McCormick & Co., a prominent player in the food and beverage industry, has noted a leveling off in the rate at which cost-conscious consumers are switching from branded products to private-label alternatives within its categories. Brendan Foley, the Chief Operating Officer (COO) of the company, stated during a recent analyst call that private-label providers are also facing supply chain inflation pressures, resulting in higher prices for their products.
Foley, who will assume the role of CEO for McCormick in September, commented, “We have observed some trade down to private-label, especially in recent times. However, this trend has moderated, particularly in our own categories, as we are seeing more pricing competitiveness from private-label brands on the shelves.” He further added, “While consumers generally prefer brands, we also recognize the significance of private-label products within our categories, as we are actively engaged in their production for our customers.”
With a focus on value, McCormick is heavily emphasizing the growth of its line sizes in response to consumer demand. Foley explained, “We are witnessing a shift among consumers towards larger product sizes in search of greater value, and this is clearly reflected in our current trends.” He also highlighted that private-label products tend to gain market share during inflationary or recessionary periods, but the company isn’t experiencing the same level of growth as seen in previous times. Thus, McCormick acknowledges the importance of both branded and private-label offerings in their business strategy.
McCormick reported an 8% year-on-year increase in sales to $1.65 billion in the second quarter, while adjusted operating income rose by 35% to $235 million. Lawrence Kurzius, the outgoing CEO, expressed satisfaction with the company’s performance, attributing it to sustained demand and effective execution of their strategy. Kurzius also highlighted the recovery in China as a contributing factor and raised the company’s adjusted operating income guidance for the full year.
According to CFO Mike Smith, the results were driven by an 11% increase in pricing, while volumes declined by 1%. However, he clarified that the decline in volume was largely due to the recovery in China, the divestiture of Kitchen Basics, the exit from the consumer business in Russia, and strategic decisions made to optimize profitability.
US investment bank Stifel commented, “McCormick anticipates that its pricing actions will more than offset inflation in 2023 and recover from the impact of inflation, as the company’s pricing has lagged behind over the past two years.”
