This report is aimed at critically analysing the business enterprise environment of McCormick & Company, Inc. , one of the most significant sellers of spices, seasonings, and flavourings on the planet. The company has a global scale of operations. McCormick distributes its products in about 100 countries (John Slatter, p: 238, 2007). Strategic analysis 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 do 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 positioned in North America and Europe. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. THE BUSINESS operates in two business segments: consumer and industrial. The buyer 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 can be purchased right to customers and also through brokers, wholesalers, and distributors. In the buyer segment, products are resold to consumers through a number of shops, 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 his or her finished goods and by food service customers as ingredients for menu items to add the flavour of these foods. Customers for the commercial segment include food manufacturers and the meals 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 every year, compared with 2 percent to 4 percent for total food sales (Washington post, 2006).
I have chosen the corporation because my background work experience in IPM (Integrated Pest Management) or pesticide residue free spices production and passion towards organic and natural spices industry drove me towards McCormick. Also, they have wide scope in development of my business internationally. Moreover, this is among the best companies on the industry leading of manufacturing organic and natural spices. Since, there's a growing demand for organic spices globally the necessity to food safety arises and the major strategic issue McCormick facing is Food Safety and Risk management. In addition to this there are extensive variety of private labels penetrating the market, (Jannarone, J. , 2010) McCormick generates 11% of its earnings from sales to Wal-Mart, mainly by selling brand-name spices. But Wal-Mart has considered switching to private-label spices, testing the theory by replacing McCormick products with generics in a few 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 soon.
The key political factors effecting spice industry will be the policies and new laws of governments. Whether it is local or International politics affects the business of the business 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 utilization of chemical or pesticides during the harvest of crop. Since, McCormick imports raw materials from many countries and when the shipment that is imported detects with Maximum levels of aflatoxin materials, then the imported goods will never be allowed. This sort of issues will have a significant influence on it. However, the business needs to have a good control over the supply chain and build quality and food safety in right away. Political stability in the united states also plays an important role in the external environment of the company.
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 recycleables are the major monetary factors. Economic growth affects the spending power of individuals which in turn impacts the fall in price of the products. The rise in fuel costs could also play an important role in the business of McCormick because the company also distributes their own products to supermarkets and stores. Increase fuel prices would also raise the price of the merchandise and since there is a huge competition for supermarkets that sell cheap food products there's a probability that consumers will not buy the product of McCormick. Aside from these factors fluctuation in cost of raw materials affects the business significantly. In case the raw material prices are high the price tag on the final product impacts automatically. These are a few of the major economical 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 upsurge in health conscious, more recently there's a change in trend in the majority of the markets because consumers are inclined towards organic and natural 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 and natural spice production and manufacturing.
In food or spice industry technology is known as at priority to gain competitive advantage over competitors. Technology enables solutions like Testing facilities, Labs, which helps in new product development and IT also have a large 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 usage of distribution channels is wide and in a few countries, foods are generally created by big companies and supermarkets, however with the changing habits of consumers in using organic and natural 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 in order that they could produce services and business ideas.
Substitute - Medium
The Spice industry is very competitive. Spices are the key ingredients in the majority of the cuisines strictly need the uses of specific spices. Although there are no natural substitutes to spices there are few substitutes like the utilization of Artificial or Synthetic Flavours which give almost the same taste of the spices but, because of the health awareness most of the individuals now a day's inclined towards the utilization of real natural, organic and natural spices over Synthetic spices. Organic spices boomed in present market and therefore the demand has increased for production of organic spices. More broadly, other forms of products can be viewed as as substitutes. McCormick must identify the threat of substitutes and develop countermeasures. The price factor of substitute on the market which often times less than the price tag on the company's product, exactly like regarding foods 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 change from one supplier to another then it make a difference the business of previous supplier. Because of this, 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 unhappy with the existing one. Thus giving customers bargaining power in 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 are capable to affect it with the changing tastes and preferences. McCormick must determine the reasons why the consumers buy their products and the merchandise of these rivals.
Competitors - Medium to High
In Spice Industry, competitive rivalry is known as 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 powerful competition in the market with new organisations emerging.
Key Success Factors:
Key success factors of McCormick are Brand, Organic spice production, technological capacities and sustainability.
From the above mentioned figures it was obviously shown that the web sales has increased from 2196 169 to 3192 100 and net profit
British airways plc has already established an unprecedented year of huge loss in '09 2009. The business's plan of changing its approach from market resulted in resource led may pay back. According to BA (2010), they have a fleet of 338 planes and over 45000 employees employed as on 2008, which really is a huge resource. This new approach my work in advantage for the business.
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