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September 28th 2005 - This communication contains Confidential and Proprietary Information of International Paper ("IP"). This communication and Information are solely for internal use by employees of IP and disclosure or distribution to any individual who is not an employee of IP is strictly prohibited.
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Folgers plant waking up after hurricane damage
Coffee production Port of New Orleans reviving In the wake of Hurricane Katrina, warehouse workers at Procter Gamble Co.'s New Orleans coffee complex have been using clipboards and pencils to record shipments.
But such inconveniences haven't stopped PG from slowly restarting the manufacturing lines at the world's largest coffee plant and the anchor of its billion-dollar Folgers business.
Three weeks after Katrina roared through the Gulf of Mexico and battered New Orleans, PG has located all 550 of its employees in the area.
This week, President Bush and Louisiana Gov. Kathleen Blanco visited the plant, which is located in eastern New Orleans on the Industrial Canal, an area that was hard-hit by flooding.
Although it has shipped limited quantities of Folgers products to stores around the country, PG faces huge challenges. Among them: allocating coffee to retailers as it rebuilds the business, and limiting long-term damage to its sales and profits as competitors including Maxwell House try to capitalize on the temporary weakness.G acknowledges there will be shortages on store shelves, but they haven't shown up yet because there was enough coffee in the distribution pipeline when the storm hit to fill the shelves for several months.
"As a customer, you wouldn't notice anything now," said Randy Miller, director of grocery buying at bigg's. "But they (PG) have asked us not to run any promotion or any hot pricing through November so they can get their business back in line."
Miller said his understanding is that competitor Maxwell House, which has port facilities in Jacksonville, Fla., is increasing production to fill the gap.
The Port of New Orleans - a major port of entry for raw coffee beans - reopened Sept. 13, and the first boat included a Folgers shipment. It was only a few days before that power and natural gas service were restored at the PG complex.
In the big PG picture, Folgers is not as critical to the company's long-term growth plans as beauty or health-care brands such as Pantene or Prilosec.
The damage from Katrina will shave 1 cent to 2 cents per share off its quarterly earnings, PG says, but sales are good enough in other areas to make up the difference and allow the company to meet earnings expectations.
The disruption doesn't appear to threaten Folgers' market-leading position against Maxwell House.
According to market-watcher Information Resources Inc., Folgers' basic ground coffee posted a 23.1 percent market share for the year ended Sept. 4, compared to 14.7 percent for the Maxwell House base product. Both companies have seen slight declines in market share over the past year, IRI said. Those numbers do not include results from Wal-Mart stores.
Folgers has increased market share in the past several years with new plastic canisters and new flavored versions, trying to appeal to younger consumers who had chosen soft drinks over coffee.
But that doesn't minimize the disruption, mirrored by hundreds of companies in Katrina's path that are now trying to rebuild a businesses that may have been destroyed by the storm. Although PG operates another coffee plant in Kansas City, the New Orleans complex produced the bulk of its coffee business.
Robert Nelson, president of the National Coffee Association, said nearly 100 coffee companies had facilities in New Orleans that were affected by the hurricane. But it shouldn't produce a category-wide problem that would lead to shortages or increased prices, he said.
G has contributed more than $8 million in cash and products to relief efforts. And for nearly a week after the hurricane, it spent considerable energy trying to locate employees and their families.
G's food business has had other recent experience in rebuilding its plants after natural disasters.
In May 2003, its Pringles plant in Jackson, Tenn., was heavily damaged by a tornado. Without facing the long-term flooding problems that Katrina left in its path, that plant was operating within a week.
E-mail cpeale@enquirer.com
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