US spice maker McCormick & Co. is looking to develop its presence in the high-growth emerging markets of China and India to drive long-term sales expansion.
The company yesterday (27 June) lowered its full-year operating profit outlook to a range of 5-7% to reflect costs associated with its acquisition of Chinese spice maker Wuhan Asia-Pacific Condiments (WAPC). However, the deal added a percentage point to McCormick’s sales forecast range, raising it to 4-6%.
Speaking to analysts during a conference call, Alan Wilson, chairman, president and CEO, emphasised the growth prospects offered by WAPC.
“This business has a leading position in bouillon in central China, a modern production facility and sales of approximately US$102-122m, which we expect to grow at a double-digit rate. On a full year basis, we expect sales of WAPC to bring our total business in China to approximately 7% of total company sales,” Wilson revealed.
Wilson emphasised that McCormick was “extremely well prepared” for the integration of the business. “We’re off to a great start and we’re confident that WAPC will be an excellent addition to our portfolio of leading brands.”
By 2014, Wilson predicted that WAPC will add to earnings. “In 2014, we expect a further sales benefit from the incremental impact of WAPC in the first half and expect this business to be accretive in our operating income.”
McCormick has beefed up its business in China, a market it has operated in for “more than 20 years”, through M&A and it has focused on building scale in both its consumer and industrial business.
As it looks to expand in India the company is pursuing a similar strategy to develop both a consumer and industrial ingredients business, Wilson said.
“India is much more of a developing market for us than China is, and we’ve been in China for more than 20 years. And we’re in China with both our consumer and our industrial business, and so we’ve had time to build that out.
“India, right now, we have mainly a consumer business, along with a couple of joint ventures that are more ingredient-based. Our strategy is really similar because the industrial business helps provide the scale for us to continue to grow and expand our consumer business. Although in this case, we have an established consumer business that will allow us the scale to start to build out an industrial business,” Wilson explained.
India, he continued, is “still a pretty small percentage of sales, less than 5%”. However the company is “very bullish on the market”, he added.
Currently, as McCormick looks to drive growth in India, it is focused on developing its value-added offering to consumers, Wilson said. “Our strategy there is to evolve to a much more value-added portfolio, and we’ve started to do that by introducing the Rice ‘n’ Spice mixes and some of the 2-minute meals. So what we want to do is put our value-added products through the distribution channel that we acquired when we bought Kohinoor.”
According to Janney analyst Jonathan Feeney, McCormick’s focus on expanding in emerging markets through bolt-on M&A and an increasing focus on value-added products is underpinned by its business in developed markets. This strategy, Feeny suggested, has allowed the group to perform ahead of its peers.
“Through its profitable developed market stronghold, bolt-on M&A, and rising mix towards macro-sensitive food service and emerging markets, McCormick has delivered returns slightly ahead of peers over the past 5 and 10 years,” he wrote in a note to investors.