The J.M. Smucker Company SWOT and PESTLE Analysis

Strength

1. Strong popular brands: J.M. Smucker has strong brands across the major food processing segments, consumer food, and beverages. They are the branded market leaders in the peanut butter, fruit spreads, ice cream toppings, coffee, sweetened condensed milk and natural beverage categories in the U.S. Within pet food and pet snacks, they are branded market leaders in the dog snacks category in the U.S. In Canada, J.M. Smucker is the branded market leader in the flour, pickles, canned milk, fruit spreads, shortening, and ice cream toppings categories.

2.J.M. Smucker is ranked 47 in “Fortune 100 best companies to work for: The Company was ranked 47 in 2008 and 1 in 2004 in “Fortune 100 best companies to work for” surveys which reflects the employee-friendly work culture present.

3.Increased R&D spending: The Company spends $58.1 million on Research and Development in order to build and improvise brands through innovation leveraged by science and technology. They also partnered with TSC, the University of Arkansas, and Arizona State University to conduct a water risk analysis in nine Company supply chains. The replacement of a compressed air dryer with a more efficient model is expected to save 45,000 kWh per year. And finally, in 2017, a 0.5-megawatt solar array on the plant’s warehouse roof is projected to save 425 tonnes CO2 and offset 640,000 kWh of electricity usage.

Weakness

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Opportunity

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Threat

1. Competition from stronger brands in the same industry: Smucker faces tough competition across its business segments from global and regional competitors. Consumer products giants like Pepsico, General Mills, Associated British Foods, Coca-Cola, Nestle, Danone, Mondelez, Unilever, and Mars are pursuing aggressive growth and expansion strategies which pose a direct challenge.

2. Decline in net sales and profit across all the segments: Sales and profit margins decreased in 2017 over that seen 2016 across all product categories, posing a threat to the company. Volume/mix reduced net sales by 5 percent driven by the loss of the Folgers brand, partially offset by gains for the Café Bustelo and Dunkin’ Donuts brands. Segment profit decreased by $23.9 million. Segment net sales decreased $28.4 million, primarily due to lower net price realization. Gains for Nature’s Recipe and Milk-Bone brands were more than offset by loss across the rest of the portfolio, most notably 9Lives and Meow Mix cat food. Segment profit decreased $20.1 million.

3. More focus on fresh food: Heightened focus on health and wellness, an increased desire for fresh foods, and the growing impact of social media and e-commerce on consumer behavior is also affecting the sales. Retailers like supermarkets and hypermarkets are the leading retail channels for fresh food, accounting for about 2/3rd of the sales. Smucker's jellies and baking brands which are its cash cows are not trending with changing consumer demands. Internet retailing has also contributed to the growth of fresh foods market by providing the convenience of delivery at the doorstep and posted a strong CAGR. As a result, traditional retail outlets like Whole Foods, Walmart etc. are investing in e-commerce in order to take advantage of this growth. Due to this, JM Smucker’s stock prices fell by approximately 30% in Sep 2017 since its most recent peak in August 2016.

Political

1. US withdrawing from NAFTA Regulations: NAFTA essentially reduced tariffs between the three countries, US, Mexico, and Canada to zero. Without it, tariffs would revert to levels under the World Trade Organization. That could put a dent in North American trade. Since JM Smucker has a significant share in the Canadian market, US withdrawing from NAFTA will increase tariff rates which will affect the cost of production.

2. Trade Regulations: The US government’s trade policy can affect business by making it easier or more difficult to trade across international borders. Increased protectionism policies impact global trade and more often than not these are influenced by political factors and issues. Trump administration has already withdrawn from the Trans-Pacific Partnership trade agreement and is expected to make many more administrative changes to trade deals and partnerships.

Economic

1. Increase in food inflation: Food inflation increased by 1.6 times in December at 36.7% compared to that of last year. Export prices also increased by 135.30%. Along with this, the food retail segment has become mature and with a lot of competitors. So, the food market growth is following country’s economic growth. Due to this factor, the company’s sales decreased from $7811 million in 2016 to $7392.3 million in 2017.

2.Free Trade agreement and NAFTA between US and Canada: According to the Free Trade Agreement between US and Canada, companies in both countries can invest freely in the free-trade due to liberalization. Also, it eliminated barriers for companies in these countries to trade in goods and services. According to a survey by Nanos Research, 54% of US-based companies agree that the country’s economy has benefited due to this FTA. Also, 45% US companies see NAFTA between US, Canada, and Mexico as an opportunity. NAFTA, which came into effect since 1994, was aimed at eliminating tariffs and increasing cross-border commerce across these countries and caused a nominal increase of 63.5% in trade from $481.5 billion to $518.2 billion. Due to this pact, US real GDP grew by 39%, which works in favor of US-based food processing companies like JM Smucker, whose primary market is Canada.

3.Fluctuating cost of raw materials: According to McKinsey reports, over the past decade, prices of raw material for food industry have been 35-40% more volatile, and as it comprises about 60-80% of direct material prices, final processed food product prices also have been volatile. According to the Agricultural raw material price index historical data, the index has been having shown a fluctuating trend after July 2014, when the index dropped from 94.29. Due to this fluctuating raw material prices, JM Smucker sales can be impacted.

Social

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Technological

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Legal

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Environmental

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