McCormick sets cost-cutting goal of $400 million

by Jeff Gelski
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McCormick & Co. expects new products in its portfolio will appeal to millennials.

BOCA RATON, FLA. — Executives for McCormick & Co. announced a four-year plan to reduce costs by $400 million on Feb. 17 at the Consumer Analyst Group of New York Conference at the Boca Raton Resort & Club in Boca Raton. They continue to expect an increase in organic and non-bioengineered items to help drive sales growth this year.

“We have set a four-year, $400 million cost-savings target,” said Gordon Stetz, executive vice-president and chief financial officer for McCormick & Co., Sparks, Md. “Sources for these savings include further global procurement efforts and manufacturing activity where our employee teams are reducing losses and improving production efficiencies. We will continue to streamline our selling, general and administrative activity with actions like our new shared service center in Poland and the North American effectiveness initiatives.”

Lawrence Kurzius, McCormick
Lawrence Kurzius, president and c.e.o.

He said on an annual basis the company anticipates the savings will approximate 2% of sales, or about 3.5% of cost of goods sold over the next four years. McCormick plans to use a portion of the savings to fund investments in growth, for continued increases in brand-building equity, and research and development, he said.

For previous cost reductions, Mr. Stetz pointed to McCormick’s C.C.I. (comprehensive continuous improvement) program. Launched in 2009, the C.C.I. program has delivered total savings of nearly $450 million.

“As an example, in 2015 we reduced salaried headcount in North America by 8% with minimal business disruption,” he said. “Across all of our productivity improvement and streamlining actions in 2015, we delivered a record $98 million of cost savings, up 42% from 2014.”

McCormick & Co. continues to have long-term financial goals of 4% to 6% in annual sales growth and 9% to 11% growth in annual earnings per share, said Lawrence Kurzius, president and chief executive officer. By the end of this year, the company expects 80% of McCormick gourmet brand sales to be organic, said Brendan Foley, president, Global Consumer Business & North America.

Supply chain capabilities will prove crucial in organic growth, Mr. Kurzius said.

“We haven’t treated organic as a niche,” he said. “We have said we’re going to make this one of the mainstream attributes of a core product range, namely our gourmet. Part of bringing that along is developing the supply chain, frankly, to source organic. We have to — at the scale of our business — we have to develop that supply chain all the way back to source ourselves, in many cases. A great deal of the spices that are offered to us purporting to be organic by our testing are not, and we want our brand to be absolutely pure in this regard, and so, developing that supply chain is very important.”

McCormick has expanded its organic and non-G.M.O. offerings.

The company plans to label more than 70% of McCormick brand spices, herbs and extracts as non-G.M.O. (non-bioengineered). Mr. Kurzius said many McCormick items already are non-bioengineered.

“In many cases, it is just taking credit for what we already have,” he said. “For many of our iconic raw materials, there is no genetically modified plant out there, but consumers don’t really know that, and we want to make sure that they do. For others, it really does require us to do something different than our competitors do that we believe can be hard to match and gives us a competitive advantage.”

Mr. Foley said McCormick in 2016 will further its innovation in liquid pouch technology, which already has led to product introductions in Skillet Sauces and Slow Cooker Sauces. A line of Oven Bake Sauces should enter the market this year.

“We have more innovation planned for wet sauces and marinades that span other brands,” Mr. Foley said. “In 2016, we will introduce Grill Mates 30-minute marinades, a single-use, no-waste, no-high-fructose corn syrup product. We are also poised to launch Kitchen Basics organic stock, a flavor base for multiple dishes that is also gluten-free and a good source of protein.”

McCormick & Co. expects its portfolio will appeal to millennials.

“Millennials are looking for a signature touch, and they view seasoning as a performance art,” Mr. Kurzius said. “Millennials’ cooking skills and interests are better developed than their age cohort 30 years ago, and they rely less on meal kits and prepared foods.”

Health and wellness looks to be another growth opportunity. Mr. Kurzius pointed out the 2015-2020 Dietary Guidelines for Americans recommends spices and herbs as a way to reduce sodium intake.

“We have built off this news with easy tips for consumers, like sprinkling black pepper and oregano on your eggs instead of salt,” he said.

Mr. Kurzius, formerly president and chief operating officer, took over as c.e.o. Feb. 1. He succeeded Alan Wilson, who became executive chairman.

“Since 2007 under Alan’s leadership, we have grown sales by $1 billion to $4.3 billion, completed 11 acquisitions and joint ventures, and increased the percentage of sales in emerging markets, which is above 20% if you include our share of joint ventures,” Mr. Kurzius said.
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