McCormick & Company, Incorporated (MKC) Earnings Call Transcript & Summary

All right. Hello, everyone. Good afternoon and good evening. We're pleased to welcome McCormick to the conference. McCormick, as many of you know, is a global leader in flavors, seasonings and spices. We have with us Lawrence Kurzius, Chairman, President and CEO; and Mike Smith, CFO. Now before we get to Q&A, Lawrence, is going to go through some slides just to ground up. I do also want everyone to be aware that McCormick is in their quiet period, so our focus today will be on the long term, and we won't be taking any investor questions. So with that, I will hand it over to Lawrence.

Thank you, Faiza, and thanks for the opportunity to participate today, and I'd like to thank everyone who is joining us. I'd like to call attention to our safe harbor statement in today's presentation. As you know, some of our remarks are going to include forward-looking statements and non-GAAP financial measures. You can find the GAAP to non-GAAP reconciliations at the end of this presentation as well as on the McCormick website. At McCormick, we have an overarching focus on growth. We're differentiated by our growth platform and the results that we have achieved. We're driving growth through executing on our long-term strategies, actively responding to changing consumer behaviors and capitalizing on new opportunities from our relative strength. Today, I hope to leave you with a greater understanding of how we're advancing our differentiation, accelerating our core business, fueling our growth and building for the future, all of which are positioning us to continue our sustained growth trajectory and drive long-term shareholder value. McCormick is a different kind of flavor company. We're a global leader in flavor. We operate in 2 segments, Consumer and Flavor Solutions, in every region across the globe. Our industry-leading global supply chain sources approximately 14,000 raw materials from over 85 countries. With our access to trusted natural ingredients and our heritage in food, we're a leader in clean and natural flavor. Our Consumer segment has brands in 160 countries and territories and sells products at every price point, ranging from premium brands to private label. Our Flavor Solutions segment is a culinary-inspired flavor business with deep understanding of consumer flavor experiences for real food and natural ingredients, leading technology that develops consumer-preferred flavor solutions. Our 2 segments complement each other as we leverage our expertise in clean and natural flavor, our advantaged global supply chain and our tremendous culinary and insights capabilities across both businesses. We are differentiated with broad and advantaged global portfolio, positioning us to fully meet the demand for flavor around the world. The breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings creates a balanced portfolio to drive consistency in our performance. All over the world, people desire great-tasting foods and drinks with rich, authentic flavor, and we deliver flavor across all markets and through all channels. We have compelling offerings for every retail and customer strategy with our broad ranges of consumer formats and flavor applications. We deliver flavor across all eating occasions and across all cuisines and trends. This provides us deep insight into growth opportunities, representing a unique advantage for McCormick. Flavor is an advantaged global category. One evidence is McCormick's total U.S. branded consumption growth outpaced our U.S. packaged peers by 3x before the pandemic. And since the beginning of the pandemic, our total branded growth has continued to significantly outpace our peers and center of store growth rates. Global flavor includes categories across our broad portfolio and is projected to grow at a 6% CAGR over the next 3 years, an acceleration from 5% historically with our top global consumer segment categories driving the growth and continuing to outpace other categories. And other high-growth categories like sweet biscuits, snack bars and savory snacks are key categories for which we develop custom flavor products for our Flavor Solutions customers. Global demand for flavor remains the foundation for our sales growth. We're capitalizing on the growing consumer interest in healthy, flavorful cooking, trusted brands, digital engagement and purpose-minded practices. Our proprietary consumer survey data and external research indicate these long-term trends and the rising global demand for great taste are as relevant today as they have been in the past, with the younger generations fueling the demand for flavor at a greater rate. Consumers cooking more at home, particularly scratch cooking, accelerated during the pandemic, further accelerating the other key trends as well. 68% of U.S. consumers surveyed state they are cooking more today than prepandemic. And 78% of U.S. consumers claimed they would maintain or increase their level of cooking at home if things return to normal next week. And research indicates a similar sentiment in other countries. Consumers are enjoying the cooking experience. It provides a creative outlet, makes them feel adventurous, reduces stress and connects the family. Consumers have invested in new kitchen appliances and want to try new things. They want to cook versus have to cook. They've also formed new habits, adding flavor to takeaway and delivery food, and the hybrid work environment supports lunch at home. Consumer behavior and sentiment driving an accelerated and sustained preference for cooking at home will continue globally and persist beyond the pandemic, driving consumer demand for our products. To support this demand as well as the rising demand for flavor, we are making transformative investments, including investing in our supply chain to expand our capacity and capability as well as increase our resiliency. In the Americas, we're increasing our capacity to support the fast-growing hot sauce category, increasing condiment capacity for higher-margin products, investing in seasoning capacity to support increased demand and strengthen our resiliency. We plan to optimize our distribution network with our new Northeast distribution center as our largest in the world that will accommodate the future growth we expect. In both our EMEA and APZ regions, we are investing to support our Flavor Solutions growth. Our new U.K. condiment manufacturing facility is on track to become McCormick's first net zero carbon building. Our investments in our global infrastructure will enable us to deliver growth in line with our aspirations. We continue to be differentiated by our top-tier growth objectives. When you compare our long-term constant currency objectives to our packaged food and flavor solutions peers, McCormick is best-in-class for both sales and adjusted earnings per share growth and we're delivering on these goals. Our 5-year CAGR for both sales and adjusted operating income exceeded our long-term objectives, and our adjusted operating -- sorry, our adjusted earnings per share growth was in line with our long-term objective. We continue to generate fuel for growth by driving record cash flow, exceeding $1 billion in 2020, expanding our adjusted operating margin and realizing cost savings. We continue to use our strong cash flow to grow our dividend, and we are a dividend aristocrat. Our foundation is strong, our strategy is effective, and we're achieving top-tier business performance. We delivered this industry-leading financial performance while also doing the right thing with the responsibility to the long-term vitality of people, communities and planet we share. We have laid out a series of commitments and clear performance targets for 2025 in accordance with the United Nations' Sustainable Development Goals. McCormick has been recognized as a leader in sustainability. For the fifth straight year, we were named by Corporate Knights in their Global 100 Most Sustainable Corporations Index at the Davos World Economic Forum, this year again ranking #1 in the packaged food and processed foods and ingredients industry and #6 overall. For the past 5 years, we've also been named a DiversityInc top 50 company for our continued efforts around diversity and inclusion as well as being recognized for our broader ESG efforts. Now expanding a bit on our Consumer segment. Across our consumer categories, we have been driving undisputed leadership through strong brand marketing, new products and our category management initiatives. In packaged spices and seasonings, McCormick continues to be the global leader, nearly 4x the size of the nearest branded competitor with the leading branded market share in many markets. In the recipe mix category, with contracted fewer markets around the world, McCormick has shared leadership in key markets. In consumer condiments, our portfolio includes iconic global brands as well as strong regional leaders. In the high-growth hot sauce category, we continue to gain momentum towards meeting our global share leadership aspiration by driving strong performance of Frank's RedHot, America's #1 share leader; as well as through our acquisition of Cholula, the leading Mexican hot sauce brand. Let me say more about Cholula. With Cholula's authentic, bold and spicy Mexican flavors, we increased our breadth and reach in the hot sauce category, providing consumers and food service operators with an even more diverse product offering. We're leveraging our operational expertise and infrastructure and expanding channel penetration to drive growth in both of our segments. In our Consumer segment, where Cholula continues to outpace category growth, we're using our category management expertise to expand distribution points, optimizing shelf assortment and placement and gain momentum in e-commerce where Cholula has been underpenetrated. We're increasing awareness through brand partnerships, brand marketing, investments and by leveraging promotional scale across McCormick brands. We have recently launched Cholula wing sauces and also relaunched 2 flavors with cleaner formulas. In Flavor Solutions, we're using our culinary foundation and insights on menu trends to grow our back of the house foodservice penetration, increasing Cholula's menu participation. Cholula is a great addition to our portfolio and delivers on our strategy to accelerate our global condiments platform. Our strategies also include fueling our growth in fast-growing markets and channels. Starting with health and wellness, we're a global brand leader in organic spices and seasoning. Many of our products have clean and healthy labels, and we're making investments through our McCormick Science Institute to promote their health benefits. We're pleased with the recent dietary guidelines for Americans, which included spices and herbs as a way to help flavor food when reducing sugar, fat and sodium as well as to add enjoyment to eating occasions. We're also investing in content retailer search and innovation specifically for e-commerce. We continue to build our online shelf to drive McCormick and category growth. Through our brand marketing investments, we continue to strengthen our consumer connections, particularly online. We're advantaged by our digital leadership, being recognized again in 2020 as the #1 U.S. food brand with the highest distinction -- highest designation of Genius by Gartner L2 research in their Annual Digital IQ ranking. Finally, new product innovation strengthens our relevance with consumers and differentiates our brand. For instance, we're meeting the rising global demand for hot and spicy flavor by inspiring consumers to explore heat with new products across our portfolio. Now turning to our Flavor Solutions segment. In Flavor Solutions, we've continued to progress on the execution of our strategy to migrate our portfolio to more technically insulated and value-added categories. For example, we're growing flavors for beverages considerably, also pruning lower-margin business. Our focus on greater value add categories as well as high-growth regions and customers has contributed to our significant sales growth. Our portfolio migration strategy has also been a contributor, along with our comprehensive continuous improvement program to expanding our segment adjusted operating income margin over the last 5 years. Recently, we acquired FONA, a leading North American manufacturer of flavors, with a focus on nutritional and natural products with products adding to our toolbox in flavor encapsulation and modulation. This further migrates our portfolio. We continue to see a long runway for growth and margin expansion ahead. With our acquisition of FONA, we've expanded our breadth in attractive and fast-growing categories, extended our technology platform capabilities and strengthened our clean and natural leadership. Additionally, our customer value proposition has been enhanced through a combination of complementary customer and engagement approaches as well as insight capabilities. We're excited about the growth we're driving. For example, we're leveraging Giotti's EMEA infrastructure to globalize flavor for a top FONA customer. We're also leveraging McCormick's sustainability leadership to create new opportunities with FONA customers. The combination of our capabilities has created new opportunities to bid on breaks that capitalize on core strengths across McCormick and FONA. FONA is another step to scaling our global flavors platform and accelerating our growth. We're committed to building exceptional and sustainable customer partnerships. Our differentiated customer engagement and best-in-class experiences we provide are driven by a combination of several enablers. Specifically, our culinary foundation, consumer insights, broad technology platform, artificial intelligence and strength in application science as well as the unique functional expert-to-functional expert collaboration approach of our people, all of whom are focused on flavor every day. Both McCormick and our customers are winning through our partnerships. So to conclude, across McCormick, we're investing for the future and are sustainably positioned for growth. As we build for tomorrow, we continue to propel our business forward. We're in constant pursuit of what's next in flavor through unparalleled insights, global optimization and forward focus enabled by technology and empowered by science. Through the execution of our growth, performance and people strategies, we're well positioned to drive future differentiated growth and are confident in our continued success. And Faiza, now, I'm looking forward, along with Mike Smith, to answering some questions.

Excellent. Thank you so much, Lawrence, that was really helpful. I guess I'll start with -- if you could reflect back on the last sort of 12 to 18 months, how did you manage through the COVID pandemic? What were some of the lessons that you learned in terms of your own strengths and weak points? And how do you view your strategy, your operations of [ day to day as it's called ] [indiscernible].

Great. Well, Faiza, we've first of all managed by setting 3 clear priorities at the very start of the pandemic which are still in place today as the pandemic continues in various stages across the world. Those priorities were to ensure the health and safety of our employees and the quality and integrity of our product; keep our brands and our customers, brands and supply and maintain the financial strength of our business; and make sure that we emerge from the pandemic stronger and keep a forward focus on our business. We've also kept our focus on our growth performance and people strategies. Our strategies are designed to build long-term shareholder value, are built on long-term trends and serve us well no matter what the environment. Some of the plans we had in place to execute on may have been altered, but the strategies themselves really have not changed. And I think we've demonstrated the effectiveness of our strategies. They were the right ones before, during and -- before, during the pandemic and will continue to be after as we're coming out. In terms of our operations, in our Consumer segment we realized a couple of year's growth is 1 year. And with that acceleration and sustained level of elevated demand, we needed to implement some short-term solutions as well as accelerate investments to expand our capacity. Across the organization, we were able to capitalize on the capabilities we've built as a company. We learned how resilient we really are and how quickly we could adapt to change. And we demonstrated that our growth behaviors that we have been cultivating as a cultural change to allow employees to be more agile, to reframe their thinking, to see new opportunities, to make faster decisions and enable more rapid execution and then more effectively achieve innovation and growth going forward. And we believe that we'll carry this learning going forward and capitalize on the momentum that we've built. Mike, do you want to build on that?

Yes. Real briefly, just as Lawrence mentioned, we didn't have any changes to our strategies. We also kept our capital allocation policies intact. Our priorities remain to invest to drive long-term sustainable growth, whether through internal capital programs or M&A; returning cash to shareholders, we're a dividend aristocrat and want to remain one; and paying down our debt. In 2020, we reached $1 billion in cash flow from operations, a new record. We also took advantage of historically low interest rates to further bolster our liquidity and strengthen our balance sheet. In the last 18 months, we raised $1.5 billion through the issuance of notes at record low interest rates. And with that stronger position, we made 2 strategic acquisitions, Cholula and FONA, this past November and December. And at the beginning of 2021, we guided to a strong year with organic sales growth in both segments. And in our first quarter earnings call, we raised our guidance. So finally, we feel we're meeting our objective to emerge stronger from the pandemic and are well positioned for continued success in 2021 and beyond.

Excellent. You mentioned M&A. I'm curious if you could talk to us about how your Cholula integration is going. You touched on it a little bit on the slide. But were there any surprises? And how do you see the brand interacting with Frank's?

I'll take that one, Faiza. First, from a Cholula integration perspective, it was really straightforward and completed it seamlessly in 90 days on March 1. So it's completely integrated. I'd overall say there were really those big surprises, frankly, just more enthusiasm for the brand and really a stronger confidence to deliver on our plans and value from the acquisition. So we're really, really happy with it. It's a great question, though, to talk about the interaction of Cholula and Frank's. First, as you know or may know the hot sauce category is really fueled by younger, multicultural consumers, growing desire for international spicy food. Plus, it's healthy and flavorful. But the usage occasions and consumer mindset around the consumption for these brands is quite different. The 2 are really complementary to each other more than any other brands in the category. I think first, Cholula has a really passionate fan base with a real affinity among younger and more diverse populations, which is incremental to Frank's devoted fan base. Cholula also overindexes to Mexican dishes, while Frank's overindexes to chicken and buffalo flavored dishes. And finally, Cholula is really complementary to Frank's even from a U.S. regional perspective. Frank's is more concentrated in the East and Cholula in the West. In the last 6 months, we've seen really minimal impact and overlap between Cholula and Frank's. Many consumers have both in their pantry, including many of our employees. We found a lot of our employees really loved Cholula before we bought it. On the consumer side, we've developed a complimentary play calendar to drive broader in-store support for our hot sauces. In the branded food service, we have a similar approach to our promotional activities. Frank's consumption is heavier during the Super Bowl and football tailgating events, while Cholula is for the celebration of Mexican food and culture during Cinco de Mayo and during the summer months. And both the brands are among the fastest-growing brands in the condiment aisle. If you look at recent scanner data, both are realizing significant growth. And if you look at over a 2-year CAGR as we lap the significant second quarter consumption period from last year, both Cholula and Frank's are still seeing double-digit growth. You can tell my excitement is building here on this brand. But so finally, so Cholula and Frank's enables us to provide even more wide-ranging offering across the category that addresses these complementary cuisine types, consumers and usage occasions.

Great. Thank you, Mike, for that very comprehensive answer. I guess maybe first, if I think about your high revenue Flavor Solutions [ to store ] like Giotti and FONA, it feels like that's a part of your business that often gets overlooked. And again, I think you did touch on this a little bit on the slide, but I'm curious, though, what are you most excited about in that business? And how much do you think you're competing directly with the more larger, diversified flavor houses? And how are you differentiating yourself from some of those larger players?

Well, Faiza, first of all, if you felt Mike was enthusiastic about Cholula, I want to say that we're equally enthusiastic about FONA. And FONA's performance this year has been great with a robust momentum across the business. And I'd say for both of these assets that we bought, Cholula and FONA, I think, now that we own them, we like that even better than we had hoped we would. Both terrific. FONA's acquisition is really strategic. And it's got a product offering that's concentrated in our flavors product category, which is the most technically insulated and value-added part of our portfolio. And our Flavor Solutions business segment is the area that we are investing in and shifting our portfolio toward. Before we acquired FONA, it represented over half of our Flavor Solutions segment. So you're right, it's often overlooked. And this part of the business goes head-to-head with the major flavor houses every day for business. And the FONA acquisition fit into this business segment. We've got a comprehensive range of flavor solutions as we develop flavor across a wide range of applications and attractive categories. And we do have the capability to compete with many of the top flavor houses because we do every day, but all of that business is directly competitive with them. There are some things that differentiated us. First, customer engagement. We have a great passion for creating a flawless customer experience, as I mentioned during my prepared remarks and what we see here. We come from a culinary foundation, that's really at the heart of our passion for creating those custom, on-trend flavors. And I know when we come from a unique food heritage that gives us unreliable understanding of and access to trusted natural ingredients. We don't have our origins as a perfume company or as a chemical company. We -- our basis is in food. In terms of the portfolio, our customers certainly recognize us as the leader in seasoning, but what's awesome is that those seasonings are carriers for our flavor technology and have that flavor technology embedded in them and they are integral to creating the consumer experience that makes our customers' iconic products work. Additionally, McCormick has trusted and leading brands of our own throughout the world. And we know the importance of brands. And we have our -- and we make flavors that deliver on customers' brand promise. And those brand owners are the advantage that we have that is unique to McCormick versus other flavor houses is that we have consumer insights of our own from our own Consumer segment that we can bring to bear on our customer and client's business. In many cases, we've got the same consumers as our customers, and we're working off of the same trends for our brand. And our broad consumer product portfolio, the research, the testing, the digital connections that we've built with consumers have all given us insight, the taste they're looking for in addition to understanding their demand, the demand for clean and healthy options and purpose-minded practices. And we can share those in place and understanding that our customers not only have themselves challenge that they bring to us, but further innovation even further, which is a powerful and unique advantage to McCormick. And then finally, we're all about great flavor. That's all that we do. We're not interested in fragrance, structured proteins. But it's all about bringing fantastic flavor experience for food, beverage and nutritional products. We wake up every day thinking about flavor and how to make eating and drinking experiences taste great, whether for our consumers or our customers' consumers. And we have our best talent working on flavor, not looking in other areas. And they bring a great passion for that flavor and a passion to win.

Great. Just shifting to the consumer front. At first brush, it looks like some of your U.S. branded shares are under pressure. Walk us through what's driving that, when it might change and whether it's representative of underlying trends. So I believe it's more supply oriented. So I would love to hear your perspective.

Okay. Well, as I mentioned earlier, McCormick holds the leading position in spices and seasonings. We're also the recipe mix market share leader in key markets, including the U.S. And just the sheer scale of the increase in demand and the duration of that increase has been a challenge for us as the market leader. And in categories and regions where supplying that demand has been a challenge, we have lost a little bit of share. In those categories and regions where we've had strong supply on the shelf, we've been maintaining or even gaining share since the beginning of the pandemic. For example, our EMEA supply chain has been very well positioned to meet the elevated demand, and it's continued our ability to grow share across really that whole region. The share pressure really is notable only where we have supply constraints, and most visibly in our U.S. spice and seasoning recipe mix category. Now as of the end of the year, we have expanded our capacity tremendously. And through the first half, we've restored products that have been suspended to protect capacity for our best-selling items. We've gradually lifted allocations. And we know there's a high correlation between share performance and product suspensions and allocation. So expect us to see that share improvement -- share performance improving as items go back to the shelf. It's a bit net right now because of the time period that were lapping just for the extraordinary year ago. As we go through the second half, I think you'll see some of that improvement. The underlying trends though driving our growth are not changing. In fact, cooking at home, as I've said in my remarks, scratch cooking, consumer demand for clean, flavorful eating, trusted brands, all accelerated during the pandemic. Consumer demand continues to be very high. As fast as we can supply the market, consumers are pulling the products through. We saw the latest 13-week scanner data, total McCormick consumption went down versus during the incredible surge a year ago. On a 2-year CAGR, it's up 17% -- sorry, it's up 7% versus total food stake. So it's still really strong growth. And we're continuing to use our strong category management capabilities, brand building and working with our customers to optimize the category sets. And I think that you'll see us -- our share conditions improve -- continuing to improve as we go through the second half. You did mention we're in our quiet period, so like my remarks on this are going to be -- are limited, but we'll have a lot of more to say about this on our second quarter earnings call in just a couple of weeks.

Just looking ahead, so consider your total portfolio. How do you think consumption patterns have and will evolve sort of regionally and by channel? Your trends so far they're roughly in line with your high-level expectations. We know that you are diversified across channels. But walk us through the implications on your business, just given the changing channel dynamics here.

A little walk around the world. Overall, the underlying trends driving our growth are not changing, and in fact, have been accelerated during the pandemic. On the Consumer segment side, around the world, we continue to experience this elevated consumer demand. In APZ, Consumer demand continues to be strong. In China, we see a recovery in foodservice, which we account in our Consumer segment in China. And so the China numbers are very strong. Americas and in EMEA, as restrictions are easing and vaccinations are continuing to improve, demand still remains strong. And while we're lapping a significant surge period from last year, our 2-year CAGRs are still showing underlying healthy growth. We see a blurring between the channels since the majority of food in the away-from-home channel is being consumed at home now, where consumers are adding their own spices, seasoning and condiments. In Flavor Solutions, from a food and health perspective, we're carrying our growth momentum with these customers into 2021, driven by the strength in their core iconic products as well as new products. And the away-from-home portion of that segment, we've seen growth from our restaurant and other foodservice customers as they recover. The QSR demand momentum continues. We expected it to be faster than the rest of the foodservice industry, and it was, just because they're oriented more towards takeaway. But demand for other restaurants and foodservice customers, it continues to grow. We are seeing that demand from kind of traditional foodservice and restaurant customers recovering more quickly now. Institutional feeders and cafeterias and such are still pacing quite slow. I will say this is advantageous mix for us. Our weaker whole portfolio does skew more to restaurants and quick service restaurant and less to the institutional feeders. So we had been bit of a double benefit because, consumer demand remains strong and the portion of foodservice that's coming back most quickly is where our business is concentrated. And I think that taken all together -- that was a long answer, but the breadth and reach of our portfolio against some very good performance as we lap the most volatile period from last year.

Yes. Okay. Just sticking with the channel. Over the last year, we've seen sort of e-commerce really take off in grocery. So walk us through how big e-commerce is for you? How much is sort of click and select? And in the same vein, sort of historically, I think McCormick has done a really good job with digital marketing. So I'm curious how you think those strategy or tactics are evolving? And then maybe if you can just touch on whether -- what the profitability implications of e-commerce are and whether you're sensing it becoming a factor in retailer negotiations.

No, you're right, Faiza. E-commerce sales for us have really taken off over the past year, up 136% in 2020, and we continue to see great growth in 2021. And obviously, then the base we are growing off of keeps getting bigger, which is great. These past investments, and you alluded to our success, and those resources across e-commerce are really paying off for us. We were investing well in advance of others and thus positions us well for this growth acceleration we're now experiencing. We're still in the early days overall of e-commerce, though. And even with the acceleration, we are continuing to invest, as I mentioned before. Obviously, also, overall, our e-commerce varies by market, including markets where it is underdeveloped and others that are very far along, like in the U.S. or Western Europe. Globally, where we can measure it, our e-commerce sales as a percentage of our branded consumer sales is in the high single-digit range now, so that's up from last year. Click and collect is the most significant part of our e-commerce sales at approximately 70% and is growing in double digits. Our strategies and tactics in e-commerce and digital marketing are quite mature, though. We don't need to change our strategies, just as anything, we continually advance our execution under them. For instance, we're improving our use of data. As retailers are increasingly more receptive to database selling, we are able to optimize promotional spending across the portfolio to be more productive, which includes e-commerce marketing dollars. We're also working on developing data partnerships. Through these partnerships, we're able to make both first-party data and third-party data work harder for us to deliver the right message at the right time for our consumers. And as we have said in the past, e-commerce is a profitable channel for us. Of course, there are higher fixed costs for support infrastructure that must be put in place, but on a variable cost basis, the margins are comparable to the rest of our portfolio. And as you mentioned, there's a retailer conversation. These negotiations always include a wide range of topics across our whole portfolio, which would include e-commerce as applicable, but we feel we're really strong in this area.

Okay. Okay. Just from a product perspective, they want to focus on sort of high-productivity SKUs during the height of the pandemic at retail. So how should we think about the innovation or return of more variety sort of helping your near-term growth? And are there profitability implications? And I guess more broadly, like how do you think about newness sort of impacting the category?

The innovation is always integral to our sales growth. Our long-term growth algorithm includes 1/3 of our growth coming from new products. We don't expect a return to variety to help our growth rate any more in the near term than it has before, but it is part of -- is a very essential part of that long-term algorithm. Newness and variety in our category is totally important. It's really part of the nature of the categories themselves. And in our Consumer segment, while every day herbs and spices are so important staple, varieties need to drive flavor exploration and additional growth and to address what's current in flavor. Our 2020 launches did gain exceptional trial. We didn't launch everything that we had intended to, but what we did launch got exceptional trial. In 2021, we've got a really robust global pipeline of new product launches. Some of the key trends that we're building off of are convenience, which is really -- calls from meaning no cooking to be cooking easily as people's cooking skills have improved and get more comfortable with scratch cooking. We're delivering against important health and wellness trends. Newness and variety is so important in terms of flavor exploration and experimentation. Consumers are looking for adventure. And outside of flavor, sustainability is an opportunity for innovation as well as we bring more sustainable packaging to consumers and many consumers are motivated by that. On the Flavor Solutions side of our business, one of the things that we don't talk about enough is our computational creativity technology that plays a role in developing fresh new flavor ideas and new products for our Flavor Solutions category. This is a proprietary artificial intelligence stack that works with our unparalleled repository of consumer preference data, really sets McCormick apart. It allows us to increase our speed and development and gives our developers a better starting point and often yields unexpected solutions and nonobvious starting points efficiently, real competitive advantage in developing flavor systems. And we're seeing our Flavor Solutions customers having bigger bet innovations in their plants, and we're excited about our customers' robust 2021 pipeline in this segment as well. And the use of computational creativity is really enabling us to address those needs and help us win in the space. We've also used this technology in our Consumer segment to develop some great products, some Chili Cookoff product and some of our recipe mixes designed specifically for the Instant Pot are AI-enabled. So innovation is integral to growth, and there's even innovation around how we innovate.

Okay. Mike, let me shift to you and just I have to ask about cost of pay because it's such a hot topic. Do you want to just talk about its impact on your business and how we should be thinking about pricing?

It's obviously a really hot topic now. It's a dynamic environment, and we're certainly seeing the cost pressures like others in their industry across the board. Although we do have a different market basket, quite frankly. But fuel rate costs and things like that are hitting everybody. From a historical perspective, we've had a history of effectively managing through either low or high cost inflation increases. And we've been capable of taking fact-based pricing where needed. I will say, in the next 3 weeks, we're going to have our earnings call, as Lawrence mentioned, and we'll certainly be addressing it more specifically on that call.

Okay. Okay. So [ that's cool based on that ]. Maybe sort of higher level, can you just touch on what areas you're investing in? I know you've talked about upgrading the ERP system. Are there other areas of investment from manufacturing, sourcing, cost efforts capability point of view that you're focused on to drive sustainable future growth?

No. As Lawrence mentioned in the presentation, we're making transformative investments across the board and will enable us to sustainably meet the demand and enhance our competitiveness in all regions for years to come. We spoke about the supply chain investments earlier, you saw on the slide, which really focus on expanding capacity and capabilities to meet that growth, with the primary focus in the Americas and EMEA and supply chain, as you saw. But we're also continuing our progress on the global program to upgrade our technical innovation centers and modernize our work environments with investments in areas such as Canada and Australia, really need to reflect the way people want to work in the future that they're coming back to this more hybrid model really to help us attract the best and brightest talent. It's really a war for talent that we're participating in. We want -- we need the best talent to win. Other investments include making substantial investments in building brand equity. We increased our brand marketing by 7% again in 2020 versus 2019, 17% in Q1 of this year versus last year. So that is a high ROI return for us, which we really like. We're continuing to invest in innovation and e-commerce, both as we've talked about, and as you mentioned, our ERP system. We're also investing in business transformation to fuel our growth, to win today as well as remain agile, relevant and scalable to win tomorrow.

Okay. Excellent. Well, we only have a few more minutes. So I guess the last question is, just taking a step back, if there are barriers to entry in your business? And I'm curious if you can expand on what some of those barriers are? What sets you apart? And sort of what McCormick's competitive advantages are?

Sure, Faiza. Let me try and be quick about this, though. Our competitive advantage, first of all, doesn't come from any one thing. It comes from a system of things that work together. Some of the top contributors are, first of all, the advantaged categories that we participate in and just the tremendous tailwind that we get from being in the flavor category broadly, and the underlying growth in demand for flavor really fueled by younger consumers. Our category leadership position and our category management capabilities give us the scale to bring resources and analytics to retailers in most of our core categories that really no one else has the scale to provide. Another advantage is our investments in brand marketing. We continue to increase our investment in brand marketing over time and have done a lot of work on ROI to make sure that we're spending that money as effectively as possible. We have the #1 share of voice in our categories in most of our markets. In some cases, 100% of the share of voice. Again, we just have more resources to put behind digital and e-commerce than others. We've done it earlier than others. And this is an area where scale really matters, to have the talent, the tools and the data to be successful. The breadth and reach of our portfolio is also a competitive advantage. We've touched on a couple of times in our remarks, the 2 segments that we operate in are complementary to each other. And the insights we get from 1 client to the other, and so there's a synergy there from being in both segments. And our global supply chain, the global and sustainable sourcing in particular, is a great competitive advantage. 14,000 raw materials, 85 countries. We have direct relationships with thousands of farmers, many of them multi-generation. And it really is a competitive advantage, the scale to operate in this way. It's not an easy business to be in, and that global supply chain provides a significant moat for anyone who wants to operate at a meaningful scale. And I just don't want to leave our people out. We have a people-oriented, inclusive corporate culture. We put a great premium on teamwork, on engaged employees and we've got employees who literally have a passion for flavor and a passion to win. And I think all these things together create a system of competitive advantage that's pretty formidable.

Excellent. Great. Thank you so much. I think we will end it there, and really appreciate McCormick. And Lawrence and Mike, thank you very much for being here. And hopefully, we can see you in Paris in person next year.

That will be lovely.

Thank you.