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Smuckers

The bulk of Smuckers' assets are intangible. These come in the form of trademarks and goodwill. The goodwill has resulted from acquisitions that the company has made over time. The company's brands have driven significant value, as it has twelve number one brands. While there is some value in the physical assets -- plant and equipment -- most of what drives profit at Smuckers is the brands, the relationships with customers and the opportunities for value-added merchandising that come with the company having a strong portfolio of complementary brands. The company has been successful in the long-run largely be playing to these strengths.

There are a number of different ways to assess the economic value of Smuckers. The first is book value, which according to MSN Moneycentral (2010) is $7.9 billion. The economic value of the equity in Smuckers is $5.24 billion. Another method is by calculating using the dividend discount model. Smuckers currently pays an annual dividend of $1.60 per share. The dividend growth rate is 7.325% based on the average dividend growth over the past four years. The company's discount rate, based either on CAPM or its return on capital ranges between 5.25 and 6.4%. This makes the dividend discount model a difficult calculation, since the dividend growth rate is higher than the company's discount rates (giving the denominator a negative value). Thus, book value becomes the best indicator of the economic value of the company, at $5.24 billion.

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The company's main tangible resources are its plants and facilities. Smuckers has moved to consolidate production in recent months, reducing its assets but hopefully improving productivity at the company's remaining facilities (Lin-Fisher, 2010). According to the latest annual report, the tangible assets include cash (5.5%), inventories (7.3%), property, plant and equipment (10.2%). Intangible assets include goodwill (34% of total assets) and "other intangible assets" (37.8%). Goodwill is created when Smuckers takes over another company. It is the premium on what Smuckers paid over the fair market value. Other intangible assets consist of a number of categories, outlined in the annual report on page 46 under Note G. These include customer and contractual relationships, patents and technology and trademarks.

There first capability for Smuckers is its distribution capability. The company has distribution across all of the United States and Canada. Smuckers products are widely available within all regions, at virtually every store in which grocery products are sold. Another capability is in brand development. Smuckers has twelve brands that are #1 brands in their category (2009 Annual Report). This implies that the company has been able to consistently develop and acquire top brands within the grocery industry, rather than simply developing a single strong brand. Twelve brands represent a clear and distinct trend. Another competency at Smuckers is in financial management. The company has been able to growth revenues even during the economic downturn. This indicates that Smuckers has been able to not only build strong franchises, but also to absorb the impacts of the business cycle as well.

As outlined in the previous SWOT section, Smuckers has a number of different strengths upon which to build its business. The first is its roster of strong brands. The company has twelve brands that number one in their respective categories. The company ascribes a book value of $1.83 billion to the value of its trademarks, making trademarks the second largest asset class on the company's books after goodwill. Many of the company's trademarks are household names with a high level of recognizability. Several are decades-old and have been supported by strong marketing campaigns over the years, increasing their value. The vast majority of the trademark value at Smuckers ($1.824 billion) is considered by the company to be indefinite-lived, not subject to amortization. This means that the company believes its marks have near-permanent value, evidence of their strength in the market.

The company's distribution competency is also considered to be one of its greatest strengths. Smuckers has saturation distribution across North America, which allows it to launch brand extensions and new products and to outmuscle smaller competitors. Distribution also allows Smuckers to forge partnership with its retailers that can help with product positioning within the store (merchandising) and with new product introductions. Smuckers can place complementary brands together to enhance its merchandising capabilities. The result has been strong financial performance, which in turn has fueled the company's strong balance sheet. This financial strength has allowed Smuckers to make acquisitions that have strengthened its brand portfolio. For example, the company acquired Folgers from Proctor & Gamble in 2008, taking advantage of that company's inability to leverage the brand -- most of Smuckers' profit in 2009 came from Folgers which acts as a complement to the Dunkin' Donuts coffee already marketed by Smuckers.

The weaknesses at the company seem at present to be more theoretical than actual. Smuckers' brands lack dynamism, but they are still strong in their segments. Thus, the brands represent risk rather than weakness. This decision is key because it allows Smuckers to address the issue before it becomes a problem over the long-term. Smuckers also has issues with respect to pricing power. This reflects the issues with respect to the brands. The company for the most part attempts to use the value of its brands as a point of differentiation but this strategy should result in the company being able to generate premium rents on its products. However, margins that lack the industry average indicate that this is not the case. There is the risk that Smuckers' brands fall in a position in the market where they are not viewed as premium but are also not viewed as cost leaders either. According to Michael Porter, this is a difficult position in which to derive long-term success (QuickMBA, 2007). Smuckers at present, however, has enjoyed long-term success, perhaps in spite of the conventional wisdom.