Case Study: External Environmental Analysis

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Smuckers SWOT

Smuckers has a relatively unfavorable operating environment. This is a function of high threat of substitutes, high threat of new entrants and limited pricing power. The company has opportunities to tap into growing markets however, such as organics. With its financial strength, distribution capabilities and its strong brands, Smuckers can exploit this opportunity in the coming years. The company could also take advantage of M&a activity, following on the heels of the successful Folgers acquisition.

There are a number of models that can help management to understand the firm's operating environment. The Five Forces analysis helps to determine how favorable an industry is in which to operate and why. The PEST analysis explains the different factors in the external environment that act upon a company. The SWOT analysis delves into the company's strengths and weaknesses, and matches them up against the opportunities and threats in the environment. Ultimately, these tools are used to derive strategy insight, and at the conclusion of this report will be recommendations for possible paths that Smuckers can take in light of the external environmental analysis.

Five Forces

In the grocery manufacturing and marketing industry, the power of suppliers is relatively low. Volume is important to suppliers and there is low differentiation of inputs. Suppliers lack concentration relative to a large buyer like Smuckers. Buyers bargaining power is moderate. Buyers are typically price takers, but brand identity is critical to gaining power over buyers. There is some price sensitivity among buyers. There are substitutes available for most products Smuckers sells.

There are low barriers to entry, although at the Smuckers level economies of scale play a role in cost containment that is difficult for smaller players to match. Access to inputs is high, however, the learning curve low and the capital requirements not especially strenuous. There is a high threat of substitutes. Groceries can be substituted with other products or with restaurants. Nobody needs to eat a Smuckers product. The degree of rivalry within the industry varies by product. In some categories, rivalry can be intense among major players. Most segments are mature and there are low switching costs. With slow industry growth and intermittent overcapacity, rivalries can flare up from time to time. Overall, the industry is moderately unfavorable. A strong brand can help a company succeed, but the high likelihood of substitution and only moderate pricing power contribute to an often-challenging environment.

PEST and SWOT

The political environment is favorable for Smuckers. There is limited political interference. As long as production facilities pass inspection there is little regulatory concern for Smuckers. Smuckers is not subject to stringent rules regarding cross-border shipping and has used plants in Canada to serve North America in the past. The economic environment has proven favorable in recent years. The economic downturn had people trading down their food. Smuckers -- the Folgers brand in particular -- were beneficiaries of this (2009 Smuckers Annual Report). An uptick in the economy threatens to take business away from Smuckers, however, especially in minor luxuries like coffee and jam where there is considerable high-end competition.

The social environment is moderately favorable for Smuckers. The company has a good reputation for its products. A minor movement away from processed food has yet to take hold in the mainstream, though it does represent a threat to Smuckers in some markets. The technological environment is moderately favorable for Smuckers. Technological advances can aid in lowering production costs for a company like Smuckers. There is little demonstrated use for emerging media in the marketing of grocery staples.… [END OF PREVIEW]

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