shows an across-the-board increase in coffee preparation methods between 2009 and 2015. While single-serve has experienced the greatest gains, such formats as automatic drip, French press, espresso and cappuccino makers, percolators, and even stove top makers also have made gains.
|Steve Oakland, president of coffee and foodservice for Smucker|
“ … As we look across each one of those segments and as we look across the innovation opportunity, we see opportunities and we see a category that's more engaged with the consumer than ever before,” said Steve Oakland, president of coffee and foodservice for Smucker on Oct. 20 during the company’s investor day presentation.
The coffee market has experienced a great deal of volatility during the past five years, with Smucker alone implementing price increases five times and price reductions on three separate occasions, Mr. Oakland said. The volatility has prompted the company to focus on diversification and not over-leverage on one format.
Mr. Oakland defined the entire coffee category as having $9.2 billion in sales that essentially are being driven by four segments – fresh and ground, premium, single-serve, and instant. In fiscal 2015, ended April 30, the company’s U.S. Retail Coffee business generated $2.1 billion in sales while operating profit was $549.2 million. Segment sales have slipped steadily since 2013, when they totaled $2.3 billion. Operating profit also has fallen from $604 million in fiscal 2013 and a peak of $640 million in fiscal 2014.
Smucker has launched a series of innovation efforts to maintain its competitive edge in the category. One such effort is to make its Folgers and Café Bustelo brands more attractive to younger consumers.
|Danielle Barran, v.p. of marketing for Smucker’s coffee business|
“Over the past year, we embarked on brand strategy research to refine Folgers' brand position to not only resonate with its core consumer, but also build relevancy with the emerging millennial coffee consumer,” said Danielle Barran, vice-president of marketing for Smucker’s coffee business. “For our core consumer, the role of coffee is highly functional, and it very much revolves around the physical awakening that coffee provides. Younger consumers and millennials, however, have a different relationship, one in which coffee provides more of an experience.”
Ms. Barran went on to say younger consumers view the morning coffee occasion differently than Smucker’s traditionally core consumer or older consumers.
“Despite these differences, we believe we have found the universal truth that links these two consumer groups together with a key insight that coffee is more than a routine. It's a ritual that enhances their day with comfort,” she said.
With the Café Bustelo brand, Smucker is trying to not only grow its core Hispanic consumer base, but also trying to attract millennial consumers by celebrating the brand’s Hispanic heritage and creating a different coffee experience.
With the Folgers brand, Smucker is attempting to add greater value with its Folgers Perfect Measures premeasured coffee tabs.
“In addition to its significant value proposition, which is close to mainstream roast and ground coffee today, Perfect Measures meets three primary consumer needs,” Ms. Barran said. “One tab equals one scoop of coffee, which means the consumer gets a consistent pot of coffee every time. They are easy to count and repeat time after time and provide the consumer with convenience with no measuring and no mess. And the ability to mix and match allows consumers to personalize their cup of coffee to their different strength level.”
The company also is hoping its Folgers Flavors product line has a similar effect by adding value to the Folgers brand.
“These dosable liquids allow customers to customize their coffee conveniently,” Ms. Barran said. “It also serves to increase the relevancy of Folgers with millennials, who like to try new varieties and are experiencing as they are refining their coffee experience. We also believe the liquid platform evolves Folgers beyond its current heritage in coffee.”
Smucker’s U.S. Retail Coffee segment operating profit peaked in fiscal 2014 at $640 million. Mr. Oakland said the company’s financial models show the segment returning to that level of profitability in fiscal 2019. A key to returning to fiscal 2014 profitability will be a significant investment behind the Perfect Measures concept.“So, hopefully, as you go through this and, as you see the opportunities across segments and the investment in marketing, you will feel comfortable that when we come out of fiscal 2019 we will have the right margins,” he told the financial analysts. “And we will have a much stronger business than we did in fiscal 2014, because we will have the Perfect Measures concept across the business.”