The Next Decade of Growth

We have an effective strategy that has endured for the past 10 years and sets the direction for another decade of growth: we invest in the business to drive sales and profits and fuel these investments with improved margins.

There are three engines driving our sales growth.

We are growing our base business through enhanced marketing, category leadership and new distribution. In 2010, we increased our marketing support by $21 million with an emphasis on products that offer convenience, authentic ethnic flavors, reduced sodium and other features. Consumers trust us to deliver high quality and great taste. As a result, our share of the spice and seasoning category in primary markets is 40% or more—well ahead of the next largest brand competitor. We have tools to help retailers optimize their product assortment, and we continue to expand our channels of distribution. In 2010, we gained new distribution in warehouse clubs in the U.S., convenience stores in the U.K. and traditional “street” markets in China.

Second, product innovation is leading to higher sales. In locations around the globe, our technical innovation centers work closely with consumers and industrial customers to develop on-trend new products. In 2010, we increased our product development capabilities, which included a major improvement to our U.K. technical innovation center, as well as upgrades in the U.S. and South Africa. Our latest new products, such as McCormick Recipe Inspirations and Schwartz® Flavourful recipe mixes, provide convenient meal preparation with simple ingredients. In China, we introduced Thai Chili Sauce to strengthen our leading position in bottled condiments. For global industrial customers, we recently developed new snack seasonings, beverage flavors and chicken marinades.

And third, McCormick is acquiring businesses that complement and expand our portfolio of flavors. Businesses acquired over the past 10 years accounted for 20% of sales in 2010. At the end of 2010 we entered into a joint venture in India with Eastern Condiments, which markets a line of spices and seasonings in that country as well as other regions with large populations of Indian consumers. We are pleased to be able to partner with the owner of this fast-growing business in an attractive market. We further expanded our business with the acquisition of the El Bravo® brand of authentic Hispanic products in the U.S. With this addition, we expect sales of our Hispanic products in the U.S. to exceed $100 million in 2011. We have also added leadership resources with responsibility for our Hispanic strategy throughout the Americas. In Turkey, we entered into a joint venture, partnering with a leading food company to launch a brand of spices and seasonings.

As demonstrated in 2010, our employees delivered impressive margin improvements through CCI, our ongoing initiative to improve productivity and reduce cost throughout the organization. Since 2006, we have nearly doubled capacity in our largest production facility, while lowering conversion cost per unit. Our primary manufacturing center in France has lowered its conversion cost per unit 10% from five years ago. With CCI champions in each of our operations, we have a long runway of savings and in 2010, set a goal to achieve $150 million in cost savings by 2013.

We are also improving margins with a more favorable mix of products, particularly in our industrial business. We have increased operating income margin in this business in recent years by focusing on strategic partners that offer the best opportunities for growth.

Higher sales and margin improvement are leading to greater profits. Our business generates strong cash flow which we are working to build further by utilizing our working capital more efficiently. We measure the performance of each operating unit using “McCormick Profit”—a program that rewards employees not only for delivering on their profit objectives, but for effective management of working capital.