Smucker Smacked

Green Mountain Coffee outpacing SmuckerJ. M. Smucker Co. (SJM), known for Jif Peanut Butter and Pillsbury Products, has cut the prices of its coffee products across the country.  Folgers and Dunkin Donuts brands and other retail coffees actually make up the bulk of Smucker’s revenues and these have been hit hard.  As they have seen revenues drop across the country they have decided to drop prices to increase volume, yet with commodities rising many food manufacturers are finding it hard to cut costs.

Not All Coffees Are the Same

While Smucker brands have been hit in the downturn, Green Mountain Coffee (GMCR) has done the opposite.  It posted triple digit earnings in the past two quarters and factoring in the entire year, analysts see earnings growth of 123%, followed by a 58% rise in 2012.

Green Mountain Coffee CEO Larry Blanford said the following:

I’m thrilled to report we delivered net sales of $717.2 million, a growth rate of 127% over the same period in fiscal 2010. Our non-GAAP earnings per diluted share increased 140% to $0.49 in the third quarter of fiscal 2011, up from $0.21 in the third quarter of fiscal 2010 and exceeded our guidance range largely as a result of stronger than anticipated portion pack driven revenue growth in the quarter.

In addition to continued strong consumer adoption of the Keurig single-cup brewing system, we believe our third quarter results benefitted from our heighted spring advertising and brand support programs. These programs were designed to raise awareness of the Keurig single-cup brewing system and our Brew Over Ice, Perfect Iced Tea and Iced Coffee’s, as we headed into the summer month. Our nationwide television advertising was supported by in-store demonstrations and other merchandising all emphasizing Brew Over Ice as another opportunity to use the Keurig single-cup brewer. (more…)

 

Clearly these two retail coffee producers are different and their markets are different, but consumers are making choices and the key to understanding how and why the recession as it grows will affect one company and not the other one must see how various markets are being affected.

Niche Coffee

Green Mountain Coffee as opposed to Foldgers or Dunkin Donuts produced by Smucker is a specialty coffee with a niche in the organic arena.  This market although vulnerable is based on a certain solidified outlook by the consumer.  Smucker and its brand are generic and their prices have been too high for that market.  Whether or not cutting costs will be manageable and effective in raising revenue remains to be seen.

About James Cannon

James Cannon is an experienced hedge fund analyst. He has served on the advisory boards for various different Fortune 500 companies as well as serving as an adjunct professor of finance. James Cannon has written for a variety of Financial Magazines both on and off line. Contact James at james[at]businessdistrict.com