McCormick tests price cuts of 25%-35% Earnings gain sought through rising sales

March 21, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

McCormick & Co. Inc. told shareholders yesterday that it is experimenting with discounts as deep as 25 to 35 percent on popular products, as part of the spice company's effort to meet competition from cheaper competitors.

The test includes eight to 10 products in 11 regional markets across the nation, spokesman Mac Barrett said. It is not in effect in Baltimore-area stores, and McCormick would not say which spices the Sparks-based company is discounting.

Chief Executive Charles P. McCormick Jr. said consumer price concerns are "the No. 1 problem we face" as he responded to a question about prices at McCormick's annual shareholders meeting yesterday, held at the Marriott Hunt Valley Inn.

"The attempt is to show increased volume movement at the lower price," Mr. Barrett said.

"This program has been in effect approximately two to three months. The company probably will need about one pro- motional year to see the results."

At the extreme, the discounting could mark McCormick experimenting with a new set of assumptions about how to make money in the spice business, reacting to several years of stiff competition that has crimped profit margins by simply accepting lower prices in order to sell so much more product that earnings rise anyway.

As recently as 1992, McCormick sold its products on average for almost 40 percent more than what they cost to produce. The difference went to overhead, debt service and then-record profits. But, by last year, the figure had fallen to less than 35 percent, about where it was during the late 1980s.

However, analysts said yesterday's announcement, without more evidence, stops well short of proving McCormick is changing fundamental approaches.

Clifford Ransom of Raymond James & Associates in St. Petersburg, Fla., said McCormick has previously experimented with coupons in order to nudge sales of popular, frequently purchased items like cinnamon or vanilla extract.

"You probably can't get anyone to buy cardamom [by cutting the price] unless they're already going to buy cardamom," he said. (Cardamom is a spice used in Indian cooking.)

"It's not something brand new," said Kurt Funderburg of Ferris, Baker Watts Inc. in Baltimore. "You meet what the customer expects for a product or you don't sell it. I'm sure it's just a few products that are in high demand."

Otherwise, the annual stockholders meeting was a crowded, fairly upbeat affair, especially considering that McCormick had announced Monday that first-quarter earnings per share fell 50 percent.

Mr. McCormick and other company officials conceded that 1995 was a bad year, but vowed to do better by the end of 1996 and said McCormick's lagging stock price has not led management to consider selling the company.

"We expected the first quarter," Mr. McCormick said.

"The results won't be evident overnight," he said. "The results should be evident as we move through 1996."

Pub Date: 3/21/96

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