• by Karlene Lukovitz , December 8, 2008

J.M. Smucker Co., which completed its acquisition of Folgers from Procter & Gamble in early November, is coming out of the gate aggressively by announcing pricing reductions on the brand.

 

Smucker is cutting Folgers Ground prices by 3.5% (10 cents per 10.3-11.5 ounce can); Folgers Gourmet varieties by 7.8% (10 cents per 10 to 12 ounces); and Folgers instant by 4.4%.

Smucker also announced a price reduction of 35 cents per 10 to 12 ounces on Dunkin' Donuts retail roasted coffees, which it manufactures and distributes.

Smuckers cited decreases in the costs of green coffee used in the coffees' formulation for the ability to lower prices.

"In this economy, if your costs go down, it's probably a smart move to be the first brand in line to pass the benefits along to consumers and get credit for doing something good for them," notes John Wiest, principal in San Francisco-based Wiest & Co., specialists in developing and launching consumer products via retail channels.

What's good news for consumers is not such good news for the struggling Starbucks chain, however. The prospect of even lower prices on retail coffee (including the competitive Dunkin retail brand) could not come at a worse time, given consumers' growing propensity to forgo pricey café brews in favor of home brewing--not to mention the mounting competition from McDonald's and Dunkin' on the out-of-home front.

Starbucks' same-store sales have declined 9% since its fiscal 2009 first quarter began in October, on top of an 8% drop in Q4 of its fiscal 2008. Stores in states where housing foreclosures have been worst, including Florida and California, have been hardest-hit.

CEO Howard Schultz told analysts last week that it's critical that Starbucks not undermine its premium brand position in the face of economic pressures. Starbucks is not "a fast-food operator" or "discount business," he stressed.

Rather, Starbucks affirmed that in addition to closing stores and other cost-cutting measures, the chain will focus on providing consumers with added value through its loyalty cards, including its new Gold Card program.

That program, which carries a $25-per-year fee and offers benefits over the standard Starbucks rewards card--notably, 10% off on most purchases--drew 350,000 sign-ups in the first four weeks after it began to be promoted in stores in November, Starbucks reported.

Branding consultant Al Ries of Ries & Ries isn't sold on this strategy, however. "Even in this economy, Starbucks has to maintain somewhat higher prices to maintain its perception of higher quality," Reis concurs. "But they would be better off lowering overall prices to some degree than issuing a lot of deals. Coupons and money-off deals just make a brand's regular prices seem too high to consumers. Look at Bed, Bath & Beyond and Linens & Things. They've been issuing coupons like crazy for years, and where has it gotten them? No one shops there without a coupon."