Chapter 1: What is the main topic discussed in this episode?
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The spice giant McCormick is betting on scale, moving to combine with Unilever's food business in a deal aimed at building a global flavor powerhouse. The key question is whether investors will have any appetite for it.
Oh boy.
I know, a lot of puns here, but I'm here for it and for the spices because I love to cook and I spend a lot of my day in the spice aisle. Looking at the spice aisle. at ShopRite. It's been a lot of days at ShopRite. Joining us now is Brendan Foley, chairman and CEO of McCormick. Brendan, great to have you. Really appreciate you coming in.
Talk to us first about this deal, because it is a massive deal. And I guess you'll back into a company that still will have a majority of Unilever shareholders, but you'll stay on running the business and keep your headquarters.
That's right. This is a combination really focused on growth and value creation. So you have two iconic brand portfolios combining to really create just a preeminent food company that's all focused on flavor. And so when we look at this, it's going to be very accretive in the first year. Sales, adjust the operating margin, adjust the EPS.
And so we really think there's a lot of value creation opportunity here. But It's also an opportunity for McCormick just to continue to kind of that strategic focus on flavor at a global level.
It does feel a little bit counter to the overall trend of what's happening with consumer products. Kraft Heinz paused a split but still is looking at it. Keurig, Dr. Pepper, this is moving in the opposite direction. Are they getting something wrong? Why do you think that you're growing bigger as others are trying to do spinoffs or shrinking and focusing in on various parts of their business?
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Chapter 2: What is the significance of McCormick's acquisition of Unilever's food unit?
And we bring the focus of a food company now to that brand portfolio that we're combining with Unilever. But it is really about focus in both companies.
So I want to focus on the flavor too. I have a million questions about your products, but I want to ask first about the deal because the structure is interesting. It's a reverse Morris trust. I don't know what that means, but tell us about the mechanics of that and why you decided to do it this way.
Well, as we combine both companies, you know, think about the size of Unilever. It's about two-thirds the size of the total combined, and McCormick's about one-third, and that's really the combination that we agreed upon in terms of the proportion for both shareholders. But both shareholders win in this.
What they get is a larger food company that's faster-growing, with stronger margins, and an ability to really kind of really build out globally.
Well, and Unilever is a monster business, but they must have a lot of faith in you and your management team, because otherwise... they would obviously replace you.
McCormick is the right home for these brands. And when we talked about it, I mean, the equity fit of the focus of their portfolio, which is brands like Hellmann's and Knorr and other brands that are also local favorites, combined with McCormick, it's a really strong fit when you think about the grocery store.
It is a big project to take on. What becomes sort of the pain points of an acquisition of a deal of a reverse Moore's Trust of this size? What needs to be worked through in the coming months and years?
Well, the important part is how you plan integration. So we have a very detailed integration plan that we have underway. And we have a lot of experience in doing this. Of course, not necessarily at this size and this scale. But when you look at an integration, it's important to define the complexity that you're dealing with. And in this one, think about first you have to separate
And then you have to integrate. And right now, the separation, I think 80% of the sales of Unilever's food business is already separated. It's standalone. Think about the sales organization, manufacturing, R&D. Those are things that kind of come together and kind of reduce execution risk. But also think about market overlap. Now we're talking about the combining aspect of this.
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Chapter 3: How will the integration of Unilever's food unit impact McCormick's growth?
I love Baltimore. But maybe you'd have people being like, absolutely not. No way I'm going there.
This is a global business, and we need people globally.
I wonder about a couple of trends in the food business that everyone has seen, right? The private label business, the white label business has gotten big. So how do you differentiate McCormick from, I don't know, Bowl and Basket or whatever private label brand is sitting right next to it in the spice aisle?
It's the quality and the flavor of our products. So you think about the hot sauce category. Those are flavors that can't be replicated. And so people are really loyal to them. Think about Cholula or Frank's Red Hot. And in fact, they probably have many hot sauces in their pantry for different purposes. But you go over to herbs and spices. I mean, if you compare sort of a cumin to a cumin,
know we have a very unique sourcing strategy that is really we go all the way to the source and we have a chain of custody from the farm we work with over 54 000 smallholder farmers and so we know exactly what that product is and it prevents adulteration and make sure that we have the right spec behind everything that we have so it is quality in the jar that is the big differentiator versus everything else because we have a very unique sourcing strategy
I think there is this fear that consumers already having dealt with a lot of inflation are dealing with it even more acutely as gasoline prices go up. Have you seen any changes to consumer behavior over the past month?
You know, I would not say over the past month. It's really been over the last couple of years. There's a real intersection with the need for value and also health and wellness. And consumers are going to give up on looking for both of those. So we put a lot of focus around that in the first couple of years that I've been CEO and really make sure we have our price points right at shelf.
We're working a lot with our retail partners to make sure that we grow categories. And we think about volume growth. And that's been a big focus of ours. If you look at the performance of McCormick and Unilever Foods over the last two to three years, we're one of the few companies that have been doing that because we think we're hitting that cross-section of value and health and wellness.
I want to get into mayonnaise a little bit because I grew up in Bexley, Ohio. My grandmother would make us peanut butter and mayonnaise sandwiches.
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