Executive Summary
J.M. Smucker is a leading company in marketing and manufacturing several types of snacks, health and natural beverages, ice-cream toppings, and peanut butter. In order to assess the position of the company in the peanut butter manufacturing division, an analysis of the external environment was conducted. The analysis utilized such strategic management tools as Porter 5-Forces Model and a PEST to identify potential threats and opportunities for J.M. Smucker in the roasted nuts and peanut butter manufacturing industry. The analysis showed that there is an opportunity in differentiating the product lines of peanut butter, specifically focusing on health diet. The analysis revealed that there might be a potential threat of switching to substitutes, due to potential health risks associated with the raw materials. The results of the analysis recommend focusing on the manufacturing process of the raw material to gain a competitive advantage.
Introduction
Assessing the position of a company within a business environment, not only the internal strengths and weakness should be identified, but also the environment in which this company operates. Such position would allow the company to identify existent threat as well as opportunities which can be utilized. For J. M. Smucker Company, an Orrville, Ohio company founded in 1897, one of the points of interest among its various food manufacturing divisions is peanut butter manufacturing. Smucker Company is “a leading marketer and manufacturer of fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and health and natural foods beverages in North America” (The J.M. Smucker Company, 2010). The present report will attempt to provide recommendations on the threats and opportunities of the peanut butter division of J.M. Smucker, based on an external environment analysis of the industry.
Analysis
One of the essential tools to analyze the external environment of an industry can be seen through Michael Porter’s Five Competitive Forces. Such tool relies on the information of the competitiveness of the industry, identifying five main competitive forces. These forces are the threat of new entrants, bargaining power of customers, threat of substitutes, bargaining power of suppliers, and competitive rivalry within the industry (Recklies, 2001). For the present case, the industry according to American Industry Classification System (NAICS) is roasted nuts and peanut butter manufacturing, the results of analyzing which can be seen in the following section.
Porter’s 5 Forces
- Threat of new entrants. The industry of peanut butter manufacturing is largely attractive, accounting for half of the snack-nut market (Highbeam Business, 2010), and in that regard, the attractiveness of the segment assumes higher barriers for entry, reducing the threat from new competition (Tim Berry, 2010). As of 2002 the industry has 145 companies, totaling capital expenditures of $118 million dollars (US Census Bureau, 2002).
- Bargaining power of customers. One element that might reduce the bargaining power of buyers can be seen through brand attachment. There is a concentration of the market within a few companies (US Census Bureau, 2006), while the availability of many buyers within the local and the global business demonstrates that customers have little bargaining power.
- Threat of substitutes. Peanut butter substitutes are numerous, which in this case include such products as soy nut butter, sun flower butter, cashew butter and others (Anisman-Reiner, 2009). It is stated that the availability of substitutes limits price-based competition among the firms within the industry.
- Bargaining power of suppliers. Suppliers have weak bargaining power in the industry, which makes it attractive. In that regard, the main cause of low bargaining power can be seen through the introduction of 2002 Farm Act which led to a significant drop in raw peanut materials (House, Ward, Johnson, & Lamb, 2007). The orientation on the market reduced the power of the suppliers to dictate prices (Recklies, 2001).
- Competitive rivalry within the industry. The industry in general is not competitive, being concentrated in a few firms, rather than fragmented across many companies. According to the US Bureau of Census, 33 percent of the value of shipments is concentrated within the four largest companies. The eight largest companies, on the other hand, hold almost half the market in terms of value of shipments (US Census Bureau, 2006).
PEST Analysis
PEST is a scan of the external macro environment in which the company operates. The acronym refers to the types of threats and/or opportunities that might exist in such macro environment.
- Political. The political factors influencing the environment can be seen through the government regulations which can be seen through FDA, as well as the safety regulations. The FDA recall on certain types of peanut butter and peanut paste can be seen as one of such factors. (The Peanut Butter Substitute, 2009)
- Economical. In an economical context, the main factor that distinguishes the peanut butter environment is related to the price asymmetry in marketing chain of the peanut industry. Suppliers’ price decrease lacks elasticity, creating an uncompetitive environment and uncompetitive behavior within suppliers (Revoredo, Nadolnyak, & Fletcher, 2004). Accordingly, the latter combined with the drop of the raw materials, resulted from the Farm Act, might be seen as creating favorable conditions to the largest players in the market (Revoredo, et al., 2004). Gradual increase in the value of the shipments from 1997 to 2002 indicates constant growth in the industry with a relatively low growth of competition (U.S. Census Bureau, 2002).
- Social. Generally, the main driving factor can be seen through the social aspect is related to the changes in the life styles of consumers. One element is the total shift toward healthy food, nutrition, and low-fat diets. Such shift can be seen through “growing consumer interest in a diet of low-carbohydrate… [along] with the improvement of consumer knowledge about the nutritional attributes of peanuts and peanut products” (He, Fletcher, & Rimal, 2005). Another one can be seen through the reflection of such concern on one of the main target audience of peanut butter which is children.
- Technological. It can be assumed that the technological aspect cannot be related to such product as peanut butter. Nevertheless, there are several elements that might provide favorable environment for the industry to grow and opportunities to utilize as well as threats. The latter includes:
- Technological research on reducing bad fats and increasing good fats in peanut butters.
- Potential aflatoxin contamination in peanuts (N’Dede, 2009).
- Allergic reactions (The Peanut Butter Substitute, 2009).
Threats and Opportunities
Analyzing the latter it can be stated that the main threat and opportunity facing the industry can be seen through the health related aspects. The research on peanuts and its influence on diet and health can be seen as and important opportunity that can be utilized. The focus on the manufacturing process of the raw materials can be seen as a competitive advantage that might give an edge over competitors. Accordingly, firms might consider differentiating their product lines, which might provide an opportunity to focus on new tastes and flavors maintaining health attributes. On the other hand, the growth of the industry indicates that there is a constant demand for such product. The threats, on the other hand, can be seen through a switch to other substitutes, if the popularity of the product was shaken by any contamination, allergy, and/or other medical scandals.
Conclusion
It can be concluded that there are certain opportunities for the sector of peanut butter manufacturing that J. M. Smucker Company might utilize. These opportunities can be seen through increasing the differentiation of the product lines within the peanut butter category. At the same time, the focus on the manufacturing process of the raw material can be seen beneficial to gain competitive advantage over competitors.
References
Anisman-Reiner, V. (2009). 5 Best Peanut Butter Substitutes. Suite101. Web.
He, S., Fletcher, S., & Rimal, A. (2005). Snack Peanuts Consumption: Type Preference and Consumption Manners. Journal of Food Distribution Research, 36(1), 79-85.
Highbeam Business. (2010). Salted and Roasted Nuts and Seeds. Highbeam. Web.
House, L., Ward, R., Johnson, J., & Lamb, M. (2007). Manufacturer Perceptions of U.S. Peanuts – Results of a Recent Survey. Southern Agricultural Economics Association Annual Meeting.
N’Dede, C. B. (2009). Economic Risks of Aflatoxin Contamination in the Production and Marketing of Peanut in Benin. Master of Science Thesis, Auburn University, Auburn.
Recklies, D. (2001). Porters 5 Forces The Manager.org .
Revoredo, C. L., Nadolnyak, D. A., & Fletcher, S. M. (2004). Explaining Price Transmission Asymmetry in the Us Peanut Marketing Chain.
The J.M. Smucker Company. (2010). History. The J.M. Smucker Company. Web.
The Peanut Butter Substitute. (2009). Concerned About the Peanut Butter Recall? The Peanut Butter Substitute. Web.
Tim Berry. (2010). Porter’s Five Forces. Bplans. Web.
U.S. Census Bureau. (2002). Roasted nuts and peanut butter manufacturing. US Statistics. Web.
US Census Bureau. (2006). Concentration Ratios: 2002. U.S. Department of Commerce.