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McCormick CEO: 'we are dealing with extraordinary high levels of consumer demand'

Yahoo Finance’s Julie Hyman, Brian Sozzi, and Myles Udland speak with McCormick & Company President, CEO & Chairman Lawrence Kurzius, about how the company is faring amid COVID-19.

Video transcript

BRIAN SOZZI: McCormick is looking to keep its bottomline spicy this year as people venture outside their homes after getting their COVID-19 vaccine. That may mean a few less home cooked meals, but perhaps a whole lot of Frank's Hot Sauce used on a taco truck taco. McCormick's Chairman President and CEO, Lawrence Kurzius, joins us now. Lawrence, good to-- good to see you again. Listen, last time we talked was at the height of the pandemic in the middle of last year. Are you still seeing people cook at their home at the rate that they were versus last year?

LAWRENCE KURZIUS: Hi, Brian. It's great to be with you again, and you're right. When we last spoke, it was at the peak of the pandemic. You know, demand from consumers has really been strong through the entire pandemic and really still is.

There's a long-term trend towards cooking at home, especially among younger consumers. There was all the cooking shows and so on. And that was really strengthened and accelerated by the pandemic. Millions of households learned how to cook their family recipes because they had to, but they also found out that cooking was fun and an enjoyable event for the family that healthy meals were more-- you know, were cooked, you know, when you cook from scratch. Again, you can cook more fresh and healthy.

And I think the consumers have really enjoyed it. You know, we've gotten a trial of our products with millions of new households. And our survey data says that consumers intend to continue to cook, not because they have to, but because they want to. A full 65% of households in the US, for example, say, they're going to cook as much or more after the pandemic than they are even today because it's been a good experience.

And you know, your listeners are going to know that they've outfitted their own kitchens. They've bought appliances like Instapots and air fryers, and they want to continue to use them. And so, we have good reason to believe that this trend that was in place before the pandemic was only accelerated by the pandemic. And current demand bears it out. We are still dealing with extraordinarily high levels of consumer demand.

BRIAN SOZZI: And Lawrence, I'm seeing that a little bit when I go to the supermarket. I am seeing some spice-- just spices being out of stock. A lot of the basics. A lot of some of the cooler stuff that I would want to experiment with. Is there a spice shortage right now?

LAWRENCE KURZIUS: Well, I wouldn't say there was a spice shortage, but in order to meet the just incredible demand that we have experienced here in the US, in particular, we had to suspend hundreds of items to make sure that our most popular core items were in stock. And we've had to allocate product to the market, literally ration our customers' purchases as we went through the pandemic to make sure that all of our customers were treated fairly.

Now, Brian, you know, we've talked about this on our earnings call. So, I know you all have heard this and your listeners have, but we've added an enormous amount of production capacity here in the US, in particular, as we went through the second 1/2 of last year. And into the beginning of this year, we hired over 1,400 additional people, mostly in our supply chain. And we've added roughly the equivalent of an entire new factory by changing shift patterns and bringing human resources to bear on it.

And so, today, we're finally catching up there. So, those out of stocks that you mentioned are pretty quickly getting filled. Versus are kind of the worst of the allocation time, we've-- we've restored about 50% of the out of stock items on the shelf and are rapidly closing in on the remaining 50%. And all of the items that we had on suspension have now been restored, that we no longer have any items that are on suspension. So, you should see that shelf position situation really accelerating. All of those out of stocks filling up.

JULIE HYMAN: Hey, Lawrence, it's Julie here. What's this-- what's sort of the one thing, or the couple of things, that you have had the toughest time keeping on the shelves, both because there is such high demand for those particular products and/or because they're the hardest to get a hold of and get processed?

LAWRENCE KURZIUS: Yeah, it hasn't really been a problem of getting-- you know, we've been able to get raw materials pretty well. So, that hasn't been the issue. It's just been the sheer level of demand. So, the hardest things to keep up with have frankly been some of our most popular items, Old Bay seasoning. Oh my gosh.

The demand for Old Bay has just been extraordinary, and we've been hard pressed to keep up with it. And even now, it's one of those items that we are still struggling with to keep in stock. The demand is just so high for favorites like that.

MYLES UDLAND: You know, Lawrence, also thinking about the spice part of the portfolio. You know, you guys finished the Cholula acquisition back in the fall. I think about what the Frank's brand was when I was a little kid. It seemed new and novel.

Now it pretty much, I think what's the tagline, that goes on anything? So--

LAWRENCE KURZIUS: Right.

[CHUCKLES]

MYLES UDLAND: What are consumer trends, I guess, with respect to the heat that they want to add to their food, and how have you seen that move through the portfolio? Is it an area you might want to be more acquisitive as you move along here?

LAWRENCE KURZIUS: It is. You know, so, the consumer demand for flavor, not just in the US, but around the world, just seems to be ever increasing. Consumer-- people want more interesting, exciting flavors, and hot and spicy flavors are part of that trend. And the demand for and interest in hot and spicy foods, across almost everything that we do, has really been strong both before the pandemic. It's a long term trend, and through it, and we believe this is going to continue.

Frank's still continues to deliver tremendous growth, and we've had a lot of innovation in the Frank's brand. Cholula is another fast growing hot sauce that appeals to a younger demographic. It has a different usage occasion than Frank's. It's really the leader in Mexican style hot sauces and goes great with any kind of Mexican, or Tex-Mex, or other Latin type of foods. And is a great complement to the Frank's brand because many of the-- there's a pretty good overlap of users, but the usage occasions are different.

And like Frank's, it is young. So, we think that we've got a demographic tailwind working for us. It's a great example of one of the things that we said we wanted to do, by the way, as we went through the pandemic. Our first priority was the health and safety of our employees. The second was keeping our brands and our customer's brands in supply.

But the third was emerging stronger. And I think this is a great example of a move that we undertook to make sure we came out of it stronger. It was a chance to add a great new brand to our portfolio and pay for it with financing that we were able to put in place at record low interest rates. So, it's a real win for us.

BRIAN SOZZI: I think you've inspired our very own Myles Udland to use his Instapot for the first time. McCormick's Chairman President and CEO, Lawrence Kurzius. Always good to see you. Stay safe.