Peanut Butter Wars: #2 Skippy Determined to Take Down #1 Jif

Peanut butter is a lucrative category. Americans individually consume three pounds of peanut butter each year. Children eat an average of 1,500 peanut butter and jelly sandwiches by the time they graduate from high school, according to the Peanut Advisory Board.

Still, peanut butter sales have been steady, but stagnant. Now, Hormel Foods (NYSE: HRL  ) is planning Skippy's first major brand push in 10 years. And it's a battle that pits this #2 peanut butter brand against #1 brand Jif, owned by J.M. Smuckers  (NYSE: SJM  ) .

"The disparity in terms of phrasing between the number one brand and our brand is far out of proportion to where it should be," said Hormel Foods' CEO and president Jeffrey Ettinger during his company's 2013 Investor's Day in June. Let the games begin.

Skippy's rejuvenation

Skippy's return to the spotlight is a result of a $700 million acquisition from Unilever (NYSE: UL  )  in early 2013. "We thought it was a wonderful brand that hadn't been communicated in quite a while," says Ettinger during the company's third quarter earnings call. "The mission of 2014, frankly, is to rejuvenate the brand with Skippy consumers."

To reverse years of advertising neglect, Hormel Foods is increasing its marketing budget, though executives declined to provide specific figures. Plus, Hormel Foods company executives haven't yet figured out exactly how they are going to communicate Skippy to consumers. Those details are still being discussed. All they know is that the campaign will launch in the latter part of 2014.

Jif goes natural

Meanwhile, Skippy's top competitor, J.M. Smuckers' Jif, isn't passively reacting to news of Skippy's comeback. Company executives bumped marketing budgets by 10% in 2013, and intend to increase ad support by another 10% in 2014.

"We have historically maintained a leading share of voice [in peanut butter] and we expect this year to be no different," says Richard Smucker, CEO of J.M. Smuckers, speaking at the Barclays Back-to-School Consumer Conference held in September. In 2014, Jif will be a key sponsor of the U.S. Olympic and Paralympic teams during the Winter Olympics. Jif's presence includes TV support, consumer and retail promotions, product packaging, and digital marketing.

J.M. Smuckers is also solidifying its dominance through product extensions. In fact, the company spent $30 million-$40 million in fiscal 2013 to expand Jif's manufacturing capabilities. To that end, Jif Naturals is one of its fastest-growing product lines, with a 2013 volume increase of 30%. There's also Jif Whips, Jif-To-Go, and Jif Chocolate Hazelnut Spreads.

"Our Smuckers brand team is evaluating opportunities to extend the brand into categories beyond fruit spreads, toppings, and syrups," says Paul Smucker Wagstaff, president of U.S Retail Consumer Foods, during the company's third quarter earnings call on Nov. 20.

Creamy or chunky?

As Jif and Skippy battle for peanut butter supremacy, so does the preference for chunky or creamy peanut butter spreads. Currently, Americans prefer creamy to chunky by a 60-40 ratio; women and children prefer creamy, while men like chunky. East coasters prefer creamy, West coasters like chunky, according to the Peanut Advisory Board.

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