Smuckers Strategic Choices Smuckers Pursues

Smuckers Strategic Choices

Smuckers pursues -- somewhat -- a differentiated strategy. The company is being pushed by the market towards a cost leadership strategy, however. Other strategies can be easily ruled out, but this analysis will focus on the elements of Smuckers' strategy that are congruent with the differentiated and cost leadership strategies. Smuckers cannot be a niche player in its market, as it is the market leader in several categories and has achieved mainstream positioning and distribution. The company cannot be said to pursue first mover advantages either. The company was established in the 19th century and most of its brands have been around for decades.

For most of its history, Smuckers was strictly focused on the differentiated strategy. This can be seen from the emphasis on branding at the company, in which it built a number of its brands in order to extract higher prices for those products than would otherwise be possible. The company's advertising supports the idea that Smuckers has pursued a differentiated strategy. One recent tagline, for example, was "With a name like Smucker's, it has to be good" (TaglineGuru.com, 2010). This emphasizes that the product has quality that is superior to other products in the same category. There is also evidence that when strong brands are promoted, those promotions are more effective than when unknown brands are promoted (Bronnenburg & Wathieu, 1996). This indicates that there is significant value added with strong brands, and the building of strong brands has long been a centerpiece of the Smuckers strategy.

Smuckers faces a challenge to this strategy, however, in the increased stratification of the grocery business. With increased consumer wealth, super-premium products have emerged that have taken the differentiated status away from mainstream products such as those produced by Smuckers. In addition, fast-growing niches such as organic have taken away the differentiated status of Smuckers' regular brands, even in product categories where Smuckers has introduced an organic extension. Thankfully for Smuckers, however, the company has also developed over the years and through its organizational structure the ability to produce and distribute with significant economies of scale. This allows Smuckers to compete on price, while simultaneously working to defend its territory as a differentiated player in the market.

Smuckers operates using a centralized structure and family management (2009 Annual Report). This helps it to cultivate economies of scale in both production and distribution. Recent move to consolidate manufacturing by closing four plants and expanding three others supports the idea that Smuckers is seeking to contain costs in order to adapt to the new realities of its competitive environment. The move was categorized by the company as "supply chain streamlining," which in English equates to cost reductions through increased economies of scale (FoodProcessing.com, 2010). As closing plants is not entirely congruent with the company's "family-oriented" culture, such a move is likely to be influenced by a realization that the products are not as differentiated as they once were, resulting in reduced pricing power.

Superficially, the combination of cost leadership and differentiation is similar to the principles behind the "Blue Ocean" strategy. The idea behind blue ocean is to create space where competition is irrelevant (Kim & Mauborgne, 2009). For Smuckers, the strength of the company's brands is such that competition is somewhat irrelevant. However, this was by design of past decades. While the company retains this advantage and the blue ocean it provides, the fact remains that Smuckers has been forced into this position by the competition -- it is not blue ocean that is has carved for itself but rather is blue ocean in which the company has found itself. The competitive advantage of the brands is long-lasting but not sustainable in perpetuity.

The strategic choices that Smuckers has taken align closely with its chosen strategy. As noted, the recent "supply chain streamlining" is a move to cut costs and build greater economies of scale. This is consistent with a firm engaging in a cost leadership strategy. That the company also has strong brands allows it to continue to pursue its longstanding differentiation strategy as well. However, the company has been slow to respond to new trends, a reflection of its conservative culture and the slow pace of change at the family-owned firm. This may have cost the company some market share in the past. Indeed, the company's recent success has been Folger's, which is positioned at the low end of the coffee market. As the recession hit high end coffee companies like Starbucks hard, low end companies benefited as consumers traded down. Folgers has been a rare cost leadership success for Smuckers, but did so on the existing strong level of brand recognition.

The Folgers success and recent move towards economies of scale indicates a shift in focus for Smuckers. While this move has already been successful in some ways, it also leaves the company's structure at least somewhat incongruent with its current strategy. There is limited alignment between the structure and the branding element of the strategy. The differentiation that Smuckers hopes to achieve may be difficult to achieve because the company's organizational structure is focused on channels rather than on products. Smuckers appears to take the view that building and supporting brand strength is less important than building economies of scale. The brand strength, however, is a critical element to the blue ocean elements of strategy. For example, Folgers was in a good position to win coffee drinkers as they traded down because of its combination of brand strength and cost leadership. If either of these elements had been lacking, it is unlikely that Folgers would have been the success story it was. Yet, the brand focus that helped build Folgers did not come from Smuckers, which had just acquired the brand. That brands in the Smuckers family did not enjoy the same benefits of the recession as Folgers despite their combination of strong brand equity and relatively low cost indicates that perhaps Smuckers does not sufficiently emphasize branding. In doing so, it may lose brand equity and if that occurs the company would become just another low cost producer, to the detriment of the company's ability to charge premium prices for its products.