Daily Newsletter

28 March 2024

Daily Newsletter

28 March 2024

McCormick edges toward volume recovery on raft of growth initiatives

Hot sauces promotions have put pressure on McCormick’s market share.

Simon Harvey March 28 2024

McCormick & Co. anticipates volumes will turn positive in the back half of its fiscal year as the spices to hot sauces maker caps price increases.

“We remain dedicated to improving volumes. We continue to refine our plans and are prioritising our investments to drive impactful results and return to differentiated and sustainable volume-led growth,” president and CEO Brendan Foley told analysts as he presented first-quarter results.

“At a high level, we expect our top line to be at the mid-to-high-end of our guidance range, given the momentum we saw in the first quarter.”

The outlook implies a sales range of flat to down 2%, or in constant-currency terms, on which the guidance is based, down 1% to up 1%.

First-quarter sales to 29 February rose 3% and 2%, respectively, across those metrics to $1.6bn. Volume/mix was down 1% based on pricing of 3%.

McCormick’s volumes have fallen over consecutive quarters as the US-listed business, which also supplies products including seasonings, spice mixes and mustard, initiated price increases to offset inflationary input costs.

In the early part of last year – fiscal 2023 – and the latter part of the previous 12 months, the company pushed up prices by as much as 9-11%, causing volumes to decline 2-3%.

“In terms of pricing, we continue to expect a favourable impact related to the wrap of last year’s pricing actions, most significantly in the first half, partially offset by our price-cap management investments that will drive volume growth,” CFO Mike Smith explained.

“We expect to drive improved volume trends as the year progresses. Our initiatives will take time to materialise and we continue to expect to return to volume growth during the second half of the year, absent any new macroeconomic headwinds.”

Volume growth will be driven by increased marketing spending behind McCormick’s brands, expected in the high single-digit area, and which will be first-half weighted.

The company also pointed to a double-digit increase in investments, offset by cost savings such as trimming low-margin products to “optimise” the portfolio.

Foley said volume recovery will also be driven by “narrowing price gaps” with private label, increasing promotions and through new product development, such as a new range of Schwartz brand seasonings and recipe mixes based on chef and TV celebrity Nadiya Hussain.

“Brand marketing, new products and packaging innovation, category management, proprietary technologies, and customer engagement continue to be the initiatives behind our growth levers,” Foley explained.

“We are prioritising investments to connect with consumers and fuel growth.”

He added brand marketing increased “significantly” in the first quarter across all regions and was an “important driver in improving volumes”.

McCormick has also boosted distribution in the discount channels in the EMEA region and expanded in China into “small-format stores”, along with entering “third- and fourth-tier cities” within the Asian country.

“We are meeting the consumer where they live and shop,” Foley said.

He added: “Revenue management will continue to be an important tool for driving growth, and we will consistently leverage real-time analytics and insights to refine our plans.

“We continue to take a surgical approach to managing our price gaps to private label and branded competitors.”

McCormick on pricing in hot sauces

Foley and Smith touched on a price-point dynamic playing out in hot sauces, where McCormick plays with the likes of the brands Cholula and Frank’s RedHot.

“We have seen a surge in $1 price point trial sizes from new and existing small players, which is incremental to the category and is pressuring our share performance,” Foley said.

Smith said the pressures from those category price points were evident in the fourth quarter and the early part of the opening three months of fiscal 2024 as “retailers push the concept of trial sizes” at low prices.

“It’s been driving down the category of volume and dollar growth that maybe we had been seeing going into this time period,” Smith explained. “That is pressuring our share performance, particularly on units.

“We’re taking some of these learnings and looking at our own efforts at having a trial size and competing in this kind of promotional area.”

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