Smucker Chooses Folgers

A Match Made in Breakfast, Dessert and Corporate Heaven

The J.M. Smucker Company (NYSE: SJM) is absorbing a new brand: The Proctor and Gamble Company’s (NYSE: PG) coffee business, Folgers Coffee.A coffee brand is a good fit for a company specializing in jam and jellies… After all, what’s better to drink with toast and jam than a cup of coffee?

And Tim Smucker, chairman and one of the CEO’s of Smucker agrees. He remarked in a June 4, 2008 conference call with investors that, “A freshly brewed cup of coffee is the perfect compliment to breakfast or dessert, two areas we know a lot about. Not surprisingly, these categories share very similar core consumer segments, opening up many opportunities for brand marketing strategies.”

The acquisition of Folgers, in an all-stock reverse Morris Trust transaction valued near $3.3 billion, is set to close in the fourth quarter of 2008.  It’s just yet anotherleading brand inSmucker’s portfolio which also includes two other brands Smuckers acquired from PG: Jif Peanut Butter and Crisco.
It’s becoming a habit for Smucker to acquire Proctor and Gamble divisions.  The two companies are becoming adept at working together to make these acquisition transactions run smoothly for themselves, their employees and investors.

So what does this new acquisition mean for Smuckers, for Folgers (and most importantly) for investors?

For one thing, Smucker’s willingness to invest in Folgers demonstrates a continuance of the company’s strategy of gradually but steadily acquiring brands for staple food products.  Smucker is, basically, becoming a comprehensive food business, and not just a producer of jams and jellies.  This strategy allows Smucker to cross-market its products and even combine them, as it did with its Uncrustables product – which combines Jif peanut butter with Smucker jellies.

What this might mean for Folgers coffee remains to be seen, but I can envision some creative cross-marketing in the future, particularly between Smucker’s breakfast and dessert products and Folgers coffee.  This might mean increased sales of both types of products, and ultimately good for the bottom line of Smucker.

Perhaps even more importantly, however, the merging of the Folgers brand into Smucker pushes the company ever-so-slightly into the big league.  As it consolidates its holdings and acquires products in a wide range of food categories, the family-run company based in small town Ohio is becoming an ever-larger and ever-more-competitive food company with a national and even an international presence, one that keeps heading onward and forward.

And for my money, that’s a welcome direction for any company to go.

By Vivian Wagner
Analyst, Bourbon & Bayonets