Despite an optimistic game plan, some investment analysts were skeptical during the firm’s quarterly finance call Jan. 28 about whether McCormick can deliver considering its sales grew only 3% to $1.6 billion in fiscal 2014 and 2% to $400.3 million in the fourth quarter.
Noting the company’s organic sales growth has stalled at 2% for the last two years, Credit Suisse analyst Robert Moskow suggested during the call that the only way McCormick could make good on its goal is to score “big market share gains” in the U.S., which is difficult given the increased competition.
CEO Alan Wilson agrees “4% to 6% sales growth may seem ambitious,” but he said the goal is “based on several factors that are in our favor,” including emerging consumer trends demanding bolder, exotic flavors and healthier foods.
The “spice and seasoning category growth was strong in 2014 and is projected to grow at mid-single-digit rates globally in 2015 with roughly 4% growth in developed markets,” Wilson said, citing data from Euromonitor International.
“Flavor is well aligned with the broader changes in the way that people are eating today, whether it is spicier food, eating more fresh produce and protein, simple ingredients, or the move towards heathier eating. We think that these changes are here to stay and that each of them drives demand for flavor,” Wilson said, adding: “This is a catalyst, not only for our consumer business, but also to our industrial business.”
Wilson explained that much of the firm’s growth in 2014 came from innovative flavorings for snacks and beverages as industrial consumers continue to view the firm “as the go-to supplier to help grow their range of healthy and flavorful products,” Wilson said, adding across both the consumer and industrial businesses 8% of 2014 sales came from new products launched in the last three years.
Innovation drives sales
McCormick plans to continue down this path with innovative launches that capitalize on the increased demand for flavor.
“In the first half of 2015, we have a great line up of innovation and are particularly excited about the relaunch of our entire U.S. gourmet line featuring a greater variety of flavor-sealed-technology that locks in flavor, color and aroma,” Wilson said. It also will launch flavored sea salt grinders in the U.S. and a range of Indian seasoning blends in the U.K., he added.
These launches follow the “top-performing U.S. launches” in 2014 of Grill Mate’s burger seasonings, gluten-free recipe mixes and McCormick skillet sauces, he said.
Innovative launches like these put the firm “in a much better position than we were a year ago” when increased market fragmentation in the spice and seasoning category brought threats from smaller brands, including ethnic brands, premium, organic and value-priced brands, Wilson said.
Marketing reinforcement
The company will reinforce product innovation and launches with increased marketing to build brand awareness, and use trade promotions “to build our share of shelf along with our share of voice in advertising,” Wilson said.
For example, McCormick expanded its holiday campaign and reinforced its “Taste You Trust” message with ads featuring product quality, freshness and everyday cooking. This drove up marketing spend 9% from 2013 and up more than 50% from five years ago. It will continue to go up next year, too, Wilson said.
McCormick also will increase its investment in digital marketing, which has a “particularly high” return on investment, Wilson said. Digital marketing will now account for a third of the firm’s advertising, up from 11% in 2010, with special emphasis on reaching Millennials.
“Customer intimacy” is the final factor in McCormick’s plan to substantially increase sales, Wilson said.
This means the firm will use its vast category analytics to increase sales and profitability for itself and retailers, he explained.
Whether these strategies are enough to help the firm overcome increasing competition and other challenges remains to be seen, but the firm is optimistic and as a result is predicting a boost in earnings per share in 2015 to $3.41 to $3.48, according to the firm.