Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The spice giant McCormick is betting on scale, moving to
Speaker 2: combine with Unilever's food business in a deal aimed at
Speaker 2: building a global flavor powerhouse. The key question is whether
Speaker 2: investors will have any appetite. Boy, I know a lot
Speaker 2: of funds here, but I'm here for it and for
Speaker 2: the spices because I love to cook and it's I
Speaker 2: spend a lot of my day in the spice at Choperate.
Speaker 1: It's spent a lot of day Choperate.
Speaker 2: Joining us now is Brendan Foley, Chairman and CEO of McCormick. Brendan,
Speaker 2: great to have you really appreciate you coming coming in
Speaker 2: talk to us first about this deal because it is
Speaker 2: a massive deal. And I guess you'll what. You'll back
Speaker 2: into a company that still will have a majority of
Speaker 2: Unilever shareholders, but you'll stay on running the business and
Speaker 2: keep your headquarters.
Speaker 3: That's right. This is this is a combination really focused
Speaker 3: on growth and value creation. So you have two iconic
Speaker 3: brand portfolios combining to really create just a pre eminent,
Speaker 3: you know, food company that's all focused on flavor. And
Speaker 3: so when we look at this, it's it's you know,
Speaker 3: it's going to be very accreative in the first year,
Speaker 3: you know, sales, operating margin and just the vps UH
Speaker 3: and so we really think there's a lot of value
Speaker 3: creation opportunity here. But it's also you know, an opportunity
Speaker 3: for you know, McCormick just to continue to kind of
Speaker 3: that strategic focus on flavor at a global level.
Speaker 1: It does feel a little bit counter to the overall
Speaker 1: trend of what's happening with consumer products. Craft Times paused
Speaker 1: to split but still is looking at it cure doctor Pepper,
Speaker 1: this is moving in the opposite direction. Are they getting
Speaker 1: something wrong? Why do you think that you're growing bigger
Speaker 1: as others are trying to do spin offs or shrinking
Speaker 1: and focusing in on on various parts of their business.
Speaker 3: You know, for both you and Labor and McCormick, this
Speaker 3: is about focus. And you know, we're really bringing together
Speaker 3: a number of brands. Again, as we said, they're all
Speaker 3: focused on flavor and that's what mcormick focus is, and
Speaker 3: we bring the focus of a food company now to
Speaker 3: that brand portfolio that we're combining with with Unilever. But
Speaker 3: it is a really about focus in both companies, So.
Speaker 2: I want to focus on the flavor too. I have
Speaker 2: a million questions about your products, but I want to
Speaker 2: ask first about the deal because the structure is interesting.
Speaker 2: It's a reverse Morris trust. I don't know what that means,
Speaker 2: but tell us about the mechanics of that and why
Speaker 2: you decided to do.
Speaker 1: It this way.
Speaker 3: Well, as we combine both companies, you know, you think
Speaker 3: about the size of Unilever, it's about two thirds the
Speaker 3: size of the total combined, and McCormick is about one third.
Speaker 3: And that's really the combination that we agreed upon in
Speaker 3: terms of the proportion for both shareholders. But both shareholders
Speaker 3: win in this. What they get is a larger food
Speaker 3: company that's faster growing, with stronger margins and the ability
Speaker 3: to really kind of really build out globally.
Speaker 2: Well, an Unilever is a monster business, but they must
Speaker 2: have a lot of faith in you and your management team,
Speaker 2: because otherwise they would, you know, obviously replace you.
Speaker 3: McCormick is the right hope for these brands, and when
Speaker 3: we talked about it, I mean the equity fit of
Speaker 3: the focus of their portfolio, which is brands like helmets
Speaker 3: and other brands that are also local favorites combined with McCormack,
Speaker 3: it's a really strong fit. When you think about the
Speaker 3: grocery store, it is.
Speaker 1: A big project to take on. What becomes sort of
Speaker 1: the pain points of an acquisition, of a deal, of
Speaker 1: a reverse mors trust of this size, What needs to
Speaker 1: be worked through in the coming months and years.
Speaker 3: Well, the important part is how you plan integration. So
Speaker 3: we have a very detailed integration plan that we have underway,
Speaker 3: and we have a lot of experience in doing this.
Speaker 3: Of course not necessarily at this size and this scale,
Speaker 3: but when you look at an integration, it's important to
Speaker 3: define the complexity that you're dealing with. And in this one,
Speaker 3: think about first you have to separate and then you
Speaker 3: have to integrate. And right now the separation, I think
Speaker 3: eighty percent of the sales of Unilever's food business is
Speaker 3: already separated it stand alone. Think about the sales, organization, manufacturing,
Speaker 3: R and D. Those are things that kind of come
Speaker 3: together and kind of reduce execution risk. But also think
Speaker 3: about market overlap. Now we're talking about the combining aspect
Speaker 3: of this, and so we see a lot of overla
Speaker 3: properties where we're lifting and shifting great Unilever talent and
Speaker 3: ways of operating into a combined business.
Speaker 1: I mean, how does that work with just making sure
Speaker 1: that the best talent stays on board. Do they need
Speaker 1: to move to Baltimore? I mean, it's a great city.
Speaker 1: I love Baltimore. But maybe we've got people being like, absolutely,
Speaker 1: no way, I'm going there.
Speaker 3: This is a global business and we need people globally.
Speaker 2: I wonder about a couple of trends in the food
Speaker 2: business that everyone has seen, right the private label business.
Speaker 2: White label business has gotten big. So how do you
Speaker 2: differentiate McCormick from I don't know, bowl and basket or whatever.
Speaker 2: You know, private label brand is sitting right next to
Speaker 2: it in the spice aisle.
Speaker 3: It's the quality in the flavor of our products. So
Speaker 3: you think about the hot sauce category, those are flavors
Speaker 3: that can't be replicated and so people are really loyal
Speaker 3: to them. Think about Chilulah or Frank's Red Hot, and
Speaker 3: in fact, they probably have many hot sauces in their
Speaker 3: pantry for different purposes. But you go over to herbs
Speaker 3: and spices, I mean, if you compare you know, sort
Speaker 3: of a cumen to a cuman. You know, we have
Speaker 3: a very unique sourcing STREA strategy that is really we
Speaker 3: go all the way to the source and we have
Speaker 3: a chain of custody from the farm. We work with
Speaker 3: over fIF four thousand small holder farmers and so we
Speaker 3: know exactly what that product is and it prevents adulteration
Speaker 3: and make sure that we have the right spec behind
Speaker 3: everything that we have. So it is quality in the
Speaker 3: jar that is the big differentiator versus everything else. Because
Speaker 3: we have a very unique sourcing strategy.
Speaker 1: I think there is this fear that that consumers, already
Speaker 1: having dealt with a lot of inflation, are dealing with
Speaker 1: it even more acutely as gasoline prices go up. Have
Speaker 1: you seen any changes to consumer behavior over the past month.
Speaker 3: You know, I would not say over the past money.
Speaker 3: It's really been over the last couple of years. There's
Speaker 3: a real intersection with the need for value and also
Speaker 3: health and wellness, and consumers are going to give up
Speaker 3: on looking for both of those. So we put a
Speaker 3: lot of focus around that in the first couple of
Speaker 3: years that I've been CEO and really make sure we
Speaker 3: have our price points right at shelf. We're working a
Speaker 3: lot with our retail partners to make sure that we
Speaker 3: grow categories and we think about volume growth, and that's
Speaker 3: been a big focus of ours. If you look at
Speaker 3: the performance of McCormack and Unilever Foods over the last
Speaker 3: two to three years, we're one of the few companies
Speaker 3: that have been doing that because we think we're hitting
Speaker 3: that cross section of value in health and wellness.
Speaker 2: I want to get into mayonnaise a little bit because
Speaker 2: I grew up in Bexley, Ohio. My grandmother would make
Speaker 2: us peanut butter and mayonnaise sandwiches.
Speaker 1: Oh it's delicious.
Speaker 2: It's delicious, but she wouldn't have used anything other than
Speaker 2: Helman's And as a result, I never will try Mike's
Speaker 2: Amazing Lemonade or Duke's Mayonnaise or whatever QP is this
Speaker 2: Japanese mayonnaise. But other people are increasingly starting to branch out,
Speaker 2: and there's also like a hyper local foods trend that's
Speaker 2: picking up. How do you look at this category, this
Speaker 2: all important category of mayonnaise.
Speaker 3: Well, when you look at categories like this where you
Speaker 3: have big legacy, you know, sort of iconic brand names
Speaker 3: like Helmets or like McCormick, those are important to consumers,
Speaker 3: but consumers all selective explore with flavor. They like to
Speaker 3: try new things. We understand this world of flavor a lot,
Speaker 3: and you know, you have to continue to be relevant
Speaker 3: and you have to bring in innovation. You have to
Speaker 3: bring in new flavors. You have to think about, you know,
Speaker 3: how does heat apply? You know, and think about flavor trends.
Speaker 3: We know all about that, and so I see a
Speaker 3: world of innovation opportunity, whether it is a small, you know,
Speaker 3: growing brand like think about Chilula or Frank's rad Hot
Speaker 3: or my Mustard. Those are really great, high potential brands
Speaker 3: around the world that we see a lot of growth,
Speaker 3: and so we see a lot more new penetration. But
Speaker 3: there's also innovation opportunities behind brands like helmets where you're
Speaker 3: still going to want to be a loyal user, but
Speaker 3: it's also a lot of new flavor opportunities there too.
Speaker 1: What's sort of the split between like your test kitchen
Speaker 1: coming up with new stuff versus inorganic acquisitions of finding
Speaker 1: little small like you know, the kind of small local
Speaker 1: hyper brands out there. Do those look attractive to bring
Speaker 1: in new innovation or is it kind of all done
Speaker 1: in house?
Speaker 3: Well, we consider both actually as we think about growing
Speaker 3: the business. It is about growing the brands organically. That's
Speaker 3: really important. It's also important to grow through volume, and
Speaker 3: sometimes there are opportunities where you see brands like we
Speaker 3: did with Chilula a couple of years ago, we thought
Speaker 3: this brand has the ability to take off globally. That
Speaker 3: has to be in our portfolio.
Speaker 2: What's next? Do you want scale? You know, you want
Speaker 2: more skews? Do you go after a JM. Smucker because
Speaker 2: Jiff peanut butter goes amazingly well with Helman's mayonnaise.
Speaker 3: You know, we're really focused, very exclusively, and that's why
Speaker 3: I think is really the most important part of this
Speaker 3: combination is we're dedicated to flavor. We've been very, very
Speaker 3: focused on that.
Speaker 1: Just very quickly because we're almost out of time. But
Speaker 1: one of the things that's been remarkable about this very
Speaker 1: tense geopolitical moment that we're living in is that kind
Speaker 1: of the price of everything is dependent off energy, including plastics.
Speaker 1: What has that done to you? Packaging getting more expensive
Speaker 1: because of what's happening in the Middle East.
Speaker 3: Well, we're certainly watching that closely. In the price of
Speaker 3: oil obviously affects a lot of that. We're finding a
Speaker 3: way to work through that. You know in every company
Speaker 3: it's trying to find a way to make sure we
Speaker 3: work through that. But this is one where we have
Speaker 3: to think about value with shelf making sure we also
Speaker 3: find other ways to offset those input costs. And that's
Speaker 3: the way we're dealing with this current situation.
Speaker 2: Brendan, great having on the program. Hope we get you
Speaker 2: back on and if you ever need anybody in your
Speaker 2: innovation case and I'm happy.
Speaker 1: Happy, it's going to be all made and peanut butter sandwiches, Ryett.
Speaker 2: Yet, I'm telling you. Brendan Foley, Chairman and CEO of
Speaker 2: McCormick