McCormick & Co. has reported growth from its consumer-facing business in China, a market where a number of its peers have stuttered in recent quarters.
Lawrence Kurzius, president and COO, said China "led" the growth of McCormick's consumer division in the second quarter to 31 May, with sales up at a double-digit rate.
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Companies including Hershey and Nestle have reported challenges in China in recent months. Broadly, many consumer companies have seen sales slow in China amid an easing in the country's growth, while firms are grappling with the rapidly growing interest from Chinese consumers in shopping online.
On a conference call to discuss McCormick's second-quarter and half-year results, the company's management was pressed on what was driving its growth in China and what impact it was seeing from the rise of the e-commerce channel.
"We do participate in the e-commerce sector in China but I'll tell you for us it’s still developing segment of the market, or developing channel just like it is for everyone else," Kurzius said. "The big difference I think in our business in China for our consumer segment is that we’re a lot less dependent on the modern trade than many of our peer companies. With the [2013] acquisition of Wuhan Asia-Pacific Condiments, we got a strong foothold in the central part of China, great penetration in the more traditional segment of the market and we’re experiencing really broad-based growth on both our McCormick brand and on our acquired brands across China."
During the quarter, McCormick launched a product under its namesake brand in central China, an example, Kurzius said of the "synergies" from the WAPC deal.
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By GlobalDataHe added: "We recognise that there has been some slowdown in economic growth in China but our categories continue to do well and our brands in particular had really broad-based growth in this quarter, and we don't really see any change in that trend."
McCormick's business-to-business industrial division is recovering in China after sales were hit in 2014 amid lower demand from quick service restaurants.
CFO Gordon Stetz said: "We grew industrial business sales in the Asia-Pacific region 4% in constant currency. In China, we grew through innovation and export and the recovery continued from 2014 challenges with lower demand from major quick service restaurants."
McCormick's management was asked if the recovery in sales from its industrial business in China was being boosted by limited-time offers.
Kurzius said: "The growth that we are experiencing there partly reflects a recovery of the quick service restaurants and partly reflects gain in share that we’ve achieved with those same customers. So while the limited time offers are important, there is a steady stream of innovation that these customers are doing, that cycles through our business continuously. I’d say the key underlying trend this year has been a recovery in the quick service restaurant themselves and a gain in our share with those customers."
After last week's announcement of a deal to buy US barbecue sauce brand Stubb's – McCormick's third acquisition in 2015 – the company was also asked about its M&A strategy.
Deutsche Bank analyst Eric Katzman suggested a "challenge" for the company when weighing up acquisition targets "has been potentially some kind of conflict with industrial customers who may be in the same business" and asked if that was a concern for management.
Chairman and CEO Alan Wilson said: "We always analyze for deals what the competitive overlap is going to be. We know that we need to be in parts of the categories that are growing faster and we see opportunities for this in this case and in the case of barbecue sauces, we saw very little competitive overlap and we saw the opportunity for us to really participate in more of the premium and higher priced part of the category that's growing.
"That one fits very well for us and we see some other opportunities like that that don't impact or overlap with our critical customers. So we've expanded our horizons in terms of the kinds of acquisitions that we're considering."
