Speaking on the firm’s Q2, 2014 earnings call with analysts yesterday, CEO Richard Smucker said: “For the past several years, the food industry in general, and our company specifically, have been responding to changes in consumer preference in this area.”
Partially hydrogenated palm and soybean oils still used in bakery shortenings
Crisco shortenings meet the FDA criteria for making ‘0g trans fat’ claims (because they contain less than 0.5g trans fat per serving), but they still contain small amounts of partially hydrogenated palm and soybean oils.
However, J M Smucker - which has recently been targeted in a flurry of lawsuits accusing it of falsely representing Crisco shortenings as healthier than butter and Uncrustables* as wholesome despite their PHO content - is confident these products can be reformulated before any PHO ban might come into force, said Richard Smucker.
“We have been actively working toward transitioning PHOs out of the limited number of our categories where the ingredient is still used and anticipate that these will be reformulated prior to the FDA implementing any new rules. As such, we do not anticipate the FDA's recent announcement will impact our business.”
Asked if all this would increase R&D costs, president of US retail consumer foods Paul Smucker Wagstaff said the hard work had already been done: “On the PHO question, that's not going to have an impact on our R&D spending. We've been working on getting those [PHOs out of our products] for years now, and so it's really no impact to us.”
Asked what the PHOs would be replaced with and when, a spokesperson told FoodNavigator-USA: "I can confirm PHOs will be eliminated but can not disclose formulations at this time."
K-cups: Folgers up 9%, Millstone down… ‘We believe Millstone has been impacted more significantly from the influx of competitor entries into the category’
However, the big news in the Q2 figures was the slowdown in growth of K-Cup single serve coffee, a category where Smucker has in the past generated meteoric growth.
While US retail sales of its packaged coffee under the Folgers and Dunkin’ Donuts brands were solid, the performance of K-Cups was below expectations, with volume up a modest 4% and sales flat vs the prior year, said president and COO Vincent Byrd.
Sales of Folgers Gourmet Selection products, which accounted for 80% of Smucker’s K-Cup sales in 2013, were up 9%. However, sales of the Millstone branded products had declined over the quarter, said Byrd.
“As a brand that is less widely recognized, we believe Millstone has been impacted more significantly from the influx of competitor entries into the category…
“With Millstone, we think it is possible to reposition that brand as more premium. If there is an upper tier in roast and ground, we think that's where Millstone plays.”
Right now, there's just so much noise in the category
But he added: “We remain positive about our K-Cup business and our relationship with Green Mountain Coffee Roasters over the long term... We will begin distributing K-Cups in new channels including the dollar and e-commerce channel by the end of the fiscal year. We also have plans to launch three new varieties in fiscal 2015.”
President of US retail coffee Mark Smucker said the firm was “not going to get back to the growth levels that we have seen” given the tough comparatives, while the arrival of new players had created a lot of disruption.
“Right now, there's just so much noise in the category that we think that we have to sort of weather through this key period.”
Sprouted grains and gluten-free: New opportunities in the natural foods space
Asked about new areas of opportunity for Smucker, Steven Oakland , president of international, foodservice and natural foods, said the recent acquisition of Enray - which makes organic, gluten-free ancient grain-based products, mainly sold under the truRoots brand - had significant potential.
“Much of [Enray’s] business today is quinoa, but they have a lineup of wonderful ancient grains, and they have a technology on sprouting those grains that we think is unique in North America,” he said.
“And many cultures, as well as many people, who shop in the natural food space, understand the benefits of sprouted grains and what you can do with those. So we think there's a lot of runway. “
He added: “It's a very immature product in its life cycle going from a very limited number of customers in the natural space to the broad natural sections across U.S. retail. So we think that our resources and our footprint can take advantage of Enray's great product mix, broad product mix and take those across the retail space.
With regard to the gluten-free market in general, Wagstaff said: “Clearly the gluten-free trend is continuing to grow, and we've been watching it very closely. Our R&D team has been focused on how do we come out with new items [in] gluten-free.
“So I would expect you would see some Pillsbury products and some of our other brands to have gluten-free items or offerings in the near term.”
Acquisitions: ‘We have a number of brands out there that we'd be very interested in’
Asked about acquisition opportunities, Richard Smucker said: “We continue to have an appetite… I think in the next, hopefully, 18 months or so, we'll have something else in our portfolio.”
He added: “We have a number of brands out there that we'd be very interested in. We've made a number of contacts.”
The have been a few that we've walked away from because the prices have been too high
As for valuations, they were rising, he said: “As we go forward, you're going to see, especially at interest rates this low, more acquisition activity and probably higher prices.
“So there have been a few that we've walked away from because the prices have been too high. And we think a great brand at a bad price is still a bad acquisition.”
*Until recently, Uncrustables frozen sandwiches contained partially hydrogenated soybean oil, but have now been reformulated and no longer contain any PHOs, says JM Smucker. The website is currently being updated to make this clear, said a spokeswoman this morning.
Click on the links below to read more about the FDA crack down on artificial trans fats: