Worth $2 billion McCormick commonly known as manufacturer of food and beverage ingredients. Based solely on publicly available information, this section shows you step by step how McCormick might analyze its Business Intelligence (BI) opportunities and applied that analysis to improve its profits and operating effectiveness. McCormick sells materials to the food and beverage processors, after processing, they sells them to retailers of food and beverages. The food industry is a mature, fragmented, international industry that is undergoing substantial structural changes typical of industry evolution.
Changes in the food and beverage retailing industry affect the food and beverage processing industry (McCormick’s customers). The resulting changes to the food and beverage processing industry affect McCormick’s business. From a BI strategy perspective, this case study most interested in changes that affect McCormick’s customers and how they make money. The nature and extent of those changes may create opportunities for McCormick to use BI to its strategic and competitive advantage.
Evolution of McCormick’s Relevant Industries
There are three key industries were relevant to McCormick’s BI planning: the food and beverage retail industry, the food and beverage processing industry, and the food and beverage ingredients industry. The food and beverage retail industry has historically been fragmented and regional. By 1999, however, it had become increasingly concentrated and global. In the United States, the top 10 supermarket players generated 33% of industry sales in 1995, but by 1999 that figure stood at 45%, not counting Wal-Mart’s 12% market share.
By 2004, the industry structure had the top 10 players holding between 55% and 70% of the market. Overall, the industry is a mature, consolidating, slow-growth industry with intense competition based on price, which means food and beverage processors receive pressure from the retailers to reduce prices, improve supply chain effectiveness, and differentiate themselves on more than just brand image. It is typical that mature industries spawn more aggressive competition based on cost and service, and that is certainly the model that Wal-Mart has used effectively in the consumer packaged goods industry. It is also typical that profits in the mature industry often fall, sometimes permanently.
The food and beverage processing industry is affected by trends at the retail level. The McCormick company’s primary interest is in identifying the major trends and their likely impact on the bases of competition in its ingredients businesses. This will suggest potential areas where McCormick can leverage BI.
The balance of power between food retailers and food processors shifted from 1995 to 2005 in favor of the retailers, which continues to put pressure on pricing and profits. The food processing companies most threatened by retailer consolidation are those with lower-ranking brands. In addition, slow domestic economic growth has intensified competition, motivated global expansion, and driven business process reengineering projects seeking improved margins.
Many industry leaders spent the mid-90s engaged in cost-cutting initiatives and backward integration into the ingredients industry, and such initiatives have returned as much benefit as they are likely to in the short term. Thus, the food and beverage processing industry is consolidating, which increases buyer power in relation to McCormick and its competitors. Looking forward, McCormick can continue to expect pricing pressures and demands for increased efficiency as its customers seek to maintain their own profitability in the face of slow growth and retailer consolidation.
The food and beverage ingredients industry is similar in structure to that of the related downstream industries: mature, slow growth, fragmented, and increasingly global. Faced with increasing customer power owing to concentration and supplier consolidation programs, price pressures due to customer industry dynamics, and the threat of backward integration, ingredients industry firms are themselves merging in an attempt to maintain some balance of power.
Although the overall growth rate of the ingredient industry is low, opportunities for growth in excess of the industry average are present. Industry players segment the market into what might be called macro-categories, for example, beverages, baked goods, dairy, candy/confection, and snack foods. These macro-categories have different growth rates, different leading brands, and different rates of new product development, all of which contribute to different opportunity profiles and growth potential.
Consistent with this overall environment, McCormick has successfully executed a strategy that is at once focused, differentiated, and based on cost leadership. McCormick is focused because it is only in the ingredients business. It is differentiated because its customer-based product development paradigm was at one time a singular position in the industry, and because it offers a broader product line than its competitors. The McCormick strategy is also based on cost leadership because it consistently focuses on margin improvement, global sourcing, and supply chain management (SCM) as means to achieve low-cost producer status.
Summary of Food Industry Drivers and Trends
Given the multiple levels of consolidation in the industry, each customer relationship takes on increased importance. At the same time, it’s also imperative to improve costs, pricing, customer selection, and customer revenue management. This suggests that growth and profitability could be enhanced by effective use of BI that supports those objectives. It also suggests that customer-focused business strategies and operating policies will be at least as important as, and probably more important than, they have traditionally been. Accordingly, BI capabilities that promote top-caliber customer service and make it easy to do business with McCormick are also important. A summary of the food industry drivers and trends is shown below:
McCormick Business Design
Value Disciplines
Changes in the food and beverage retailing industry affect the food and beverage processing industry (McCormick’s customers). The resulting changes to the food and beverage processing industry affect McCormick’s business. From a BI strategy perspective, this case study most interested in changes that affect McCormick’s customers and how they make money. The nature and extent of those changes may create opportunities for McCormick to use BI to its strategic and competitive advantage.
Evolution of McCormick’s Relevant Industries
There are three key industries were relevant to McCormick’s BI planning: the food and beverage retail industry, the food and beverage processing industry, and the food and beverage ingredients industry. The food and beverage retail industry has historically been fragmented and regional. By 1999, however, it had become increasingly concentrated and global. In the United States, the top 10 supermarket players generated 33% of industry sales in 1995, but by 1999 that figure stood at 45%, not counting Wal-Mart’s 12% market share.
By 2004, the industry structure had the top 10 players holding between 55% and 70% of the market. Overall, the industry is a mature, consolidating, slow-growth industry with intense competition based on price, which means food and beverage processors receive pressure from the retailers to reduce prices, improve supply chain effectiveness, and differentiate themselves on more than just brand image. It is typical that mature industries spawn more aggressive competition based on cost and service, and that is certainly the model that Wal-Mart has used effectively in the consumer packaged goods industry. It is also typical that profits in the mature industry often fall, sometimes permanently.
The food and beverage processing industry is affected by trends at the retail level. The McCormick company’s primary interest is in identifying the major trends and their likely impact on the bases of competition in its ingredients businesses. This will suggest potential areas where McCormick can leverage BI.
The balance of power between food retailers and food processors shifted from 1995 to 2005 in favor of the retailers, which continues to put pressure on pricing and profits. The food processing companies most threatened by retailer consolidation are those with lower-ranking brands. In addition, slow domestic economic growth has intensified competition, motivated global expansion, and driven business process reengineering projects seeking improved margins.
Many industry leaders spent the mid-90s engaged in cost-cutting initiatives and backward integration into the ingredients industry, and such initiatives have returned as much benefit as they are likely to in the short term. Thus, the food and beverage processing industry is consolidating, which increases buyer power in relation to McCormick and its competitors. Looking forward, McCormick can continue to expect pricing pressures and demands for increased efficiency as its customers seek to maintain their own profitability in the face of slow growth and retailer consolidation.
The food and beverage ingredients industry is similar in structure to that of the related downstream industries: mature, slow growth, fragmented, and increasingly global. Faced with increasing customer power owing to concentration and supplier consolidation programs, price pressures due to customer industry dynamics, and the threat of backward integration, ingredients industry firms are themselves merging in an attempt to maintain some balance of power.
Although the overall growth rate of the ingredient industry is low, opportunities for growth in excess of the industry average are present. Industry players segment the market into what might be called macro-categories, for example, beverages, baked goods, dairy, candy/confection, and snack foods. These macro-categories have different growth rates, different leading brands, and different rates of new product development, all of which contribute to different opportunity profiles and growth potential.
Consistent with this overall environment, McCormick has successfully executed a strategy that is at once focused, differentiated, and based on cost leadership. McCormick is focused because it is only in the ingredients business. It is differentiated because its customer-based product development paradigm was at one time a singular position in the industry, and because it offers a broader product line than its competitors. The McCormick strategy is also based on cost leadership because it consistently focuses on margin improvement, global sourcing, and supply chain management (SCM) as means to achieve low-cost producer status.
Summary of Food Industry Drivers and Trends
Given the multiple levels of consolidation in the industry, each customer relationship takes on increased importance. At the same time, it’s also imperative to improve costs, pricing, customer selection, and customer revenue management. This suggests that growth and profitability could be enhanced by effective use of BI that supports those objectives. It also suggests that customer-focused business strategies and operating policies will be at least as important as, and probably more important than, they have traditionally been. Accordingly, BI capabilities that promote top-caliber customer service and make it easy to do business with McCormick are also important. A summary of the food industry drivers and trends is shown below:
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Application of the Business Intelligence Opportunity Analysis Framework at McCormick
Working with the publicly available facts described above, the BI opportunity analysis framework can be applied to systematically identify specific opportunities to use BI to improve profits at McCormick. Both top-down and bottom-up BI opportunity analysis techniques can be used. Although top-down techniques begin with a strategic view and work down into an operational view, many business users are more comfortable discussing operational priorities. In this case, bottom-up techniques are used to discuss BI in relation to business processes, and determine how it can be used to support business strategies and the achievement organizational goals and objectives. The analytical results, abbreviated for sake of illustration, might look like this:
Business Drivers:
- Consolidation
- Wal-Mart factor
- Increased pricing pressures
- Slow growth
- Global expansion
- IT as a competitive weapon
- Retain/increase revenue and market share through developing a broad line of differentiated products and services.
Reduce costs and improve service through strengthening supply chain collaboration and improving sales forecasting. - Improve profits by utilizing customer segmentation approaches to identify the most profitable customers and retain these customers by providing high-quality, differentiated service and support.
- Preserve margins by refining pricing strategy to determine the potential short-term and long-term cost/benefit of adjusting prices for different customers and segments; make pricing decisions based on cost/benefit analysis.
McCormick Business Design
Value Disciplines
- Customer knowledge
- Consumer-focused product development
Leveraged IT
Continuous process improvement
Niche focus
- Product development
- Customer service
- Supply chain management (SCM)
- Manufacturing
- Financial planning and control