In three years as CEO of spice maker McCormick, Alan D. Wilson has been charged with steering the company through difficult economic times and periods of extreme volatility in commodities prices.
Founded in 1889 and based near Baltimore, McCormick recently reported 2010 fourth quarter sales of $979.5 million, a 6% increase over the previous year. But the company also noted that hikes in the cost of products such as dehydrated garlic, black pepper and cinnamon spurred a 3% uptick in the prices of spices McCormick sells to restaurants, supermarkets and other retailers. It is likely that the increase will result in higher prices for consumers buying from the grocery shelf.
Wilson joined McCormick in 1993 and served in several managerial roles before becoming chairman and CEO in 2008. Prior to joining the company, he worked at Procter & Gamble for nine years. In a recent conversation with Knowledge at Wharton, Wilson discussed the economy’s impact on the company; McCormick’s efforts to expand internationally; why the increased popularity of Food Network and celebrity chefs has been a boon; and the company’s aim to create a relationship with customers by playing up “the romance of spice.”
An edited transcript of the conversation follows.
Knowledge at Wharton: Could you talk a little bit about how closely tied your business is to ups and downs in the commodities market?
Alan D. Wilson: Practically everything we sell is subject to agricultural commodity changes…. We have a wide variety of things that we are dealing with — everything from pepper to anise, basil and turmeric — and they are grown all over the world. Competition for agricultural space is creating that surge in commodities…. A lot of our industrial business — where we are selling products to other food manufacturers or to quick-service restaurants — is subject to things like [the price of] flour and soy bean oil, which really are surging right now.
Knowledge at Wharton: McCormick recently raised the prices of the products it sells to grocery stores and to restaurants, and warned that customers might see price increases as a result. What are the challenges of getting consumer buy-in for that, especially when customers have become used to paying the same price for years — or may not have purchased a particular spice for several years, when the cost was lower?
Wilson: Well, part of [the challenge is] the long purchase cycles of individual products. Consumers come to our section five or six times a year, but they are buying something different almost every time they come. There is not a lot of consciousness in terms of what you paid last time. But there is a comparison between our products and competitors’ products; in our case, private labels [store brands] are our largest competitor. We have to make sure that we are responsible in pricing. Our brand carries a premium and consumers are willing to pay a certain premium for the promise, the taste, the freshness and the flavor that we deliver. But we have to be very cautious about not letting those price gaps get too large.
Knowledge at Wharton: On the face of it, your product is pretty basic. Spices are spices — or at least a lot of customers might think that. How do you encourage innovation within that space?
Wilson: The key thing we are doing is looking at food trends and making those food trends accessible to the home consumer. In our institutional business, where we are selling to restaurants, we do a lot creatively using chefs and food technologists to create new trends — then we are always out front. We have something called the “flavor forecast,” which we release a couple times a year, looking forward a couple of years at what the new hot trends are going to be.
A few years ago, we identified chipotle pepper as a food trend. Now you can get a chipotle dressing on a sandwich at Subway or McDonald’s, so it has kind of hit the mainstream. What we do is identify those trends and bring those to consumer products. [For example,] chefs are using things like smoked paprika or roasted spices, and we have introduced a line of roasted gourmet spices and we also sell smoked paprika, so we stay in front of that.
The other thing we do is convenience. We have a new line called Recipe Inspirations, which [includes all of] the spices that you need to make a specific recipe in one package, and we sell those for under two dollars so it is very easy for the consumer to learn a new recipe, and it is very convenient because everything is in one package.
Knowledge at Wharton: That would also seem to touch on the idea that a consumer might not want to buy a full bottle of a spice like coriander that he or she may never use again after making a specific recipe. But if you buy it in a packet, it’s just for that recipe.
Wilson: It is one use. That’s right. And if you like the recipe, you can go buy the bottle.
Knowledge at Wharton: What kind of food trends do you think we can expect to see in the near future?
Wilson: What we are seeing is a real trend toward fusion kinds of flavors, so a mixture of sweet and hot — [for example,] mixing a cayenne pepper with a tart cherry kind of flavor is something that is really on trend. International foods are continuing to find their way into everyday cuisine, so what used to be more infrequent and exotic is now becoming part of our regular repertoire.
We have a brand called Thai Kitchen that was [born out of] identifying the fact that there are a tremendous amount of Thai restaurants, but most American consumers don’t know how to make Thai food from scratch. We provide the authentic ingredients and easy ways of getting to the things that you experience in a restaurant.
Knowledge at Wharton: I understand that McCormick is trying to expand its presence internationally. What are the most important growth markets for you? How do tastes in those markets differ from the tastes of U.S. customers, and how do you adjust to that?
Wilson: About 40% of our sales today are outside the United States. We see the opportunity and the need to bring the kinds of things that we do to global consumers. Currently, our largest markets outside the U.S. are in Western Europe. But we see a lot of growth in China and India. India is one that is very exciting to us because spices are such a big part of the culture. The average Indian consumer consumes about four times the number — the poundage — of spices in a year that the average American consumer does. [India] is a huge opportunity, but right now it is not an organized market. A lot of the spices are bought in bulk on the street as you need them…. As people move up the economic chain, there is a need for reliable brands and consistent products that are safe for those kinds of consumers….
We have a really good business in parts of Latin America, but in big parts of Latin America we don’t have a presence other than joint ventures or licensees. We don’t have the presence that I think we can have. Eastern Europe is also an open territory for us. We are continuing to work on expanding our presence in Africa…. We think there is a lot of growth from geographic expansion as we look around the world.
Knowledge at Wharton: How much research and preparation goes into figuring out how to sell your product in a new market? How closely do you have to look at the population’s tastes and habits? And how does that translate into the way you push the product?
Wilson: The most critical thing that we have to figure out for our success is how people cook, and then how to make [our products] accessible to them. In China, for instance, we are certainly selling spices and herbs in grocery stores and in food service outlets. But consumers cook differently there. The spice market in China is much, much smaller than you would expect because consumers are cooking with things like chicken powders and bouillons and those sorts of things. Because of that, our product line is a little different in China. We are selling certainly spices and herbs, but we also are selling some Western products like ketchup, salad dressings and jams. But we are also selling chicken powders and chicken bouillons that are [in line with] the way people cook there. We have to keep adapting to what people do in their local market.
Knowledge at Wharton: I had the chance look at your website this week. There is a lot of information there, including recipes, tips and articles about the origins of different spices. How important is that to your overall marketing? How does it play a role in efforts to drive sales at the point of purchase?
Wilson: The biggest thing we can do to help grow our sales is to help consumers find new recipes and add a recipe to their weekly repertoire. If they are doing that, then they are going to continue to buy our products because we are helping to make that easy. The biggest reason people come to our website is for recipes, and we keep refreshing those.
The second piece of it is creating that emotional attachment that every brand has to have with a consumer. A lot of what we do around the origins [of different spices] and creating the whole romance of spice is how we tell our story. [McCormick has] been doing this for over 120 years. We have people traveling to all the places that spices are grown, and there is a tremendous amount of romance attached to the origins, how things are processed and the really unique flavors that you can generate. We want to make sure that we are bringing that kind of appeal to consumers.
Knowledge at Wharton: Do you find that customers tend to gravitate toward the spices they know? Are customers gun-shy about trying something that sounds more exotic? How do you bridge that gap?
Wilson: Things like the Food Network, the Cooking Channel and celebrity chefs have people experimenting more, and that is actually driving a surge. We have seen spice consumption in the U.S. go up substantially over the last several years as people get addicted to things like the Food Network. That is a huge benefit for our business and we are making it easy for consumers as they try to find new things.
There certainly are consumers that are looking for everyday consistency; we want to make that easy too. [For some consumers,] if it’s Tuesday, it is taco night. So we have a taco seasoning mix that is familiar, that kids love and that is really easy [to use]. In New Orleans, there is one night of the week that is red beans and rice night. We produce that product, and sell a lot of that in the New Orleans area, specifically for those kinds of events where people are looking for familiarity.
Knowledge at Wharton: Can you tell me a little more about what is involved in sourcing different spices? What kind of processes are taking place before the products end up on store shelves?
Wilson: Because we are the largest company in the category, we have made an investment in teams of people who [travel] to the farms and the collectors and the local regions [where the spices are sourced]. We’re doing a couple of different things. One, we are working with farmers for sustainable agriculture. We are helping them with growing conditions, [obtaining] the right kinds of seeds, and how they handle product so that we get product that is consistent and safe. [That way,] we have to do less to treat the product when we bring it in to make it safe for consumers.
A second part of that mission is to be on the ground at different parts of the growing cycle so that we see what the yields are going to look like. We can do some economic planning around what the prices are going to be, and the supply part of the supply-demand curve, so that we are anticipating and making decisions on whether we are taking long positions because crops may be short, [or] more expensive or shorter positions because it is a really abundant crop and we know that prices are going to change. We have teams traveling to all parts of the world at multiple times during the growing cycle so we really get an assessment. We are sourcing [products] in different countries because their harvest cycles are at different times. [For example,] Vietnam has a different harvest cycle for pepper than Brazil, than India or than Indonesia. We are really looking at that to see what the optimum timing and the right yields are for all those products.
Knowledge at Wharton: Does that mean at different times of the year if I am buying black pepper, for example, it could be coming from a variety of different countries depending on when I buy it?
Wilson: We create a blend of different origins — and black pepper is a really good example — that gives you a consistent flavor every time you buy it. Now we do have in our gourmet lines very specific origins, so if you are buying Malabar pepper, it is coming from one specific region. But we do certainly blend everything to make it consistent. It is just that the way we bring it in, and the way the crop cycles come in.
Knowledge at Wharton: So if containers of pepper were entirely sourced from Vietnam or from India, the two would taste different? Thus, you blend the different varieties together.
Wilson: To create a consistent flavor.
Knowledge at Wharton: That’s interesting. How important does social responsibility become when you are working with so many different growers and different suppliers all over the world?
Wilson: It is a big part of our heritage. We have always been a very responsible, community-based organization. It also serves our economic interests to make sure that we have sustainable sources of the products that we are buying, because we are dealing around the world with hundreds of thousands of individual farmers. As we are able to help in creating that sustainable agriculture, it helps our business be sustainable — economically sustainable, as well as viable. We found ways of helping so that the farmers and the collectors really want to deal with us. We have done things like building schools and medical clinics in places like Indonesia. We built a medical clinic — two medical clinics — two years ago. When there was an earthquake in Indonesia, those clinics survived and they really became a part of helping the community.
Knowledge at Wharton: What is your biggest challenge as a leader? What do you enjoy most about your job? Conversely, what keeps you up at night?
Wilson: I am in my fourth year as CEO and we have had a lot of volatility with the financial markets. We have seen two up-and-down cycles in commodities in that period, and there is still a lot of uncertainty. We are dealing in most developed markets still with pretty high unemployment and a lack of consumer confidence at a time when commodity prices — in not just our products, but oil prices and almost anything that people are buying in terms of food — are going up.
There is just an awful lot of volatility with that. I have to make sure that our strategies and our business processes are adaptable to pretty rapid changes in the external environment. We are continually working on how we [can] move faster to adapt our plans to what has happened in the external market.
As a leader, the most important thing that I do is make sure that we have the right people in place, working on the right things. That’s where I spend a tremendous amount of my time — making sure that we have got good succession, that we have people that have the skills that they need, that are motivated and rewarded the right way, that are based on building our business.
From the business strategy standpoint, I spend a lot of time telling our story to consumers, with customers and with investors, so that we continue to get the kind of support and deliver the kind of results that we have delivered in the past.
Knowledge at Wharton: What is your favorite part of your job? What do you enjoy most?
Wilson: I love the aspects of being out and being with teams. I spend a lot of time in our culinary centers, tasting the great food that we are preparing. I love walking through and visiting our plants and facilities around the world, seeing the passion that people bring to their jobs every day, and talking to them about where the company is going…. I get to go to some really cool places and eat some great meals. That’s a great part of the job.
Knowledge at Wharton: McCormick was founded and originally based in Baltimore, but later moved its headquarters to the suburbs. I understand that at one point, the company launched a campaign to let customers know that if they still had spices in their kitchen with a Baltimore address on the back of the package, that those products were at least 15 years old and needed to be thrown out.
Wilson: And now they are 20 years old.
Knowledge at Wharton: And now they are 20 years old. Can you tell me a little more about that consumer education component of your business? Did you hear stories from people who had had the same bottle of basil in their kitchen for 20 years?
Wilson: Oh, absolutely. Part of that campaign was based on the fact that people don’t really manage their pantries. When they have spices, it is something that a lot of consumers perceive last forever. While they will still be safe, you lose the flavor aspects of it. The reason you are putting things like sage in your turkey or your turkey gravy, for example, is to get that flavor impact. That campaign was just an education campaign recognizing that people tend not to replenish things in their pantry very often. When I talk to consumers I will ask, “What would you serve your family that is five years old? What food product?” And the answer is, “Nothing.”
But they will keep spices for a long time because they tend to have — some of them especially — lower use-up rates. You have to keep thinking about it. Before I came to McCormick, I had gotten a spice rack as a wedding present. I had been married about 12 years when I came to the company, and when I joined the company I got a new spice rack. I started looking [at the old one] and realized that I had a lot of this stuff for 12 years.
It is an education campaign for consumers to keep replenishing and refining. The obvious question is: How long do spices last? The answer is that it depends on how you store them, but whole spices, until they are ground, have a very long shelf life — several years. But once they are ground, and if they are [stored] in the light, you need to replace them every 12 to 18 months.
Knowledge at Wharton: I understand that you are kind of a foodie. What is your favorite thing to cook and what is your favorite thing to eat?
Wilson: I am a grilling master…. I grill year-round — I create a little path [through the snow] between my back door and my grill so I can grill even when there is a lot of snow on the ground…. I love to do everything from salmon or other fish, to steaks and venison and the kinds of things that really go great on the grill. My favorite thing probably to eat is fish. I eat a lot of different kinds of fish as I travel around and generally whatever is fresh. There are lots of ways to [cook fish,] whether it is with core spices or some marinades that create the flavor. When I am out, I tend to order a lot of fish.
Knowledge at Wharton: When you’re at the grocery store, are you ever tempted to give customers advice in the spice aisle?
Wilson: I do. I absolutely do. Wherever I go, I go to stores. Sometimes you will see consumers standing in front [of the spice display] and looking for something specific, and I will help them find it…. I will say, “Try this,” or “I see you have some fresh melon, try this Chilean lime on melon — that is really good.”
Knowledge at Wharton: Do you tell them that you are the McCormick CEO, and what is their reaction?
Wilson: Usually no. But I do sometimes go and talk to the grocery clerk who is managing the spice set, because I want to find out what is working well, what is not working well, and they are very aggressive about telling me whether we are getting good service or not, and what is moving and what’s not. I find a lot out just by walking around talking to people.