McCormick spice company savoring success

HUNT VALLEY, Md. — In a dimly lit conference room, women in white lab coats learn to describe smells and tastes for McCormick & Co. Nearby, a research chef, working in a fully stocked kitchen that Martha Stewart would envy, whips up a trendy salad dressing that features vanilla, chipotle and sour orange flavors. And in immaculate laboratories just around the corner, chemists work with computers that analyze a flavor down to its molecular building blocks.

It used to be that McCormick was about as traditional as any company could be. Its basic spice products could be found on the shelves of virtually every American kitchen.

But these days, McCormick is beyond the kitchen and around the world, a major player in the high-tech, high-stakes business of making food taste good.

McCormick is now among the first companies that major restaurant chains, food manufacturers and beverage companies call on for help when they want to concoct new flavors — a tastier potato chip, a tangy dipping sauce, a well-seasoned chicken coating.

At the same time, the company is developing new markets in Asia and Europe, producing new lines of exotic spices to market here and abroad.

"There's a high level of likelihood that you're using and consuming one of our products, either at breakfast, lunch or dinner," Hamed Faridi, McCormick's vice president of research and development, said in a recent interview at the company's Technical Innovation Center, a short drive south from its headquarters in Sparks, Md.

"It could be in a snack, in coffee, a cookie, a burger," Faridi said.

For decades, the business of McCormick, which was formed in 1889, was mostly about selling raw ingredients to consumers and food manufacturers.

But as consumers embraced an eat-and-run lifestyle, McCormick saw an opportunity to sell not only spices, but also ready-made products and flavors — a breaded-chicken coating, a fajita seasoning kit — that combined various low-margin ingredients into a so-called "value-added" product.

McCormick markets these products to consumers and industrial food manufacturers, and they typically yield higher profit margins.

Last year, two-thirds of McCormick's $2.3 billion in sales came from such products, while the rest came from raw ingredients such as oregano and cinnamon.

"They are the only flavor company out there that can provide anything from a ton of pepper to a compound flavor (for food processors)," said George Askew, a senior analyst who covers the food industry for Legg Mason Wood Walker. "These guys can do it all."

And make money, too. On Wednesday, McCormick reported a record sales and net income for its third quarter. Its stock, at $27.48 a share, is up nearly 30 percent since hitting a 52-week low last October.

Even your dog might be eating a McCormick-flavored meal. The company develops "flavor systems" for pet-food manufacturers that appeal to pets, but won't leave an unpleasant odor.

At the Hunt Valley center, McCormick keeps 200 chemists, flavorists, research chefs and engineers working on new products.

Consumer testing can make, break, or totally reshape, a product.

McCormick draws from a database of 5,000 consumers in the Baltimore metropolitan area for testing and interviews.

The company also is able to survey a critical market demographic — children — by offering donations to organizations that can bring them in by the minivan-load, such as Boy Scouts, Girl Scouts, Parent-Teacher Associations and soccer teams.

"We'll call the soccer mom and say, 'We've got a test: Can you bring us 50 8-year-old boys?' " said Marianne Gillette, a product-development director with McCormick. McCormick would donate around $20 a child to the organization, she said.

Despite its recent growth, McCormick still has to keep an eye out for other niche competitors, as well as one of the heavyweights in the flavoring field, New York-based International Flavors and Fragrances.

The majority of IFF's $1.8 billion in revenue is derived from sales to the perfume industry, but food-flavoring products have grown to account for 45 percent of sales.

"There's tremendous competition that we didn't have 30 years ago," said Faridi, McCormick's research head. "You need to do a lot more science, a lot more research and development."

But, adds Faridi, "At the end of the day, companies come to us for great taste."