On the money: Smucker re-evaluates pricing as volumes under pressure

JM Smucker has indicated it expects to reduce prices in the coming year as it looks to reverse declining volumes.

The company today (7 June) booked a 14% increase in fourth-quarter sales, despite a 7% drop in volumes.

Commenting on the news, Smucker CEO Richard Smucker said the group expects overall volumes will "continue to be pressured" over the company's next financial year. However, he added the company will look to improve its price positioning across all of its "major categories" in order to drive volumes.

That said, Smucker insisted the process was not a "race to the bottom" in order to grab volume at the expense of margin. Instead, he said Smucker would be passing lower commodity costs along to consumers and focusing on offering the "right price" at the "right time" - notably key promotional periods such as Back to School.

"We have, as an industry, to do it [cut prices] responsibly. We have several categories where we can reduce our size and therefore offer better value to the consumer without hurting our margins. We will be sharpening our pencil around the holiday periods and... back to school," he said. "We don't see it as a race to the bottom. We all learned our lesson a few years ago and recognise that although volume is important so are margins."

Speaking to analysts during a conference call, management revealed it has a number of other initiatives planned to drive improved sales volumes, including increased marketing spending and enhanced product development.

The company intends to launch a number of lines over the next 12 months, including products under the Pillsbury brand, smaller cake mix sizes and expanding in the speciality nut spread category. These initiatives, management revealed, are expected to feed through to the bottom line in fiscal 2014.

"Net net we have more now products in the pipeline we have ever had. We will lap the 50 products introduced this year,"  president and COO Vince Byrd revealed.

The peanut butter maker will be increasing its marketing levels in the coming year in support of these product launches, Smucker added.

"We have several new television ads are planned to support the launch of new products as well as building on the equity of our Smucker ... and Pillsbury brands," he said.

Nevertheless, Byrd said despite these initiatives the company still anticipates soft volumes moving into fiscal 2013.

"As we looked at 2013, we believe in our first half we are still facing a lot of the same dynamics as we faced in the last half of last year.... the economic climate is still a bit challenging," he said. "We feel there is a little more of an upside in the second half than in the first."

Significantly, Smucker said, falling volumes could be witnessed across the "centre of the store" as consumers cut spending and stopped restocking their pantries. However, he and Byrd believed trends in that part of the store would improve.

"No one has given up on the centre of the store... I think we are seeing a turn around: prices are coming down and commodity costs are coming down... although there is still a very cautious consumer out there. People are not stocking their pantries. But we are beginning to see that trend come around," Smucker said.

Byrd added: "Our categories are not growing they are declining... the majority of the feedback we are getting indicated that - despite our results not being where we would like them - we are doing better than most. Hopefully, with commodity costs coming down we are going to be adjusting our pricing and we should see some upside. The centre of the store is still important."