With the investment in the long-term growth potential of the company’s peanut butter and nut butter businesses, Smucker announced it will expand its manufacturing footprint by converting its Memphis, Tenn., fruit spread facility into a peanut butter plant.
“Since acquiring Jif a decade ago we have invested nearly $100 million in our plant located in Lexington, Ky.,” said Mark Belgya, senior vice-president and chief financial officer. “The brand has grown tremendously in the process doubling in sales since we acquired it. While these capital enhancements have allowed us to keep pace with Jif’s growth to date, the expectations we have to grow the peanut and nut butter businesses require us to further expand capacity in Lexington while adding a third facility. To address this need, we have made a decision to convert our Memphis, Tenn., fruit spread facility into a peanut butter plant.”
Mr. Belgya said the Memphis location originally was scheduled to close as part of the company’s fruit spread’s restructuring project but provides Smucker “a viable alternative in terms of both cost and location.”
“We will also continue to produce a small amount of fruit spreads at this site,” he said. “Upon completion of this expansion we intend to move production of our specialty nut butters, which are currently being co-packed into our facility in New Bethlehem, Pa. Today this plant produces our line of natural peanut butters under the Smuckers’, Laura Scudder and Adams’ brand, which will now transition to our Memphis facility.”
The total capital investment related to these peanut and nut butter projects is estimated at $80 million while restructuring costs will total about $10 million with the majority of the spend occurring over the next two fiscal years, Mr. Belgya said.
Looking to gain share in spreads
Gaining share remains a primary avenue for growing Smucker’s brands in the fruit spreads category, said Mr. Byrd. The company is attempting to enhance its position in the category in three ways: building brands through innovation; being the low-cost operators supported by supply chain initiatives; and addressing price points and price gaps on shelf.
In the near term, Smucker is set to enter the growing natural segment with the March launch of Smucker’s Natural, which is made with naturally sourced fruit, sugar and other ingredients. Mr. Byrd said natural fruit spreads have been well received by consumers, and Smucker’s offering of four flavors will position the brand to regain market share by providing another growth platform.
Beyond traditional fruit spreads, Smucker continues to explore opportunities to extend the equity of the Smucker’s brand into other categories and offerings. Sales of the company’s Uncrustables sandwich line have grown at a 6% compound annual growth rate since fiscal 2007, reaching nearly $125 million in sales in fiscal 2012.
“The combination of a high quality product and low household penetration rate presents substantially upside opportunities for Uncrustables,” Mr. Byrd said. “The historical growth of this business has been somewhat constrained due to capacity limitations. As a result, a significant capital outlay to expand the capacity of our Scottsville, Ky., manufacturing facility began this year and will continue into fiscal 2014.”
Elaborating on the expansion in Scottsville, Mr. Belgya said Smucker will invest $80 million to expand the capacity for baking bread and making Uncrustables sandwiches, an effort that was started earlier this year and will continue through fiscal 2014.
“While we clearly expect to grow this brand, we recently made the strategic decision to exit a portion of the school’s Uncrustable business at the end of the 2013 school year,” Mr. Belgya said. “This represents sales made to the school systems, which participate in the U.S.D.A.’s commodity peanut butter program. The decision is in the best long-term interest of the brand but in the short term will reduce food service sales by about $30 million in 2014. We ultimately expect to offset a good portion of this with increased sales of Uncrustables through our retail channels.”
