When it comes to coffee, bigger isn’t always better.
The J.M. Smucker Co. is backing away from bulk coffee while remaining full steam ahead on its K-Cup business.
“Consumer preference in premium coffee continues to shift away from the bulk segment,” said Vince Byrd, president and chief operating officer, during a June 6 call with financial analysts to discuss fiscal 2013 earnings. “Accordingly, we have decided to exit our bulk coffee business by the end of the fiscal year.”
While bulk coffee contributed a weak $25 million in sales during the year, K-Cups brewed up $290 million – slightly short of the company’s expectations, but still the segment powerhouse.
“While as expected the growth rate has slowed, we remain bullish on K-Cups,” Mr. Byrd said. “New users continue to enter the category, and our relationship with Green Mountain Coffee remains strong.”
Smucker plans to launch two new K-Cup varieties during fiscal 2014, in addition to expanding its premium offerings with a Dunkin’ Donuts Bakery Series and a sustainable line under the Life is good brand.
In the food service channel, Smucker is introducing Folgers liquid coffee in place of the Douwe Egberts brand it had acquired in 2011 with its purchase of the Sara Lee Corp.’s North American food service coffee and hot beverage business.
“Although a well-recognized and a great brand in much of Europe and other parts of the world, (Douwe Egberts) is unrecognized in North America,” said Steve Oakland, president of the International, Food Service and Natural Foods division. “So, we’re very excited about putting the Folgers brand on it. And that allows us to take that product, the high-volume coffee outlets where it’ll be front of house, where consumers will see the piece of equipment. So, we think that opens up a whole new realm of opportunities for us.”
As a testament to the strength of its coffee business, Smucker invested $70 million to expand its two New Orleans coffee facilities during the year. The company also began fruit spreads operation at its new Orville-based manufacturing plant, where 80% of anticipated volume is currently produced with plans to transition completely by the end of the calendar year.
For the year ended April 30, Smucker’s U.S. Retail Coffee segment had profit of $607.5 million, up 12% from $543 million during the previous year. Sales for the segment were $2,306.5 million, up slightly from $2,297.7 million during the previous year.
