The food industry has been undergoing a lot of changes in recent times. Though it'll never go out of vogue, since people keep eating as long as they live, it has its own set of problems. Increasing costs and budget-conscious consumers have made life difficult for food retailers; thanks to penny-pinching shoppers, even a small increase in product prices can lead to lower volumes.
Although some great food companies have managed the situation well, they are unable to register growth in their numbers. J.M. Smucker (SJM, Financial) posted particularly lackluster third-quarter results despite various efforts and advantages enjoyed. Let’s see what it did.
Great performance from all sides…
Factors such as greater demand for J.M. Smucker’s products, as well as a shrewd acquisition strategy were offset by a 8 % reduction in its price. This led to a drop in revenue of 8% over last year, clocking in at $1.23 billion. However, the success of K-Cups had been a cushion for a number of companies, especially Green Mountain Coffee Roasters, but the segment seems to be losing its charm.
Smucker’s K-cups sales dropped 10%, though consumers continued to drink more and more coffee. This was mainly because of the price reduction. However, Smuckers' buyout of Sara Lee's food and beverage business contributed to the top line.
Smucker gets even worse when we get to the bottom line. The bottom line dropped 9% to $118 million, over the prior year. Due to lower sales and increasing coffee costs, the company witnessed decreasing margins as well as higher earnings.
The well-deserved segment
J.M. Smucker’s International, Foodservice, and Natural Foods segment had been a remarkable performer, but the segment witnessed a decrease of 7% in sales during the quarter. Along with the benefits of Sara Lee’s acquisition, huge demand for natural foods had been a key factor of growth. The increasing popularity of natural and organic foods, driven by health-conscious consumers, has contributed largely to the industry players, including J.M. Smucker.
For example, Whole Foods Market (WFM, Financial) is one those players who cater to a niche crowd, who are looking for premium organic food. Consumers want healthy products, so much so that they seem indifferent to higher costs. In spite of its price increases, demand for Whole Foods’ products rose, leading to a 14% jump in first-quarter revenue over last year. The food company has also been expanding its reach every quarter, backed up by new product launches.
The future looks glamorous
Although Smucker has been smart with its strategies, it was unable to register growth mainly because of a decrease in prices. It has been managing its costs well and keeping customers happy by passing on its lower costs to customers. This has led to more and more demand for its products. Moreover, its strategy of introducing new products and acquiring other companies has been quite fruitful. This has made the company to plan further new product launches in the coming months. This should help the company boost its sales.
Further, growing demand for both natural foods should prove lucky for J.M. Smucker. With new product and business additions, the company is expected to do even better. Though it failed to live up to the expectations this time, this company is a strong one and can prove to be a great investment in the long run.
