US spices and sauces major McCormick & Co. says the rate at which cash-strapped consumers are trading down from brands to private-label alternatives in its categories has moderated.
The Cholula sauce and Old Bay spice brands owner’s COO Brendan Foley told analysts in a post-results call yesterday (29 June) that private-label providers have also had to up prices as they face the same supply-chain inflation pressures as branded food businesses.
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Foley, who will become the Frank’s Red Hot sauce maker’s CEO in September, said: “I think we have to acknowledge that there has been some trade down to private-label, especially more recently. But it has moderated, especially I think in our own categories, as we see more pricing on shelf coming from private-label.”
Foley added: “We do see consistently consumers do prefer brands… [but] we’re also in the private-label business with our customers so we see a role for private-label in our categories.
“Right now, we are pushing a lot on value. We’re really focused on the growth of our line sizes. We’re seeing a consumer shift there more and more as they look for that greater value, and it’s definitely showing through in our trends.
“We typically see this happen during inflationary or recessionary times for private-label. It certainly appears to gain share. But, then again, we’re not hitting sort of the highs that are different from what we’ve seen in previous periods. So that’s our perspective on it, but we certainly have our foot in both parts of the category.”
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By GlobalDataIn its second quarter, McCormick saw sales increase by 8% year-on-year to $1.65bn while adjusted operating income was up 35% to $235m.
Outgoing CEO Lawrence Kurzius told analysts: “We’re pleased with our strong second quarter performance, which reflects sustained demand across our business and effective execution of our strategy.”
He added: “Our pricing actions are in place and, importantly, our volume performance improved. We continue to see top-line momentum in our business, positioning McCormick for sustained growth.”
Kurzius, who remarked that its performance benefited from its “recovery in China”, said it expects strong demand for its products to continue throughout 2023 and, as a result, the company has raised its adjusted operating income guidance for the full year.
It now expects 10% to 12% year-on-year growth against previous guidance of 9% to 11%. It is maintaining its sales guidance of 5% to 7% growth.
CFO Mike Smith said results reflected price increases of 11% but volumes declined by 1%
“Impacts to volume related to the China recovery, the Kitchen Basics divestiture, the exit of our consumer business in Russia and strategic decisions we made related to optimising the profitability of our portfolio,” he said.
US investment bank Stifel said: “McCormick expects its pricing actions to more than offset inflation in 2023 and to recover the impact of inflation as its pricing has lagged over the past two years.”
