US food giant McCormick & Co. has set out plans for job cuts, through a combination of voluntary and involuntary layoffs.

The topic of job cuts outlined by McCormick & Co.’s chairman and CEO Lawrence Kurzius yesterday (26 January) was not brought up for discussion by analysts during a Q&A session on a call to discuss the US-based spices and seasonings maker’s fourth-quarter and annual results.

However, it is perhaps a sign of the challenges facing global food manufacturers grappling with lingering supply chain bottlenecks from Covid and double-digit grocery inflation, at least in the US. Bloated energy costs as a result of Russia’s encroachment into Ukraine, approaching a year since the invasion, are not helping.

Kurzius yesterday described fiscal 2022 as “a challenging and volatile year that impacted our ability to deliver on our expectations and our financial performance”.

McCormick & Co.’s sales fell 2% in the final quarter but were up 2% in constant-currency terms on the back of another round of pricing, tethered at 9%.

Underlying volumes were down 4%, with other offsetting factors cited as an “expected 2% volume decline from the Kitchen Basics divestiture and the exits of low-margin business in India and the consumer business in Russia, and a 1% year-over-year volume decline from the China Covid-related disruption”.

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Sales for the year increased a meagre 1% and 3% in constant currency.

Kurzius outlined McCormick & Co.’s job cuts fit within the company’s efforts to realise annual cost savings of US$125m aimed at increased “profit realisation”.

Under a recently implemented global operating model – “to more effectively leverage our scale and drive cost reductions” – Kurzius revealed a voluntary retirement scheme in the US.

“As we further advanced that model and streamline our processes, strengthen our collaboration, and align our structure to work more efficiently, we are taking corresponding action to streamline our workforce across the entire organisation,” he said. “A large component of our streamlining actions is a US voluntary retirement programme, which is very far along, with a targeted separation date of February 1st.”

And he added: “This will be followed by other actions, some of which will be involuntary. As always, we will care for our employees in keeping with our shared values.”

Approached by Just Food to clarify the total number of jobs McCormick & Co. plans to eliminate and when, a spokesperson said: “No decisions have been made. We are still considering streamlining actions.”

More automation

Volatility in supply chains is expected to continue, volatility that has presented McCormick & Co. with “additional costs above inflation to service our customers”, Kurzius said, adding the business has seen “inefficiencies develop in our supply chain”.

On the worker front, he explained: “During the quarter, we optimised our leadership structure throughout our facilities and upgraded the talent in key roles. Simultaneously, we’re increasing the capability levels of our teams.

“We’re also accelerating automation, ranging from individual pieces of equipment to a completely automated line for a high-volume packaging format. We expect through these initiatives to reduce 10% of our Americas supply chain workforce. And over the past three months, we have already achieved half of the planned reduction.”

More pricing appears to be on the cards in the new fiscal year as Kurzius said McCormick & Co.’s pricing actions to date “are only now catching up to the pace of inflation”.

CFO Mike Smith added: “We plan to fully recover the inflation our pricing has lagged over the last two years.”

During the Q&A, Kurzius provided a sense of the impact on consumers and demand from pricing, with further pain for the new financial year.

“We’ve seen some moderation of elasticity as we’ve gone through the year. It looks like peak elasticity was around the time when gas prices were at $5 a gallon and above for most of the country. And that was really not so much a reaction to our price increase [s] but to the general level of inflation that consumers were experiencing and the high pressure on their wallets.

“We do expect the consumer to be under pressure in 2023.”

Kurzius added: “I don’t care whether you call it a recession or a soft landing. Consumers on the lower end of the income spectrum – I’m not talking about the bottom, I’m talking about the lower half – they’re going to have less money and are going to be careful with their budgets.”

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