Dive Brief:
- Smucker is shifting gears in its U.S. retail coffee business in hopes of encouraging category growth and increasing profits.
- Of the $9.2 billion in sales for Smucker's overall coffee category, U.S. retail coffee saw $2.1 billion in sales and $549.2 million in operating profit for fiscal 2015, both of which fell from $2.3 billion in sales and $604 million in operating profit in fiscal 2013.
- The volatile coffee market has seen its ups and downs in prices, including several pricing changes from Smucker's alone, such as a 6% decrease in Folgers and Dunkin Donuts coffee price beginning in July, more than a year after a 9% increase as the prices for arabica shot up due to the drought in Brazil. "The volatility has prompted the company to focus on diversification and not over-leverage on one format," according to Food Business News.
Dive Insight:
"Internal company research shows an across-the-board increase in coffee preparation methods between 2009 and 2015. While single-serve has experienced the greatest gains, such formats as automatic drip, French press, espresso and cappuccino makers, percolators, and even stove top makers also have made gains," Food Business News reported.
Innovation has been key for Smucker's coffee business. One strategy is improve the appeal of its Folgers and Café Bustelo brands for younger consumers, as well as highlight the Hispanic heritage of Café Bustelo to increase demand for the brand among Hispanic consumers.
For Folgers, Smucker is attempting to add value through Folgers Perfect Measures premeasured coffee tabs, where one tab equals one scoop of coffee to ensure a consistent pot. After U.S. retail coffee peaked at $640 million in operating profit in fiscal 2014, Smucker said financial models predict the segment's return to that level of profitability in fiscal 2019, and Perfect Measures will be key to that return to profitability.
"Over the past year, we embarked on brand strategy research to refine Folgers' brand position to not only resonate with its core consumer, but also build relevancy with the emerging millennial coffee consumer," Danielle Barran, vice president of marketing for Smucker’s coffee business, said during the company’s investor day presentation. "For our core consumer, the role of coffee is highly functional, and it very much revolves around the physical awakening that coffee provides. Younger consumers and millennials, however, have a different relationship, one in which coffee provides more of an experience."