Dive Brief:
- McCormick is taking a series of steps to help eliminate about $100 million in costs associated with inflation and demand volatility, Chairman and CEO Lawrence Kurzius said in the company's Q3 earnings call.
- One of the steps listed in an earnings presentation includes reducing reliance on co-packers. Kurzius said "excessive use of co-packers" has added supply chain costs, and McCormick expects "to get that out of our system."
- McCormick expects the company will begin to see financial benefits from the actions — which also include capacity investments and transport cost savings — in 2023.
Dive Insight:
McCormick's move to aggressively eliminate costs comes after a year of supply chain disruptions. The company has faced sourcing constraints as a result of the war in Ukraine, higher material and transportation costs, and consumers' decreased willingness to accept price increases due to inflation.
Increased capacity and transportation savings are two of the six areas the CPG is focused on as part of its plan. A new logistics center in Maryland helped add extra capacity to its Flavor Solutions brand in October. Earlier in the year, the company had already pursued transport costs reductions by using less expedited freight and less-than-truckload shipping. “We're returning to more normal ship schedules and reducing our spend on expensive surge capacity," Kurzius said.
McCormick is one of a handful of food and beverage makers facing supply chain constraints. Campbell Soup said in September it expected supply chain challenges, which were impacting its Lance, Late July and V8 brands, to continue into 2023.
Besides costs and transportation inefficiencies, McCormick is still working to resolve raw material and packaging supply issues.
A supplier facility closure announced in September led to a "discontinuation of our dry recipe mix packaging,” Kurzius said. A prolonged shortage of French’s mustard bottles also troubled the company. But Kurzius said the company was able to find alternative sources for both supplies, mitigating long-term disruption.
"We expect the impact of our actions to normalize our supply chain costs, increase our efficiency and ability to meet demand, lower our inventory levels and importantly, increase our profit realization beginning in the first half of 2023," Kurzius said.
