Low inventory trend stings suppliers, McCormick says
- Lower top-line inventory levels at retailers are starting to hit supplier sales, McCormick executives said Thursday on the company's fourth-quarter earnings call.
- "There's been a general trend for all of our customers to be working their inventories lower," said McCormick CEO Lawrence Kurzius. He believes the strategy did not serve customers well in the fourth quarter: "We believe we substantially under-shipped consumer consumption due to trade inventory reductions."
- Additionally, the CEO said this mistake — characterized not as part of a lowered inventory strategy, but as a serious unintentional error — in one major unnamed retailer's replenishment system contributed to a 3% decline in sales growth in the Americas for the company in Q4. "It's hard to imagine that retailer taking inventory down further than they did because they literally ran themselves out of product," Kurzius said.
Retailers have been eschewing inventory in recent months to bolster margins and increase efficiency. But McCormick executives made it clear that, in their minds, this trend isn't serving the customer, let alone retailer revenues.
Kurzius described "significant out-of-stock situations on high-margin quality items" at the company's most important time of year — baking season. Modest revenue growth for the company was largely due to price increases and not increased sales volume, explained CFO Michael Smith.
Kurzius said McCormick won't be the only brand to mention lower inventory levels across the board by the time fourth-quarter earnings are all announced. "I would expect you to hear from others saying similar things regarding that portion of the trade reduction," he said.
Combined with a major snafu at one of McCormick's largest customers, it was a rough holiday season for the spice, condiments and flavors company. Going forward, McCormick will be planning for a gradual decrease in inventory levels from its customers, despite what Kurzius described as enthusiastic consumer demand.
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