Smuckers' competitive position and strategic opportunities in food manufacturing

Smuckers SWOT

Smuckers has a relatively unfavorable operating environment. This is a function of high threat of substitutes, high threat of new entrants and limited pricing power. The company has opportunities to tap into growing markets however, such as organics. With its financial strength, distribution capabilities and its strong brands, Smuckers can exploit this opportunity in the coming years. The company could also take advantage of M&a activity, following on the heels of the successful Folgers acquisition.

There are a number of models that can help management to understand the firm's operating environment. The Five Forces analysis helps to determine how favorable an industry is in which to operate and why. The PEST analysis explains the different factors in the external environment that act upon a company. The SWOT analysis delves into the company's strengths and weaknesses, and matches them up against the opportunities and threats in the environment. Ultimately, these tools are used to derive strategy insight, and at the conclusion of this report will be recommendations for possible paths that Smuckers can take in light of the external environmental analysis.

Five Forces

In the grocery manufacturing and marketing industry, the power of suppliers is relatively low. Volume is important to suppliers and there is low differentiation of inputs. Suppliers lack concentration relative to a large buyer like Smuckers. Buyers bargaining power is moderate. Buyers are typically price takers, but brand identity is critical to gaining power over buyers. There is some price sensitivity among buyers. There are substitutes available for most products Smuckers sells.

There are low barriers to entry, although at the Smuckers level economies of scale play a role in cost containment that is difficult for smaller players to match. Access to inputs is high, however, the learning curve low and the capital requirements not especially strenuous. There is a high threat of substitutes. Groceries can be substituted with other products or with restaurants. Nobody needs to eat a Smuckers product. The degree of rivalry within the industry varies by product. In some categories, rivalry can be intense among major players. Most segments are mature and there are low switching costs. With slow industry growth and intermittent overcapacity, rivalries can flare up from time to time. Overall, the industry is moderately unfavorable. A strong brand can help a company succeed, but the high likelihood of substitution and only moderate pricing power contribute to an often-challenging environment.

Conclusion

Smuckers is at present a strong company with a roster of successful brands. It markets its products as premium, but the company's long-term margins indicate that they have only limited premium pricing power. While the company has benefited from the economic downturn, this is because of consumers "trading down" to Smuckers. Thus, the company is no longer perceived as premium in the marketplace. With changes in the industry taking customers towards organic and ethnic food, Smuckers' products risk decreasing in relevance in the marketplace. The company can leverage its financial strength, distribution capabilities and its well-known brands to build the premium value back into Smuckers' roster. This could be accomplished by moving more significantly into organics or it could indicate that a more dynamic lineup of food is required. Otherwise, the best strategy will be to continue with M&a activity in order to build economies of scale and brace for a future as a low cost producer fighting in an intense mature market.

Works Cited:

MSN Moneycentral: JM Smucker. (2010). Retrieved May 2, 2010 from http://moneycentral.msn.com/detail/stock_quote?symbol=SJM&ww=1

JM Smucker 2009 Annual Report. Retrieved May 2, 2010 in possession of the author.

Porter's Five Forces: A model for industry analysis. (2007). Retrieved from QuickMBA. Web site: http://www.quickmba.com/strategy/porter.shtml

PEST analysis (2009). Retrieved from Value-Based Management. Web site: http://www.valuebasedmanagement.net/methods_PEST_analysis.html

Bloomberg/Business Week. (2010). The grocery store of the future. Business Week. Retrieved May 2, 2010 from http://images.businessweek.com/ss/09/06/0608_grocery_innovation/16.htm

OTA. (2008). Industry statistics and projected growth. Organic Trade Association. Retrieved May 2, 2010 from http://www.ota.com/organic/mt/business.html

AP. (2009). Smuckers profit surges after acquiring Folgers. MSNBC. Retrieved May 2, 2010 from http://www.msnbc.msn.com/id/34060210