Sales of K-Cups - portion packs used with Keurig single serve brewing systems - have grown 115% in the past year, and continue to attract new users to the coffee category rather than simply cannibalizing sales from roast and ground, said Smucker chief operating officer Vince Byrd at the Barclays Back to School conference last week.
In 2010, Smucker struck a deal with Green Mountain Coffee Roasters whereby the latter manufactures Smucker coffee brands including Folgers Gourmet Selections and Millstone in K-Cup packs.
Said Byrd: “Not only was K-Cups the most successful new product in our company history, it was also recognized as the number one beverage launch in 2011 in the IRI Pace setters report.”
Hazelnut spreads category grew 50% in past year
The firm, which expects its K-Cup sales to grow by more than 60% in 2013, says K-Cups now account for around 17% of the $7.6bn US coffee category.
To put this into context, mainstream roast and ground coffee accounts for 43% of the market, premium coffee 28% and instant/other coffee 12%, said Byrd.
In fiscal 2013 (started May 1, 2012), Smuckers is launching 100 new products including two new varieties of K-Cup, Folgers Fresh Breaks (a premium single-serve instant coffee), new specialty nut butters and new varieties of Pillsbury baking mixes, frosting and seasonal items, he revealed.
It has also just launched Jif hazelnut spreads in chocolate and mocha cappuccino varieties, marking its entry into a $275m category that has grown nearly 50% over the past year, he said.
Pricing challenges
Ohio-based Smucker, which generated net sales of $5.5bn in the year to April 30 making it the ninth largest manufacturer of shelf stable foods in the US, generates 48% of its revenues from coffee, 19% from spreads and peanut butter and the rest from fats and oils, canned milk and other products.
Chief executive Richard Smucker admitted that volumes had dropped in coffee, cooking oil, peanut butter and jam last year after hiking up sticker prices to recover raw materials costs.
And times remained tough, he added: “There is still slow economic growth in the economy and consumers remain uncertain about the impact of current events such as the upcoming election and the drought and the fiscal cliff everyone is talking about…”
'We’ve seen some signs of US retail sales improvement'
But on the plus side, he said, “We’re at least seeing moderation in food inflation at least in the commodities that we’ve been involved in and we’ve seen some signs of US retail sales improvement and the recent trends in our own volumes reflect that.”
Specifically, inflationary pressure on coffee prices had subsided, said Smucker, who lowered prices on coffee in May, which delivered a light volume boost in the first quarter.
“We’ve had the benefit of our major one [cost] going down, coffee, although we've had the challenge of peanut butter going up, but it's still the lowest cost protein you can get in store."
In Q1, 2013 (three months to July 31), net sales rose 15% to $1.37bn while net income dropped 1% to $110.9m.