McCormick & Co. looks for opportunity in Amazon's acquisition of Whole Foods
July 5, 2017
by Monica Watrous
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McCormick & Co. has a strong e-commerce business.
SPARKS, Md. — McCormick & Co. Inc. is positioned to win in the wake of Amazon’s proposed acquisition of Whole Foods Market, said Lawrence E. Kurzius, chairman, president and CEO.
|Lawrence E. Kurzius, chairman president and CEO of McCormick
“With Amazon, we’ve got a terrific relationship,” Kurzius said during a June 29 earnings call with investment analysts. “…our pure e-commerce channel business is growing at a very strong, strong rate. We did not quite hit triple digits this quarter with our US business, but we're not far off of it, so tremendous growth.
“But on the flip side of that, at Whole Foods, we were very underrepresented. Some of our secondary brands are in distribution at Whole Foods, like kind of our regional favorites like Old Bay, our Asian products. The Simply Asia brand and Thai Kitchen brand are well represented. But in the heart of our category, we’re pretty light.
“So, we do think that this probably has more opportunity for us than risk, and we think we’re really well positioned based on our relationship with Amazon.”
Consumers are moving to e-commerce, Kurzius said, and “companies that aren’t acting on this are going to have problems down the road.”
“We look at consumer shopping behavior broadly, and there’s no doubt about it; it involves e-commerce as a big and growing part of it,” he said. “It probably does put pressure on our retailer customers to consolidate further and work to differentiate themselves to be as competitive as they can be with this channel.
“Most of the smart traditional retailers have e-commerce programs of their own to try to continue to capture the changing shopping behavior of their consumers with different kinds of click-and-collect programs and so on. And we do participate and support those programs with those retailers. We don’t count that when we talk about our e-commerce business, though.”
McCormick sees opportunity in Amazon's acquisition of Whole Foods Market.
The food industry is operating in a period of rapid and fundamental change in consumer preferences and an evolving retail landscape, Kurzius said.
“As consumers are increasingly shifting their buying between channels and the industry outlook reflects a greater share of growth coming from e-commerce, club and discount formats, we’re pleased with the double-digit sales growth we have experienced in unmeasured channels and expect it to continue,” he said.
In the second quarter ended May 31, McCormick net income was $100 million, equal to 80 cents per share on the common stock, up from $93.8 million, or 74 cents per share, in the prior-year period. Net sales of $1,114.3 million were up 5 percent from $1,063.3 million.
“In the US, our IRI data indicated strong second quarter category dollar sales for spices and seasonings at 7 percent,” Kurzius said. “During the same period, scanner sales of McCormick’s US branded spices and seasonings grew 4 percent. It is important to consider, however, unmeasured channels, including club, e-commerce and Hispanic retail chains. And in doing so, we estimate we grew McCormick’s US retail sales for spices and seasonings another 2 percentage points.
“Overall, we’re seeing good growth in our spice and seasoning brands in the US market, and we know we have more room to grow.”
New products set to debut in the second half of the year include the company’s foray into the breakfast day part with McCormick Good Morning, which includes breakfast toppers, breakfast seasonings, slow cooker breakfast and smoothie boosts.
“The breakfast occasion offers tremendous opportunity to leverage our flavor expertise beyond where McCormick is typically found,” Kurzius said.
Also launching in the coming months are Simply Asia broth and noodle products, including a Vietnamese beef broth and Japanese chicken broth, and McCormick’s Simply Better Wet Gravies in beef, chicken and turkey varieties.
“Made with real ingredients, including stock, vegetables and McCormick herbs and spices, these ready-to-serve gravies will be a hearty addition to holiday and everyday meals this fall, plus there are no artificial flavors, no added MSG, they’re gluten-free and are in BPA-free packaging,” Kurzius said.
The company also is launching more than 30 new spices and seasonings items, including a new range of pasta seasoning blends, garlic products and a turkey brine and rub kit.
Within McCormick’s industrial segment, “we are executing against a new product pipeline of on-trend and better-for-you products,” Kurzius said.
“Our range of flavor solutions for our industrial customers is one of the broadest in the industry as evidenced by recent product development that has been a significant driver of our year-to-date industrial segment sales growth,” he said. “As our customers move their portfolios to more natural, better-for-you and organic, they want to ensure that taste is not compromised. Our distinctive food-first approach, our deep understanding of food and the use of natural ingredients, like herbs and spices, competitively differentiates us and is valued by our customers.”
Net income for the six months was $193.5 million, or $1.55 per share, up from $187.2 million, or $1.47, in the same period of the previous year. Net sales of $2,158 million were up from $2,093.5 million.