Food manufacturer The J. M. Smucker Company (SJM) recently announced the completion of its acquisition of Calif-based Enray Inc. for an undisclosed amount. Enray is a privately-held company that manufactures and sells organic, gluten-free ancient grain products. The acquisition also includes a leased manufacturing facility in Livermore, Calif.
The acquisition is expected to benefit Smucker as it will strengthen its position in the natural and organic beverages category with Enray’s truRoots brand. The deal is a strategic fit for Smucker as Enray's gluten-free product line includes pastas, sprouted and non-sprouted grains and cookies, which will perfectly complement Smucker’s products like fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings and sweetened condensed milk.
Demand for healthy, nutritious and natural foods has grown in recent years as people are more concerned about obesity and other health problems. We believe that this might as well have led to the acquisition.
The demand for specialty and organic food has increased despite the pullback in consumer spending. This is evident from the fact that many grocers are beefing up their organic offerings in order to tap the growing demand. While the retail giant Wal-Mart Stores Inc (WMT) has increased its fruit and vegetarian offerings, traditional grocers like Kroger Co. (KR) and Safeway Inc. (SWY) have boosted their specialty food products with more vegan and gluten-free products. Last month, Kroger agreed to buy grocer Harris Teeter Supermarkets Inc (HTSI) to expand in the health food business.
We believe that the changing consumer preference toward health and wellness and “good-for-you” products is here to stay. Consumers have now become conscious regarding obesity and other weight related problems.
The American Heart Association estimates that currently about one-third of U.S. adults are obese. If the current obesity growth trend continues, total healthcare costs attributable to obesity could account for as high as 16% to 18% of US health expenditure. As a result, Americans are gradually spending more on high-priced organic and specialty food products despite overall decline in consumer spending.
Smucker holds a Zacks Rank #3 (Hold).
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