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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. Boy, I know a lot of funds here, but I'm here for it and for the spices because I love to cook and it's I spend a lot of my day in the spice at Choperate.
It's spent a lot of day Choperate.
Joining us now is Brendan Foley, Chairman and CEO of McCormick. Brendan, great to have you really appreciate you coming coming in talk to us first about this deal because it is a massive deal. And I guess you'll what. 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 this is a combination really focused on growth and value creation. So you have two iconic brand portfolios combining to really create just a pre eminent, you know, food company that's all focused on flavor. And so when we look at this, it's it's you know, it's going to be very accreative in the first year, you know, sales, operating margin and just the vps UH and so we really think there's a lot of value
creation opportunity here. But it's also you know, an opportunity for you know, 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. Craft Times paused to split but still is looking at it cure doctor 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 spin offs or shrinking and focusing in on on various parts of their business.
You know, for both you and Labor and McCormick, this is about focus. And you know, we're really bringing together a number of brands. Again, as we said, they're all focused on flavor and that's what mcormick focus is, and we bring the focus of a food company now to that brand portfolio that we're combining with with Unilever. But it is a 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, you think about the size of Unilever, it's about two thirds the size of the total combined, and McCormick is 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 the ability to really kind of really build out globally.
Well, an Unilever is a monster business, but they must have a lot of faith in you and your management team, because otherwise they would, you know, obviously replace you.
McCormick is the right hope for these brands, and when we talked about it, I mean the equity fit of the focus of their portfolio, which is brands like helmets and other brands that are also local favorites combined with McCormack, 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 mors 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 eighty percent of the sales of Unilever's food business is already separated it stand alone. Think about the sales, organization, manufacturing, R and 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, and so we see a lot of overla properties where we're lifting and shifting great Unilever talent and ways of operating into a combined business.
I mean, how does that work with just making sure that the best talent stays on board. Do they need to move to Baltimore? I mean, it's a great city. I love Baltimore. But maybe we've got people being like, absolutely, 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. White label business has gotten big. So how do you differentiate McCormick from I don't know, bowl and basket or whatever. You know, private label brand is sitting right next to it in the spice aisle.
It's the quality in 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 Chilulah 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 you know, sort
of a cumen to a cuman. You know, we have a very unique sourcing STREA 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 fIF four thousand small holder 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 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 money. 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 McCormack 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 in 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.
Oh it's delicious.
It's delicious, but she wouldn't have used anything other than Helman's And as a result, I never will try Mike's Amazing Lemonade or Duke's Mayonnaise or whatever QP is this Japanese mayonnaise. But other people are increasingly starting to branch out, and there's also like a hyper local foods trend that's picking up. How do you look at this category, this all important category of mayonnaise.
Well, when you look at categories like this where you have big legacy, you know, sort of iconic brand names like Helmets or like McCormick, those are important to consumers, but consumers all selective explore with flavor. They like to try new things. We understand this world of flavor a lot, and you know, you have to continue to be relevant and you have to bring in innovation. You have to bring in new flavors. You have to think about, you know,
how does heat apply? You know, and think about flavor trends. We know all about that, and so I see a world of innovation opportunity, whether it is a small, you know, growing brand like think about Chilula or Frank's rad Hot or my Mustard. Those are really great, high potential brands around the world that we see a lot of growth,
and so we see a lot more new penetration. But there's also innovation opportunities behind brands like helmets where you're still going to want to be a loyal user, but it's also a lot of new flavor opportunities there too.
What's sort of the split between like your test kitchen coming up with new stuff versus inorganic acquisitions of finding little small like you know, the kind of small local hyper brands out there. Do those look attractive to bring in new innovation or is it kind of all done in house?
Well, we consider both actually as we think about growing the business. It is about growing the brands organically. That's really important. It's also important to grow through volume, and sometimes there are opportunities where you see brands like we did with Chilula a couple of years ago, we thought this brand has the ability to take off globally. That has to be in our portfolio.
What's next? Do you want scale? You know, you want more skews? Do you go after a JM. Smucker because Jiff peanut butter goes amazingly well with Helman's mayonnaise.
You know, we're really focused, very exclusively, and that's why I think is really the most important part of this combination is we're dedicated to flavor. We've been very, very focused on that.
Just very quickly because we're almost out of time. But one of the things that's been remarkable about this very tense geopolitical moment that we're living in is that kind of the price of everything is dependent off energy, including plastics. What has that done to you? Packaging getting more expensive because of what's happening in the Middle East.
Well, we're certainly watching that closely. In the price of oil obviously affects a lot of that. We're finding a way to work through that. You know in every company it's trying to find a way to make sure we work through that. But this is one where we have to think about value with shelf making sure we also find other ways to offset those input costs. And that's the way we're dealing with this current situation.
Brendan, great having on the program. Hope we get you back on and if you ever need anybody in your innovation case and I'm happy.
Happy, it's going to be all made and peanut butter sandwiches, Ryett.
Yet, I'm telling you. Brendan Foley, Chairman and CEO of McCormick