The Business Environment Of Mccormick And Company Marketing Essay

Introduction

This report is aimed at critically analysing the business environment of McCormick & Company, Inc., one of the largest sellers of spices, seasonings, and flavourings in the world. The company has a global scale of operations. McCormick distributes its products in about 100 countries (John Slatter, p: 238, 2007). Strategic evaluation tools such as PESTE, Porter’s Five Forces framework will be used to do an external appraisal and financial analysis have been used in order to achieve this aim.

McCormick and Company, Inc. – Company Overview

McCormick & Company, Incorporated (McCormick) manufactures, marketing and distribution of spices, herbs, seasonings, specialty foods and flavours to the entire food industry. The Company’s major sales, distribution and production facilities are located in North America and Europe. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. The Company operates in two business segments: consumer and industrial. The consumer segment sells spices, herbs, extracts, seasoning blends, sauces, marinades, and specialty foods to the consumer food market under a variety of brands worldwide, including McCormick, Lawry’s, Zatarain’s, Old Bay, Thai Kitchen, Simply Asia, Ducros, Schwartz, Vahine, Silvo, Club House, and Billy Bee. The industrial segment sells seasoning blends, natural spices and herbs, wet flavours, coating systems, and compound flavours to multinational food manufacturers and foodservice customers both directly and indirectly through distributors (Reuters, 2010).

McCormick’s products are sold directly to customers and also through brokers, wholesalers, and distributors. In the consumer segment, products are resold to consumers through a variety of retail outlets, including grocery, mass merchandise, warehouse clubs, discount, and drug stores under a variety of brands. In the industrial segment, products are used by food and beverage manufacturers as ingredients for their finished goods and by food service customers as ingredients for menu items to add the flavour of their foods. Customers for the industrial segment include food manufacturers and the food service industry supplied both directly and indirectly through distributors (Reuters, 2010).

Why McCormick and Company, Inc. ?

“Demand for Organic Food Outstrips Supply”

Growth in sales of organic food has been 15 percent to 21 percent each year, compared with 2 percent to 4 percent for total food sales (Washington post, 2006).

I have chosen this company because my background work experience in IPM (Integrated Pest Management) or pesticide residue free spices production and passion towards organic spices industry drove me towards McCormick. Also, it has wide scope in development of my business internationally. Moreover, this is one of the best companies on the leading edge of manufacturing organic spices. Since, there is a growing demand for organic spices globally the need to food safety arises and the major strategic issue McCormick facing is Food Safety and Risk management. In addition to this there are many number of private labels penetrating the market, (Jannarone, J.,2010) McCormick generates 11% of its revenue from sales to Wal-Mart, mainly by selling brand-name spices. But Wal-Mart has considered switching to private-label spices, testing the idea by replacing McCormick products with generics in some stores.

Analysis of the External Environment/ PEST Analysis

PEST stands for Political, Economic, Sociological and Technological; in McCormick the following external factors will have a great affect whether negatively or positively in the near future.

Political Factors:

The key political factors effecting spice industry are the policies and new laws of governments. Whether it is local or International politics affects the business of the company and the other major political factors affecting McCormick were employee legislation, health and safety regulations. The European countries have strict regulations on the spices that are imported. There are some restrictions on the use of chemical or pesticides during the harvest of crop. Since, McCormick imports raw materials from many countries and if the shipment that is imported detects with Maximum levels of aflatoxin materials, then the imported goods will not be allowed. This kind of issues will have a major effect on it. However, the company needs to have a good control over the supply chain and build quality and food safety in from the start. Political stability in the country also plays an important role in the external environment of the company.

Economic Factors:

Economic Factors include National economy, labour market, currency risk, Economic growth of the country or GDP, price of crude oil and fluctuations in prices of raw materials are the major economic factors. Economic growth affects the spending power of people which in turn affects the fall in price of the goods. The rise in fuel prices may also play an important role in the business of McCormick since the company also distributes their own products to supermarkets and stores. Increase fuel prices would also increase the price of the product and since there is a huge competition for supermarkets that sell cheap food products there is a possibility that consumers will not buy the product of McCormick. Apart from these factors fluctuation in price of raw materials affects the company significantly. If the raw material prices are high the price of the final product affects automatically. These are some of the major economic factors.

Social Factors:

Compared to the other factors, this is most difficult because attitudes of people cannot be easily expressed and the customer buying pattern also changes from region to region depending on the culture and beliefs and change in lifestyle and population also causes a major affect on the company. The other main social factor was increase in health conscious, now a days there is a change in trend in most of the markets because consumers are inclined towards organic and pesticide residue free and fresh chilled products over frozen foods and this has a positive effect on McCormick since the company was already into organic spice production and manufacturing.

Technological factors:

In food or spice industry technology is considered at top priority to gain competitive advantage over competitors. Technology enables solutions like Testing facilities, Labs, which helps in new product development and Information Technology also have a big affect over this industry. McCormick has to install testing facilities at route level starting from the farm level to control the safety of the raw material effectively. Infrastructure developments is other major technological factor

Porter Five-Force Model

Porter’s five forces model to McCormick’s present situation is given in figure 1.

Figure : McCormick & Company, Inc. five forces

Potential Entrants- High

Threat for new entrants seems to be high since establishing a spice industry requires low capital requirements, and access to distribution channels is wide and in some countries, food products are generally manufactured by big companies and supermarkets, however with the changing habits of consumers in using organic and healthier foods potential entrants from this market could emerge which would have a competitive advantage over McCormick. The company must identify the threats posed by new entrants in the spice industry so that they could come up with new products and business ideas.

Substitute – Medium

The Spice industry is very competitive. Spices are the key ingredients in most of the cuisines strictly need the uses of specific spices. Although there are no natural substitutes to spices there are few substitutes like the use of Artificial or Synthetic Flavours which give almost the same taste of the spices but, due to the health awareness most of the people now a day’s inclined towards the use of authentic natural, organic spices over Synthetic spices. Organic spices boomed in present market and hence the demand has increased for production of organic spices. More broadly, other forms of products can be considered as substitutes. McCormick must identify the threat of substitutes and develop countermeasures. The price factor of substitute in the market which often times lower than the price of the company’s product, just like in the case of food products of discount supermarkets which are relatively cheaper in order to counter this it must ensure the quality of their products so that the consumers would be loyal.

Power of Suppliers – Low

Bargaining power of suppliers is low since suppliers are large in numbers and competition is high. Suppliers usually depend on big companies with strong brand image to buy majority of their products. If Spices manufacturing company decides to switch from one supplier to another then it can affect the business of previous supplier. As a result, suppliers hold very little power.

Power of Buyers – low

The threat of buyers in this industry is considerably low. Consumers can switch to other brand if they are not happy with the current one. This gives customers bargaining power over the spice manufacturers. But in case Organic spice market the bargaining power of buyer is low. The buyers have a huge influence on the food industry because they have the capability to affect it with their changing tastes and preferences. McCormick must determine the reasons why the consumers buy their products and the products of their rivals.

Competitors – Medium to High

In Spice Industry, competitive rivalry is considered medium to high because of high cost involved on marketing distribution and branding. The industry rivalry is considered to be very high in the organic spice segment. In the case of McCormick consumer products such as food and spice products have intense competition in the market with new organisations emerging.

Key Success Factors:

Key success factors of McCormick are Brand, Organic spice production, technological capabilities and sustainability.

Financial Analysis:

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From the above figures it was clearly shown that the Net sales has increased from 2196 169 to 3192 100 and net profit

Conclusion

British airways plc has had an unprecedented year of huge loss in 2009. The company’s plan of changing its approach from market led to resource led may pay off. According to BA (2010), they have a fleet of 338 planes and over 45000 employees employed as on 2008, which is a huge resource. This new approach might work in advantage for the company.