McCormick CEO: Everybody is expecting this year's growth to be driven much more by volume than pricing

03-Apr-2013 - Last updated on 04-Apr-2013 at 12:44 GMT

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While surging commodity prices have meant that much of the industry’s growth in the past year or two has come from pricing rather than volume, things are beginning to change, says seasonings and spices giant McCormick.

The firm - which has a consumer products arms as well as an industrial business supplying ingredients to food manufacturers and foodservice companies - said some big customers are also starting to focus more on innovation and growth having got major restructuring projects out of the way.

What I'm seeing right now is back to a focus on growth… on fewer, bigger initiatives in innovation

Speaking to analysts yesterday after posting a 7% rise in third quarter sales in its consumer business but a 2% drop in sales in its industrial business, McCormick CEO Alan Wilson said: “A lot of our customers were going through a number of structural changes last year.

“Some were being split, some were going through major restructuring, and there was more of a focus on managing costs. What I'm seeing right now is back to a focus on growth… on fewer, bigger initiatives in innovation.”

Asked about pricing, he said: “We’ve had so much pricing over the last couple of years … What I do see a number of companies doing and talking about is getting the shelf price right so that they're capturing volume.

“I think everybody, like we are, is expecting this year's growth to be driven much more by volume than necessarily pricing, as we've seen some amount of stability in commodity prices.”

35% of sales for new gourmet recipe mixes are incremental to the category

Asked about new products, he said that McCormick had developed several new seasoning blends for salty snacks, crackers and meal preparation kits for its industrial business, while new gourmet recipe mixes were driving incremental sales growth in its consumer business in the US.

“We’re extending varieties of our gourmet recipe mixes with flavors such as smoked paprika chicken tacos and Tuscan beef stew.

Alan-Wilson-CEO-McCormick — Alan Wilson: 'I think everybody, like we are, is expecting this year's growth to be driven much more by volume than necessarily pricing, as we've seen some amount of stability in commodity prices'

"This product line offers consumers a way to make premium, all-natural meals that are full of flavor. Recent retailer data showed that 35% of sales for these products are incremental to the category.”

Meanwhile, it was also increasing its presence in dollar stores, which have “migrated from [selling] very low priced, not very high quality products in our category to a lot more branded offerings”, he said.

Acquisitions: ‘We're not seeing a flurry of things coming to market’

On the topic of acquisitions, he said the firm had an “active pipeline that we feel pretty good about, but we're not seeing a flurry of things coming to market at this point”.

He added: “As companies are consolidating now, they aren't necessarily paring down their portfolio. So some of those established brands that we may expect to see, just as a matter of routine, aren't coming to market right now.

“On the other hand, a number of the kinds of assets that we look at are individually owned by entrepreneurs, and so at some point, it will make sense for them to look for an exit strategy.”

Q1, 2013 highlights

In the three months to February 28, McCormick’s net sales rose 3% to $934m, with a 7% growth in consumer business sales offsetting a 2% decline in sales in the industrial business.

Earnings were 57 cents per share, ahead of the prior-year quarter earnings of 55 cents by 3.6%.