DJ McCormick CFO Ramps Up Advertising Spend After Pandemic Sales Boost
McCormick & Co.'s finance chief is boosting the flavor company's advertising spending to maintain growth in consumer sales as more people cook at home during the pandemic.
McCormick, the company behind brands such as Frank's RedHot, French's Yellow Mustard and Cholula Hot Sauce, reported a 10% increase in net sales to $3.60 billion in its consumer segment during the 12 months ended Nov. 30. The consumer division generates roughly 64% of the company's total revenue. Roughly $2 billion, or 3.5% less than in the prior fiscal year, came from sales to restaurants and packaged-food businesses.
McCormick, based in Hunt Valley, Md., is targeting an increase in net sales by 7% to 9% this year, driven in part by new products, mergers and acquisitions and advertising. "As a CFO, I am always hesitant to say more spending is good," said Chief Financial Officer Mike Smith. But, he thinks it is necessary, as certain customers might cook less at home once the pandemic ends. "Not all habits will stick," he said.
McCormick in fiscal 2020 spent $174.8 million on advertising, up nearly 16% compared with fiscal 2019, according to a filing. It plans to increase the amount by a low single-digit figure in fiscal 2021, a spokeswoman said.
McCormick in recent months has aired short video clips showing consumers how to use its products on social-media platforms, such as Facebook and Instagram, and on YouTube, Mr. Smith said. McCormick is placing fewer ads on traditional television commercials and in print.
For the videos, McCormick's chefs often cook in their own kitchens, which is less expensive than working with advertising agencies and professional film studios, Mr. Smith said. "When you do things yourself, it is cheaper," he said, adding that over 50% of marketing materials for the Americas business are now produced in-house.
The shift began in 2018 when McCormick created a shared-service center for marketing and advertising, and accelerated during the pandemic to accommodate travel and meeting restrictions, Mr. Smith said.
It also has helped the company post videos and commercials more frequently and keep the content fresh. "Cooks cooking in their home and communicating via Facebook is just really authentic," he said. "It's more nimble that way."
McCormick declined to provide a figure for the number of people working in its marketing department. Its total head count was about 13,000 as of Nov. 30, according to a filing.
McCormick is among a number of food companies that have been looking to reduce how many advertising agencies they work with, said Erin Lash, a director at Morningstar Research Services LLC, a research firm. "Moving more of their assets in-house allows them to leverage more of their spending and have more control over the messaging," Ms. Lash said.
Food manufacturers in recent months also have ramped up their advertising efforts after holding back last spring, when many of them couldn't produce fast enough to meet surging consumer demand. Now, packaged-food companies are looking to hold on to the sales gains made during the onset of the pandemic, often with the help of marketing. "This creates the need for [competitors] to spend more as well," said Chris Growe, a managing director at investment bank Stifel Financial Corp.
Mr. Smith said McCormick will continue using home-produced videos, even when the pandemic abates and restrictions on social gatherings are lifted. "Every function has learned how to work in this environment," Mr. Smith said. "There is going to be a much more hybrid approach going forward."
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
February 04, 2021 15:49 ET (20:49 GMT)
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