K-Cups - portion packs used with Keurig single serve brewing systems - continue to attract new users to the coffee category rather than simply cannibalizing sales from roast and ground, and Smucker has nine of the top 20 SKUs in the market in groceries, according to research by Citigroup.
Asked on the firm’s Q3 earnings call on Friday whether K-Cups could represent a $1bn business for Smucker within five years, US retail coffee president Mark Smucker said: “I probably wouldn't give a longer term number, but we continue to see significant upside.
“Even as we're seeing the growth decelerate, we still think with new entrants… that is going to grow the category. We just need to make sure that we continue to maintain or grow our share of it.”
We're expecting to see more M&A activity
Asked about the fallout from the Heinz mega-deal announced last Thursday, CEO Richard Smucker said: “We're expecting to see more M&A activity. That's positive for us because it has helped shake brands loose when those transactions take place.”
Asked about possible disposals, he said: “Right now… we’d rather add than detract from our brands. So hopefully, we’ll have an acquisition sooner than we’ll have a divestiture.”
We are cautiously optimistic about the economic environment
Ohio-based Smucker, which is the ninth largest manufacturer of shelf stable foods in the US, generates just under half of its sales from coffee, a fifth from spreads and peanut butter, and the rest from fats and oils, canned milk and other products.
In the three months to January 31, 2013, net income grew 15% to $154.2m while net sales rose 6% to $1.56bn.
“As we look ahead, we are cautiously optimistic as to the economic environment”, said Richard Smucker. “We are encouraged by stronger food and beverage industry demand, including total edible volume trends as measured by SymphonyIRI. These have improved sequentially from the 52- to the 12- to the 4-week period.”