We look how McCormick is benefiting from the shift to more eating at home and some of the challenges its continues to face.
New behaviours becoming ingrained
As one of the leading global companies in the flavours and condiments categories, McCormick has seen a major shift in consumer behaviour due to the COVID-19 pandemic. Its internal data indicates that consumers are cooking more from scratch, enjoying the cooking experience and adding flavour to their meal occasions. With many consumers remaining reluctant to eat out restaurants, these new behaviours are becoming ingrained and new habits are being formed. The company is also benefitting from the switch to take-out in the sector, with many consumers adding flavour through spices, sauces and condiments to these dishes at home.
Investing in customer connections
McCormick plans to increase its marketing spend this quarter as it aims to build long-term brand equity after trial and increase usage by existing consumers. Messaging is being focused on cooking at home and teaching consumers how to use its products and providing inspiration around flavours. It is ramping up its digital activities, recognising the growth in ecommerce and the opportunity to engage with younger consumers. Its recent virtual tailgating experience was a major success, with the event generating over 750m media impressions. A new 'It's Gonna Be Great' campaign is being launched for the holiday season, recognising that celebrations may be different this year.
Supply chain remains challenged
Due to the ongoing elevated demand, the supply chain remains challenged. The company has been unable to full replenish inventories. In the US, ranges remain rationalised, enabling it to meet the demand for its best selling products. NPD introductions have also been slowed, but will underpin growth opportunities next year. McCormick is focused on increasing manufacturing capacity through optimising scheduling and scaling-up partnerships with third-party companies. By the end of the year, the added capacity in the US will be equivalent to an additional plant.
Foodservice recovery likely to take many years
In a positive sign, the company noted that in China, the Quick Service Restaurant (QSR) segment has returned to near normal levels, supporting its flavour solutions segment. However, other parts of the foodservice market are experiencing a slower pace of recovery, varying by channel and market. The company estimates that it could take many years for its business in this area to fully recover.
Resuming guidance on future performance
Having removed its financial outlook in March, the company resumed providing guidance, despite the uncertainty which persists. It expects top line sales growth to be towards the upper end of 4% to 5% for the current full year, and for adjusted operating income growth to be in a similar range. While it did not provide guidance for 2021, the company suggested that it can continue to deliver growth, despite the exceptional demand this year. New consumer habits, a high level of repeat purchase, brand investments, NPD backlog and the restarting of suspended items will all contribute to this.
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