McCormick CEO: M&A will be key to meeting consumer demand for flavor
HUNT VALLEY, Md. — A year after making the biggest acquisition in the company's nearly 130-year old history, Lawrence Kurzius said McCormick & Co. remains on the lookout for more deals to strengthen its portfolio amid growing consumer demand for flavor.
"Our long-term financial model is to have about a third of our growth come from acquired brands, and leveraging our financial strength to add new brands to the portfolio or new capabilities through acquisition," Kurzius, McCormick's CEO, told Food Dive at the opening of the company's new headquarters 20 miles north of Baltimore.
"Every now and then we'll do a big one like (Reckitt Benckiser), but that's our long-term outlook. For the near-term, ... we're going to spend a little bit more time paying down the debt and deleveraging, but we absolutely will be back on the market, and frankly for the right assets, we'd go back to the market today."
The brief pause comes as McCormick digests the $4.2 billion purchase last July of Reckitt Benckiser's food division, the biggest deal in its history. In transaction costs, Kurzius said the Reckitt Benckiser deal — which added the iconic French's mustard and Frank's RedHot brands to McCormick's portfolio — was bigger than all the purchases the company has ever done collectively.
While M&A remains a key driver for growth, the company known for its red-capped seasonings is also turning to internal innovation.
Last fall, McCormick added 40 new products — including bone broth, slow-cooker seasonings and Asian noodles — designed to appeal to busy people who can't spare a lot of time for preparation but still want flavorful home-cooked meals. It's also increasing the reach of products available in the perimeter of the store and going to new meal occasions, including breakfast. McCormick recently took its Frank's RedHot sauce to the frozen foods space through the introduction of chicken wings.
"Our long-term financial model is to have about a third of our growth come from acquired brands and leveraging our financial strength to add new brands to the portfolio or new capabilities through acquisition."
Executives at McCormick showcased many of these products this week at the retail store that is part of the company's new 350,000-square-foot headquarters.
The six-story glass building, which combines employees previously spread out across four locations, includes an employee cafe showcasing the company’s brands and culinary innovations, state-of-the-art test kitchens for product development and flavor research and culinary classes for its workers.
The facility, about 20 miles north of Baltimore, currently has more than 1,000 employees, with space to accommodate another 500 people. McCormick is optimistic that having local employees housed under one roof will spur collaboration, enable it to attract and retain talent and quicken the pace of discovering the next flavor or product, all of which will further boost the company's competitive edge.
The 129-year old manufacturer of spices, seasoning mixes, flavorings and condiments tailors its products to the public's desire to eat better without losing flavor and taste.
A Mintel study found 35% of U.S. consumers would be tempted to try a new dish if it had unique flavors or ingredients, and 80% of people like trying new seasonings, spices and flavors. This demand paves McCormick's expected growth. Last week, the company said it expects sales to increase 12% to 14% compared to last year — partially reflecting the Reckitt Benckiser purchase — with a long-term projection of 4% to 5% annually, Kurzius said.
Beyond the store shelf that houses brands such as Old Bay, Lawry's, Zatarain's and its namesake products, McCormick also has a robust business selling flavorings to other food companies and quick service restaurants, a segment that makes up roughly 40% of its sales.
"Our key categories, including condiments, but also our long-time categories like spices and seasonings, continue to grow driven by a demographic, the younger generation of consumers, that's more interested in cooking from scratch, less interested in processed food," Kurzius said. "I don't see an end to that in sight."
Wall Street firm Barclays said following McCormick's earnings that the company "often screens at a much higher premium than peers, [but] by the same token, it consistently outperforms the group as it typically delivers top tier organic growth." The analyst report went on to say that "when there are bumps in the road, so to speak, it seems to us that [McCormick's stock] is bought on any weakness, as investors recognize that ultimately the company plays in advantaged categories with leading brands."
The future of E-commerce
While most of its consumer sales come in stores, Kurzius said e-commerce as a fixture in food is "inevitable," similar to the penetration it has had in other retail categories. McCormick is devoting more resources to its own e-commerce efforts and those of the businesses that peddle its products, such as pure-play online retailers like Amazon and brick-and-mortar stores who sell its products. Overseas, McCormick has a storefront on Tmall.com, an Alibaba site in China, where it sells and fulfills product orders directly to 50,000 subscribers.
"Once we optimize that model, we'll look at other areas where there is a chance to do a direct-to-consumer business. We've been open about our ambition to do more to build a one-to-one relationship with the consumers in this country, and while I don't have a specific thing to announce, we're definitely working in that direction," Kurzius said.
Kevan Vetter, McCormick's executive chef, told Food Dive that during his 20 years at the company he has witnessed the rate of adoption for food and flavor "exponentially increase." He said the company used to forecast flavor trends three to five years out, but now has narrowed that window to between one and three years.
Consumers who like to cook have moved on from the same lineup of meals, he said, and now have a desire to try new things with different flavors. Even people who view cooking as a chore still want to make good food when they feed their friends and families.
"It's not even necessarily ethnic cuisines anymore. It's global cuisines, which I think is very interesting. It's about how are others eating around the world that I want to experience" easily at home, said Vetter, who spends about 30% of his time traveling the globe looking for the next popular flavor. "We need to be more flexible, more nimble to launch products faster. We're always looking for something new."
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