WEBVTT - McCormick CEO Brendan Foley Talks Unilever Deal

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The spice giant McCormick is betting on scale, moving to

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<v Speaker 2>combine with Unilever's food business in a deal aimed at

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<v Speaker 2>building a global flavor powerhouse. The key question is whether

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<v Speaker 2>investors will have any appetite. Boy, I know a lot

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<v Speaker 2>of funds here, but I'm here for it and for

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<v Speaker 2>the spices because I love to cook and it's I

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<v Speaker 2>spend a lot of my day in the spice at Choperate.

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<v Speaker 1>It's spent a lot of day Choperate.

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<v Speaker 2>Joining us now is Brendan Foley, Chairman and CEO of McCormick. Brendan,

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<v Speaker 2>great to have you really appreciate you coming coming in

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<v Speaker 2>talk to us first about this deal because it is

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<v Speaker 2>a massive deal. And I guess you'll what. You'll back

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<v Speaker 2>into a company that still will have a majority of

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<v Speaker 2>Unilever shareholders, but you'll stay on running the business and

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<v Speaker 2>keep your headquarters.

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<v Speaker 3>That's right. This is this is a combination really focused

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<v Speaker 3>on growth and value creation. So you have two iconic

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<v Speaker 3>brand portfolios combining to really create just a pre eminent,

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<v Speaker 3>you know, food company that's all focused on flavor. And

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<v Speaker 3>so when we look at this, it's it's you know,

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<v Speaker 3>it's going to be very accreative in the first year,

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<v Speaker 3>you know, sales, operating margin and just the vps UH

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<v Speaker 3>and so we really think there's a lot of value

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<v Speaker 3>creation opportunity here. But it's also you know, an opportunity

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<v Speaker 3>for you know, McCormick just to continue to kind of

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<v Speaker 3>that strategic focus on flavor at a global level.

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<v Speaker 1>It does feel a little bit counter to the overall

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<v Speaker 1>trend of what's happening with consumer products. Craft Times paused

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<v Speaker 1>to split but still is looking at it cure doctor Pepper,

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<v Speaker 1>this is moving in the opposite direction. Are they getting

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<v Speaker 1>something wrong? Why do you think that you're growing bigger

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<v Speaker 1>as others are trying to do spin offs or shrinking

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<v Speaker 1>and focusing in on on various parts of their business.

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<v Speaker 3>You know, for both you and Labor and McCormick, this

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<v Speaker 3>is about focus. And you know, we're really bringing together

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<v Speaker 3>a number of brands. Again, as we said, they're all

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<v Speaker 3>focused on flavor and that's what mcormick focus is, and

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<v Speaker 3>we bring the focus of a food company now to

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<v Speaker 3>that brand portfolio that we're combining with with Unilever. But

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<v Speaker 3>it is a really about focus in both companies, So.

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<v Speaker 2>I want to focus on the flavor too. I have

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<v Speaker 2>a million questions about your products, but I want to

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<v Speaker 2>ask first about the deal because the structure is interesting.

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<v Speaker 2>It's a reverse Morris trust. I don't know what that means,

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<v Speaker 2>but tell us about the mechanics of that and why

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<v Speaker 2>you decided to do.

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<v Speaker 1>It this way.

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<v Speaker 3>Well, as we combine both companies, you know, you think

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<v Speaker 3>about the size of Unilever, it's about two thirds the

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<v Speaker 3>size of the total combined, and McCormick is about one third.

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<v Speaker 3>And that's really the combination that we agreed upon in

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<v Speaker 3>terms of the proportion for both shareholders. But both shareholders

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<v Speaker 3>win in this. What they get is a larger food

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<v Speaker 3>company that's faster growing, with stronger margins and the ability

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<v Speaker 3>to really kind of really build out globally.

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<v Speaker 2>Well, an Unilever is a monster business, but they must

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<v Speaker 2>have a lot of faith in you and your management team,

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<v Speaker 2>because otherwise they would, you know, obviously replace you.

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<v Speaker 3>McCormick is the right hope for these brands, and when

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<v Speaker 3>we talked about it, I mean the equity fit of

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<v Speaker 3>the focus of their portfolio, which is brands like helmets

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<v Speaker 3>and other brands that are also local favorites combined with McCormack,

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<v Speaker 3>it's a really strong fit. When you think about the

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<v Speaker 3>grocery store, it is.

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<v Speaker 1>A big project to take on. What becomes sort of

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<v Speaker 1>the pain points of an acquisition, of a deal, of

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<v Speaker 1>a reverse mors trust of this size, What needs to

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<v Speaker 1>be worked through in the coming months and years.

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<v Speaker 3>Well, the important part is how you plan integration. So

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<v Speaker 3>we have a very detailed integration plan that we have underway,

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<v Speaker 3>and we have a lot of experience in doing this.

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<v Speaker 3>Of course not necessarily at this size and this scale,

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<v Speaker 3>but when you look at an integration, it's important to

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<v Speaker 3>define the complexity that you're dealing with. And in this one,

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<v Speaker 3>think about first you have to separate and then you

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<v Speaker 3>have to integrate. And right now the separation, I think

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<v Speaker 3>eighty percent of the sales of Unilever's food business is

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<v Speaker 3>already separated it stand alone. Think about the sales, organization, manufacturing,

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<v Speaker 3>R and D. Those are things that kind of come

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<v Speaker 3>together and kind of reduce execution risk. But also think

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<v Speaker 3>about market overlap. Now we're talking about the combining aspect

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<v Speaker 3>of this, and so we see a lot of overla

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<v Speaker 3>properties where we're lifting and shifting great Unilever talent and

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<v Speaker 3>ways of operating into a combined business.

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<v Speaker 1>I mean, how does that work with just making sure

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<v Speaker 1>that the best talent stays on board. Do they need

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<v Speaker 1>to move to Baltimore? I mean, it's a great city.

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<v Speaker 1>I love Baltimore. But maybe we've got people being like, absolutely,

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<v Speaker 1>no way, I'm going there.

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<v Speaker 3>This is a global business and we need people globally.

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<v Speaker 2>I wonder about a couple of trends in the food

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<v Speaker 2>business that everyone has seen, right the private label business.

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<v Speaker 2>White label business has gotten big. So how do you

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<v Speaker 2>differentiate McCormick from I don't know, bowl and basket or whatever.

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<v Speaker 2>You know, private label brand is sitting right next to

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<v Speaker 2>it in the spice aisle.

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<v Speaker 3>It's the quality in the flavor of our products. So

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<v Speaker 3>you think about the hot sauce category, those are flavors

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<v Speaker 3>that can't be replicated and so people are really loyal

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<v Speaker 3>to them. Think about Chilulah or Frank's Red Hot, and

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<v Speaker 3>in fact, they probably have many hot sauces in their

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<v Speaker 3>pantry for different purposes. But you go over to herbs

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<v Speaker 3>and spices, I mean, if you compare you know, sort

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<v Speaker 3>of a cumen to a cuman. You know, we have

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<v Speaker 3>a very unique sourcing STREA strategy that is really we

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<v Speaker 3>go all the way to the source and we have

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<v Speaker 3>a chain of custody from the farm. We work with

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<v Speaker 3>over fIF four thousand small holder farmers and so we

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<v Speaker 3>know exactly what that product is and it prevents adulteration

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<v Speaker 3>and make sure that we have the right spec behind

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<v Speaker 3>everything that we have. So it is quality in the

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<v Speaker 3>jar that is the big differentiator versus everything else. Because

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<v Speaker 3>we have a very unique sourcing strategy.

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<v Speaker 1>I think there is this fear that that consumers, already

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<v Speaker 1>having dealt with a lot of inflation, are dealing with

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<v Speaker 1>it even more acutely as gasoline prices go up. Have

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<v Speaker 1>you seen any changes to consumer behavior over the past month.

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<v Speaker 3>You know, I would not say over the past money.

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<v Speaker 3>It's really been over the last couple of years. There's

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<v Speaker 3>a real intersection with the need for value and also

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<v Speaker 3>health and wellness, and consumers are going to give up

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<v Speaker 3>on looking for both of those. So we put a

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<v Speaker 3>lot of focus around that in the first couple of

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<v Speaker 3>years that I've been CEO and really make sure we

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<v Speaker 3>have our price points right at shelf. We're working a

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<v Speaker 3>lot with our retail partners to make sure that we

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<v Speaker 3>grow categories and we think about volume growth, and that's

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<v Speaker 3>been a big focus of ours. If you look at

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<v Speaker 3>the performance of McCormack and Unilever Foods over the last

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<v Speaker 3>two to three years, we're one of the few companies

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<v Speaker 3>that have been doing that because we think we're hitting

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<v Speaker 3>that cross section of value in health and wellness.

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<v Speaker 2>I want to get into mayonnaise a little bit because

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<v Speaker 2>I grew up in Bexley, Ohio. My grandmother would make

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<v Speaker 2>us peanut butter and mayonnaise sandwiches.

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<v Speaker 1>Oh it's delicious.

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<v Speaker 2>It's delicious, but she wouldn't have used anything other than

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<v Speaker 2>Helman's And as a result, I never will try Mike's

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<v Speaker 2>Amazing Lemonade or Duke's Mayonnaise or whatever QP is this

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<v Speaker 2>Japanese mayonnaise. But other people are increasingly starting to branch out,

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<v Speaker 2>and there's also like a hyper local foods trend that's

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<v Speaker 2>picking up. How do you look at this category, this

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<v Speaker 2>all important category of mayonnaise.

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<v Speaker 3>Well, when you look at categories like this where you

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<v Speaker 3>have big legacy, you know, sort of iconic brand names

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<v Speaker 3>like Helmets or like McCormick, those are important to consumers,

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<v Speaker 3>but consumers all selective explore with flavor. They like to

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<v Speaker 3>try new things. We understand this world of flavor a lot,

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<v Speaker 3>and you know, you have to continue to be relevant

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<v Speaker 3>and you have to bring in innovation. You have to

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<v Speaker 3>bring in new flavors. You have to think about, you know,

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<v Speaker 3>how does heat apply? You know, and think about flavor trends.

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<v Speaker 3>We know all about that, and so I see a

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<v Speaker 3>world of innovation opportunity, whether it is a small, you know,

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<v Speaker 3>growing brand like think about Chilula or Frank's rad Hot

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<v Speaker 3>or my Mustard. Those are really great, high potential brands

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<v Speaker 3>around the world that we see a lot of growth,

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<v Speaker 3>and so we see a lot more new penetration. But

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<v Speaker 3>there's also innovation opportunities behind brands like helmets where you're

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<v Speaker 3>still going to want to be a loyal user, but

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<v Speaker 3>it's also a lot of new flavor opportunities there too.

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<v Speaker 1>What's sort of the split between like your test kitchen

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<v Speaker 1>coming up with new stuff versus inorganic acquisitions of finding

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<v Speaker 1>little small like you know, the kind of small local

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<v Speaker 1>hyper brands out there. Do those look attractive to bring

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<v Speaker 1>in new innovation or is it kind of all done

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<v Speaker 1>in house?

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<v Speaker 3>Well, we consider both actually as we think about growing

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<v Speaker 3>the business. It is about growing the brands organically. That's

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<v Speaker 3>really important. It's also important to grow through volume, and

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<v Speaker 3>sometimes there are opportunities where you see brands like we

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<v Speaker 3>did with Chilula a couple of years ago, we thought

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<v Speaker 3>this brand has the ability to take off globally. That

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<v Speaker 3>has to be in our portfolio.

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<v Speaker 2>What's next? Do you want scale? You know, you want

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<v Speaker 2>more skews? Do you go after a JM. Smucker because

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<v Speaker 2>Jiff peanut butter goes amazingly well with Helman's mayonnaise.

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<v Speaker 3>You know, we're really focused, very exclusively, and that's why

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<v Speaker 3>I think is really the most important part of this

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<v Speaker 3>combination is we're dedicated to flavor. We've been very, very

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<v Speaker 3>focused on that.

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<v Speaker 1>Just very quickly because we're almost out of time. But

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<v Speaker 1>one of the things that's been remarkable about this very

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<v Speaker 1>tense geopolitical moment that we're living in is that kind

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<v Speaker 1>of the price of everything is dependent off energy, including plastics.

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<v Speaker 1>What has that done to you? Packaging getting more expensive

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<v Speaker 1>because of what's happening in the Middle East.

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<v Speaker 3>Well, we're certainly watching that closely. In the price of

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<v Speaker 3>oil obviously affects a lot of that. We're finding a

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<v Speaker 3>way to work through that. You know in every company

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<v Speaker 3>it's trying to find a way to make sure we

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<v Speaker 3>work through that. But this is one where we have

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<v Speaker 3>to think about value with shelf making sure we also

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<v Speaker 3>find other ways to offset those input costs. And that's

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<v Speaker 3>the way we're dealing with this current situation.

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<v Speaker 2>Brendan, great having on the program. Hope we get you

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<v Speaker 2>back on and if you ever need anybody in your

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<v Speaker 2>innovation case and I'm happy.

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<v Speaker 1>Happy, it's going to be all made and peanut butter sandwiches, Ryett.

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<v Speaker 2>Yet, I'm telling you. Brendan Foley, Chairman and CEO of

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<v Speaker 2>McCormick