Innovation sizzling at McCormick

by Monica Watrous
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A new line of skillet sauces positions McCormick in a new category facing such major players as Campbell and General Mills.

 

SPARKS, MD. — McCormick & Co. hopes to spark sales in the United States with the launch of skillet sauces. The new product line positions the company in a competitive category against such players as the Campbell Soup Co. and General Mills, Inc. But McCormick said its offerings are different from what’s already on the market.

“The products that we’ve launched, instead of being more premium, have been more focused on everyday classics with a twist,” said Alan Wilson, chairman, president and chief executive officer, during an Oct. 2 call with financial analysts to discuss third-quarter performance. “And so effectively, they’re liquid versions of our more popular dry seasoning mixes. And so we think that distinguishes us.”

Varieties include fajita with roasted chili, garlic and lime; smoky Applewood barbecue chicken with bacon; sweet and smoky sloppy joes; and Sicilian chicken with tomato, basil and garlic.

“Obviously, as everything that we do, we test with great flavors,” Mr. Wilson said. “So, we believe that’s going to deliver. And just to remind you, we’re also in the liquid category already with our Lawry’s wet marinades. So while this is a new launch for us and a new category that has been growing, we believe it will help with the category growth rate. We’re not going head-to-head with the stuff that’s already out there. We’ve got a different mix of products.”

Flavor is in favor

The creation of skillet sauces and similar innovation is one way in which McCormick is adapting to shifting consumer demographics and preferences. Other efforts include increased investments behind digital technology and brand marketing. McCormick also is counting on consumer trends favoring the categories in which the company competes.

“Underlying all of our growth strategies is a rising demand for flavor,” Mr. Wilson said. “In a recent U.S. study, at a 90% response rate, taste remains the top factor impacting food and beverage purchases. For our largest growth platform, spices and seasonings, the latest Euromonitor projections show a robust 10% average annual growth rate for the next five years.”

McCormick is poised to benefit from five factors driving growth in spices and seasonings and recipe mixes. The first is a strong interest in cooking among millennial consumers.

“In the U.S., our data shows that both McCormick’s gourmet and everyday products are well represented in millennial households,” he said.

Second, the influence of ethnic demographics has stirred an American appetite for global fare. Cultural cuisine accounts for about 44% of all U.S. flavoring occasions, Mr. Wilson said.

Third, consumers are more connected, sharing recipes, meal ideas and photos of food on-line. In response, McCormick has doubled its digital marketing spend over the past few years and introduced FlavorPrint, a personalized recipe recommendation web site designed to help consumers identify flavor preferences and discover recipes.

“We have industry-leading digital programs and were recently ranked No. 5 in a Digital I.Q. survey of 80 packaged foods brands in the U.S. market,” Mr. Wilson said.

The fourth trend driving growth in flavor categories is a significant shift toward healthy eating in global markets, which translates to consumption of fresh products suited for flavoring. McCormick is partnering with government and trade agencies to help inspire better-for-you choices among consumers.

The fifth and final driver is a rising middle class in emerging markets, where consumers gradually are converting to packaged spices and herbs from bulk products.

Also inspiring confidence at McCormick is a flattening of private label performance in the spices category, where the company previously lost share to store brands and smaller competitors.

“What we’ve actually seen in the more recent periods, and actually for the year, private label share in spices has not grown in the U.S.,” Mr. Wilson said. “It’s been pretty flat. And in more recent periods, we’ve seen private label share flattening and actually declining a little bit.”

Improved performance

For the third quarter ended Aug. 31, McCormick had net income of $122.9 million, equal to 95c per share on the common stock, up 18% from $104.4 million, or 79c per share, in the comparable period.

Net sales increased 3% to $1,042.8 million from $1,016.4 million.

Operating income for the company’s consumer business rose 2% to $121.1 million during the quarter, and segment sales climbed 1.6% to $621.9 million, driven by gains in international markets that offset a 1% decline in the Americas.

“While consumer sales in the Americas declined 1% this quarter, that’s an improvement from the first half of 2014, and we expect further improvement in the fourth quarter and in 2015,” Mr. Wilson said.

Contributing to growth during the quarter were new products, continued strength in recipe mixes and improved sales of grilling products compared to the prior-year quarter.

“Another action under way to strengthen our U.S. brand equity is increased investment in brand marketing, and we’re planning an increase of approximately 20% in the fourth quarter,” Mr. Wilson said. “These additional funds will boost our holiday campaigns, with new television ads for Thanksgiving and Christmas. We’ll build awareness and trial of the new skillet sauces and gluten-free recipe mixes.”

For the company’s industrial business, operating income advanced 22% to $36.2 million, and segment sales increased 4.2% to $420.9 million, reflecting higher volume and product mix from innovation and distribution gains and pricing actions.

“We continue to meet increased demand from quick-service restaurant customers and participate in the growth of snack seasonings for food and beverage manufacturers,” Mr. Wilson said. “Snack seasonings were a top growth item as well for our industrial business in the Americas in both the U.S. and Mexico. Largely driven by volume and product mix, sales in this region rose 3% in local currency.”
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