EUR 850.00 For Business Accounts Only

Morningstar | Its entrenched retail relationships and scale have enabled McCormick to cook up a competitive edge.

McCormick is the leading player in the spices and seasonings space, with around 20% share of the $11 billion global market--4 times the size of its next-largest competitor--making it a valuable partner for retailers. And unlike others, McCormick has refrained from pulling back on its brand investments (with research and development and marketing approximating 7% of sales, or more than $300 million annually in aggregate). Despite the hit to profits, we view this spending as a plus and supportive of its leading competitive edge, enhancing the stickiness of its retail relationships. In addition, we surmise the inclusion of RB's leading food brands (Frank's RedHot and French's) stands to further entrench its position with retail partners reluctant to risk costly out-of-stocks; these relationships, combined with its existing portfolio of dominant brands and cost edge, support our wide moat rating.Beyond its mix of branded fare, McCormick also operates as the leading private-label producer in spices and seasonings. While others have struggled to play in both the branded and private-label space, McCormick has effectively used this positioning to enhance its retailer relationships, solidifying its wide moat. As an example, it gained a foothold in two leading dollar stores (Dollar General and Family Dollar) by supplying private-label offerings, subsequently adding a handful of higher-margin branded products (as it showed category sales for the retailer edged up by increasing its mix of branded offerings). While these are lower-margin sales for McCormick, private label makes up less than 10% of its consumer product revenue (or around a mid-single-digit percent of its total sales), so this value fare is unlikely to dent McCormick's margins.Even with its leading edge, McCormick isn't immune to the industry's challenges. For one, consumer product volumes across the center of the store have faltered, as consumers opt to shop the perimeter. As such, McCormick's strategic focus on extracting costs (with plans to shed more than $400 million in costs over the next few years) to fuel reinvestment in its brands and support its retail relationships strikes us as a wise course.