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McCormick CEO: We didn’t see as many new product launches from customers last year as we’d typically expect

By Elaine WATSON , 28-Jan-2013
Last updated the 28-Jan-2013 at 15:04 GMT

Spices and seasonings giant McCormick says it is encouraged by the strong pipeline of new products that food manufacturers it supplies are developing this year, but admits that it had expected more new launches last year.

Speaking at the firm’s Q4 and full-year results earnings call on Thursday, CEO Alan Wilson said: “I'd say the one thing that we didn't see as we went into last year is the amount of actual new product launches that we'd typically expect to see. A lot of our customers are going through restructurings and have focused on some level of reorganization.”

But he added: “We do see a pretty strong pipeline of new product activity among the consumer food customers that we have, that does encourages as we go into the second half of the year.”

Meanwhile, a move by customers toward healthier products has “directed a significant portion of our developmental work with more than 30% of new product briefs globally having some wellness aspect”, he revealed.

Prices have gone up six times

On the Q3 earnings call last year, CEO Alan Wilson said McCormick is increasingly trying to build direct relationships with consumers via social media: "Pinterest is now the third-largest social media site after Facebook and Twitter and provides an opportunity for consumers to become engaged with our brands in more authentic and compelling ways"

While the firm has had to institute a series of price rises in the consumer products side of the business in recent years owing to commodity price hikes, things were now calming down, he said.

Across the past several years, we've taken pricing actions on 6 different occasions in the US. These actions have had a cumulative increase of 25%, and together, have helped address a 45% increase in material costs.”

However, bosses now “expect retail buying patterns for our products to normalize and for consumers to face less pressure from higher pricing”, he predicted, given that material cost inflation was currently “around 3% and no major pricing actions are currently planned”.

Meanwhile, as spices are fairly low-frequency purchases, they are not as price sensitive as some more frequently purchased items, he argued. Likewise, price gaps between McCormick and rivals’ products have recently closed as competitors - chiefly in the private label arena - have raised prices, he said.

The digital consumer is a very engaged consumer

Meanwhile, attempts to get closer to consumers by working with retailers on new digital platforms were progressing apace, he revealed.

“We're doing a number of things… everything from digital recipes to promotions that we work with on search to really target where consumers are at on their mobile phones. So as they're searching for things like chicken, we're working with the retailers on driving specific purchases of specific McCormick items.. and we're seeing some really great results

“As we continue to expand, we have some technologies, which allow for individual flavor selection, and we've been talking to a number of retailers around tying that to their programs. We're very encouraged by what we're seeing in terms of returns, how consumers are responding.”

He added: “The digital consumer is a very engaged consumer, and is one that increasingly we're reaching out to.”

Hurricane Sandy and out-of-spec raw materials

While Hurricane Sandy had a limited impact on the firm’s retail customers, “it did impact a number of suppliers in this area, which created product shortages during our critical holiday selling period”, revealed Wilson.

“We also lost several ships of production time in our manufacturing distribution facilities in Maryland.”

During the quarter, McCormick also recorded a $4m charge owing to raw material from one of its suppliers that was out of specification, he said. “We expect to recover a portion of this charge in 2013.”

The one thing consumers refuse to compromise on is flavor…

While analysts were not overly impressed by McCormick’s performance, Wilson was upbeat about the firm’s prospects and said he expected to grow sales 3% to 5% in 2013 (excluding acquisitions), which was in line with long-term objectives.

He added: “The latest 52-week category growth for spices and seasonings in our top five markets… ranges from 3% in France to 8% in the U.K. and Poland, and in China, the category is growing at a strong double-digit pace.”

As for the US market, he said: “Our 2012 U.S. study revealed that while today's consumer is under pressure and striving to save both time and money, the one thing consumers refuse to give up is flavor…more than half of consumers point to flavor and seasonings as a great way to add variety to everyday dishes.”

McCormick’s fourth-quarter net income was $148.5m, or $1.11 a share, compared with $131.7m, or 98 cents, a year earlier, below analysts’ estimates of $1.14/share.

Its sales, at $1.15bn, were also slightly behind expectations of $1.17bn.

In fiscal 2012, McCormick grew sales by 9% to $4bn.

Click here to find out what McCormick's top flavor predictions are for 2013.

Click here to read about how McCormick is engaging with consumers via digital marketing and social media.

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