According to the U.S. Census Bureau, a record 46.2 million Americans are now living below the poverty line, as more and more people fall out of the middle class. For many companies, a shrinking middle class means a shrinking top line, as their traditional consumer base migrates to the lower end of the market.
But not for the J.M. Smucker Company.
The 114-year-old outfit, based in Orville, Ohio, now sits at #2 on this year’s Barron’s 500, which ranks publicly traded companies purely according to growth metrics — not revenue itself but changes in sales, profits, and return on investment. This accomplishment is even more impressive when you consider that Apple is #4 on the list.
Smucker’s? That’s right — the outfit best known for selling peanut butter and those iconic jars of jam that haven’t changed much since the company was founded in 1897. How did such an old-school consumer brand company make it near the top of a list of hot growth firms?
The numbers are there. Smucker’s impressive annual results cap a decade in which the 4,500-employee firm achieved compound annual revenue growth of 23% and per-share earnings growth of 14%. Shareholder returns matched profits exactly, at a compound 14%. For 2011, it all added up to $4.8 billion in sales. That’s a lot of PB&J.
According to chairman and CEO Timothy Smucker, 67, who is now stepping down to hand the jars to his younger brother Richard, 63, “Volume gains in the fruit spreads category were supported by investments in advertising and product innovation.” This is a company where synergy really matters, as jelly growth led to “strong peanut butter performance.”
But a closer look at Smucker’s reveals a powerful set of growth strategies driving these results:
A strategic approach to acquisitions. Smucker’s has grown over the past decade largely by taking on cast-off food brands from Procter & Gamble, its Ohio consumer products neighbor, and finding ways to grow them again. In 2001, Smucker’s acquired Jif and Crisco from P&G, which no longer saw them as a strategic fit. Then in 2008, it acquired P&G’s Folgers brand and made it the foundation of a new coffee division.
This strategy reflects the “create, operate, trade” principle of Richard Foster, the former McKinsey executive who (full disclosure) is now lead board member at Innosight. The idea is that a business unit that no longer fits one company’s objectives can become the foundation of new growth somewhere else. At Smucker’s, all three of these former P&G brands are #1 in their categories.
A focus on innovating consumer experiences, not company products. Smucker’s has also grown by studying why and how people actually use products to do things in their lives, or as we at Innosight think of it, to “hire products to get key jobs done.” New insights have led to new products and line extensions. For instance, it created Crustables, frozen, self-contained PB&J sandwiches that can be easily popped into a school lunch bag in the morning, where they thaw and are ready to eat by noon. For at-home PB&J dining, Smucker’s offers Kidvitations, an on-line service that enables parents to design and print invitations “to spend time together and share the perfect PB&J.”
Capitalizing on the emotional equity of its brands. “With a name like Smucker’s it has to be good.” “Choosy Moms choose Jif.” Generations of consumers grew up hearing these taglines, forever tying the Smucker’s brands to memories from their childhoods. Now, for adults facing the stress and uncertainty of the Great Recession, these emotional associations offer a reminder of simpler, easier, and safer times, and a way to show comfort and care to family members. Similarly, as jobless consumers can no longer afford Starbucks, Folgers’ “best part of waking up” tagline evokes a return to a time when a cup of coffee was cheap, and you made it yourself.
Smucker’s is hardly the only company capitalizing on the shrinking middle, as retailers and other consumer packaged goods makers find ways to turn contraction into growth, according to a recent article in the Wall Street Journal. But Smucker’s might be the company most emblematic of this troubling trend. After all, PB&J is both the ultimate lunch-on-a-budget food and the ultimate comfort food. Consumers in this economy are looking for both.The Peanut Butter and Jelly Approach to Growth
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