K-Cups generated $290m for Smucker in 2013, but growth rates slowed down as unlicensed players entered the market
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. However, Smucker’s growth has been slowing down, acknowledged bosses.
On the firm’s Q4 earnings call last week JP Morgan Chase & Co analyst Kenneth Goldman said: “For six straight quarters, your incremental sales from K-Cups were at least $30m and they suddenly dropped to $11m [in Q4]. That's a pretty sudden drop. What did you see that drove the quickness of that drop?”
We remain bullish on K-Cups
Chief operating officer Vincent C. Byrd responded by saying that Smucker’s K-Cup sales had grown 18% in the fourth quarter and were predicted to grow 15% in 2014.
But he added: “If you look at the Nielsen or IRI data, you will see how much unlicensed participants have affected the category…
“[But] to build a $290m business in a short period of time, we are very, very pleased with that. While as expected the growth rate has slowed, we remain bullish on K-Cups.”
It remains to be seen whether or not unlicensed players will continue to generate repeat purchase
Mark T. Smucker, president of US Retail Coffee, added: “It remains to be seen whether or not unlicensed players will continue to generate repeat purchase. We feel very confident that over the longer time, the consumer will recognize the relative quality that the licensed entrants provide in their cup of coffee and may migrate back.
“Longer term, our goal is to grow the business even if we may see some slight share erosion in the coming couple of quarters.”
In 2014, we'll expand our offerings in premium coffee
In the premium coffee segment, Q4 volumes of Dunkin' Donuts branded coffee products were up 29%, while the re-launched Folgers Gourmet Selections bagged coffee generated 10% volume growth, said Byrd.
“In 2014, we'll expand our offerings in the premium coffee by launching Dunkin' Donuts bakery series, along with our new 100% UTZ Certified line under the Life is Good brand.”
In the mainstream coffee segment, volume for Folgers roast and ground grew 4%.
100 new items will be launched in 2014
As for Jif peanut butter, the company has recently started to downsize its core 18-ounce pack to 16 ounces, consistent with rival brands, and launched Jif Whips whipped peanut butter and peanut butter & chocolate. Several new launches are also planned in 2014 including Jif almond and cashew butters.
Overall, bosses aim to launch 100 new items in 2014, crossing all key brands and categories, said the firm, which posted a 7% increase in net sales to almost $5.9bn in fiscal 2013.
For the quarter ended April 30 (Q4), the firm posted a 1% decrease in revenues to $1.34bn. Net income excluding special project costs increased 13% to $138m.