It's 130, and we are going to begin the webcast of McCormick's 2017 Investor Day. I am Casey Jenkins, Vice President of Investor Relations. At this time, I would like to welcome those joining us today by webcast, along with the investors, analysts and other guests here in the room with us.
While I have the podium,
I would like to also thank McCormick's Investor Relations team, including Joyce Brooks, who will be moderating our Q and A and many other employees throughout the company for their efforts in preparing this event today. I want to remind everyone that during the course of our remarks, we will be making certain forward looking statements. In that regard, I'd like to refer you to the information on this page. In addition, we have included material in your binders and the online slides that provide a reconciliation of any non information to GAAP measures. So with no further delay, it is my pleasure to turn the floor over to Lawrence Kurzius, Chairman, President and CEO of McCormick.
Thank you, Casey. Let me add my welcome to everyone joining us this afternoon, both here in the room and on the webcast. I always enjoy engagement with the investment community and our discussions about McCormick and the food industry. We gain a lot of insight and knowledge from your research and your questions and expect today's events to be likewise productive for both you and for our leadership team. So let's get started.
McCormick is a global leader in flavor. We have a business aligned with the increasing demand for great taste and healthy eating. As I look across the food industry, there are few companies that have the growth potential that we have at this company. Our objective today is to share our confidence that McCormick's strategy and growth initiatives led by the experienced executive team here today will continue to drive our success and build shareholder value. In the next 3 hours, we'll demonstrate how we are becoming even better positioned to fully meet the increasing demand for flavor around the world.
After this presentation, I hope you leave with 3 key takeaways. First, flavor is a growing and advantaged business platform. 2nd, we are capitalizing on the global and growing consumer interest in flavorful healthy eating, the source and quality of ingredients and sustainable and socially responsible practices. And 3rd, across both our consumer and industrial segments, we're executing on strategies to drive exceptional growth and to convert that growth to higher profit and strong cash flow. With our strategies, growth prospects and leadership McCormick is a compelling investment.
We have a strong and experienced leadership team. Together, our executive officers have over 80 years of experience at McCormick, plus outside perspective from roles at prior companies such as Mars, Heinz and Boston Consulting Group. And in locations around the world, we have approximately 11,000 employees that are united by a passion for flavor. Here's how we've organized our time with you today. I'll begin with remarks on the latest trends and the growing demand for flavor, followed by our strategy, a strategy designed to fully participate in and to drive this growth.
Brendan is going to focus on the current momentum in our consumer segment, at which time we'll take a short break. Then Malcolm will speak on the success underway on our Industrial segment. Nika will discuss the integral role of acquisitions, provide insight into our M and A plans and criteria and describe a global enablement project to support our growth. And Mike will wrap up with remarks on our performance and financial outlook. We will have plenty of time for your questions, about a third of this session.
During the Q and A, we'll introduce some other business leaders who will participate. Across the food industry, companies are operating in a period of rapid and fundamental change. Most food companies built businesses to address a traditional set of consumer values, factors that consumers weighed in their choice of food, namely taste, price and convenience. Today, taste remains number 1. In a 2016 trend survey in America, 62 percent of consumers indicated taste was the most important driver when selecting food and beverages for their household.
But the number of consumers who are considering an evolving series of emerging drivers has grown substantially. Roughly half of consumers say their purchase decisions are significantly influenced by these emerging drivers. At McCormick, we're positioned to capitalize on both the traditional trends and the newer consumer values. Starting with price, many of our products are just cents per serving. Even our premium products are often just 10% of the cost and 90% of the flavor of your meal or snack.
Moving to taste, we're a global leader in flavor and meeting that number one priority. And we have a whole array of products for convenience, from baking to grilling to slow cooker meals or on the industrial side of our business, flavors for all kinds of snacks, beverages and away from home eating. Turning to the emerging drivers, health and wellness. Spices and herbs are a natural fit for healthy eating, inherently good for you. We're advancing knowledge about the healthfulness of spices and herbs through our McCormick Science Institute, MSI, and we're pleased to see spices and herbs included in the latest dietary guidelines for Americans as a way to lower sodium.
Safety McCormick has a long history of setting the standard for quality, going to the source growing regions to produce the best spices and herbs. We're the leader in organic and non GMO. We're also introducing BPA free packaging and piloting new ways of cleaning, grinding and naturally processing spices with plans to begin commercial application in 2018. Social impact. Importantly, we support both our network of farmers and the local communities where we operate.
Nearly 13,000 farmers are positively impacted by our programs. And in 2016 was the 75th anniversary of Charity Day when McCormick and its employees give back to our communities. And experience, our business is all about the flavor and the eating experience. The McCormick flavor forecast highlights the latest trends and is welcomed each year by consumers and customers. We help consumers of all ages personalize their food and make meals special.
To illustrate this move toward personalization, in a U. S. Consumer study, more than 2 thirds of consumers said that they usually alter recipes by adding more flavorful spices and ingredients. This is up 500 basis points in just 1 year. This is one of many drivers of the strong category growth for spice and seasonings, which is outperforming center of store categories in U.
S. Retail unit sales as shown here. These same trends hold globally with Euromonitor projecting 5% annual global growth of spice and seasoning sales through 2021. Importantly, the latest 2016 consumer data show that millennials over index their unit purchases of spices and herbs by 10 percentage points, another driver for category growth. Today's consumers, especially millennials are interested in transparency and this includes wanting to know where their food comes from and what happens every step of the way.
So let's take a look at our video for consumers and customers following McCormick's vanilla from the fields of Madagascar to the package on the shelf.
At McCormick, every flavor is a journey. This is our vanilla story. It begins thousands of miles away in countries like Madagascar and Indonesia, where we build relationships with local farmers who have raised vanilla orchids for generations, and we give back as well, helping to support many of our farming regions. Because when you put community first, the flavor just comes naturally. As the orchid flowers bloom, the farmers hand pollinate them the same day.
It takes roughly 3 years to grow a single vanilla vine and 5 to 7 months for a mature green bean to become a cured vanilla bean, bursting with rich aroma and flavor. But the results are worth waiting for. Flavor and quality is an obsession of ours. Every country we source from has its own unique flavor profile. So to get the taste you trust, we carefully blend our beans for the perfect all around flavor.
Our trained sensory experts evaluate every batch to ensure that we deliver a gold standard blend that's bottled
and
labeled and is non GMO, gluten free, bottled and labeled and is non GMO, gluten free, and contains no corn syrup. It's a one of a kind process for a one of a kind taste. Our vanilla makes every recipe more flavorful, aromatic, and delicious. There's a world of flavor waiting, so start exploring. The extraordinary vanilla extract and beans from McCormick and Company.
See where our flavors take you.
That touches not only on transparency, but safety, social impact and taste. In our annual report, we shared goals and progress on sustainability and socially responsible practices. We were proud to be recognized this year for our efforts as announced at the 2017 Davos World Economic Forum by Corporate Knights ranking 14th in their Global 100 Most Sustainable Corporations. Looking back at these factors driving consumer purchases, we believe our business is well aligned with the rising demands of consumers around the world. Let's turn next to our strategy, which is designed to capitalize on these trends.
It starts with our strategic imperatives of growth, performance and people. These have been a consistent focus for us. As we look ahead to the future of our company, we've refreshed our corporate brand to include a new vision and mission. Our new vision to bring the joy of flavor to life describes what we aspire to and who we want to become. Our new mission to make every meal and moment better defines our reason for being and yes that still includes saving the world from boring food.
Our growth strategies are designed to drive flavor and win share. You'll hear from McCormick leaders this afternoon about our opportunities, initiatives and great progress in driving sales of our leading brands and industrial products. Through our performance strategies, we're delivering superior results, generating fuel for growth and improving our profitability. And we're winning with talent. Our people are a key ingredient to our success as seen by those of you on this morning's tours and at our Technical Innovation Center.
This will also be evident throughout our remarks. At the foundation of our strategies, we have 5 McCormick principles. These first three principles refresh existing pillars of our values with a long legacy at McCormick. Passion for flavor is at the heart of everything at McCormick, flavor that tastes great and is great for you.
Power of people speaks to
our people first culture that values respect, participation and inclusion and accountability. And as a tasty trust, we deliver the highest quality products and flavor solutions to our consumers and customers with an unmatched track record in food safety and product integrity. We've added Driven to Innovate. Innovation propels our business forward and maintains our competitive advantage. We have an unrelenting focus on what's next in science, technology, insights and winning ways of working.
We're designing new solutions across all aspects of our business from global supply chain to marketing, packaging and distribution. From the time of C. P. McCormick through today, we've been reinventing our business and will continue to drive innovative ideas that will grow our company in the future. And 5th, purpose led performance pairs our exceptional business results with our commitment to do the right thing with responsibility to employees, community and planet.
We strive to create more sustainable and vital communities around the world, while continuing to deliver industry leading results. So putting this all together, when you evaluate our strategies in the context of other food companies, you'll recognize that McCormick is in a unique position within the food industry. Execution of these strategies is driving sales momentum and lowering cost, leading to accelerated growth and performance. As the title of our 2016 annual report states, we are winning flavor. On the financial front in 2016, we met our long term goals with constant currency growth of nearly 6% in sales and 9% in adjusted operating income.
Including the unfavorable impact of currency, adjusted earnings per share was up 9%. And we exceeded $100,000,000 in CCI led cost savings and are well on our way toward our 4 year $400,000,000 goal. We had strong cash generation and a record result in 2016, capping a 14% 5 year compound annual growth rate in cash flow. During this period, we returned nearly $2,000,000,000 of cash to shareholders. Our Board approved the company's 31st consecutive annual dividend increase and we increased our adjusted EVA economic value added 15% from 2015.
We are particularly proud of our sales growth. 9% of our 2016 sales were from new products launched in the past 3 years. We continue to build our leadership in digital marketing, achieving 3 years in the top 5 Digital IQ ranking among approximately 100 food and beverage brands. 4 top food and beverage companies added us to their global flavor supplier list in 2015 2016 and during the same 2 year period, we've completed 6 value enhancing acquisitions. We expect another strong year in 2017 and last week reaffirmed our constant currency goals to grow sales 5% to 7% and earnings per share 9% to 11%.
This guidance is at or above our long term outlook. We're bullish on our plans for brand marketing, innovation across both of consumer and industrial segments and opportunities to expand distribution and we're confident in our ability to deliver the projected cost savings. Our focus with you today is on a longer term horizon. As we look out 3 years to 2019, we expect to be bigger and stronger as a business, reaching $5,000,000,000 in sales. We expect 1 third of our growth to be driven by further advancements in increasing base business sales.
This includes continued progress with digital marketing and expanding distribution to include new channels like e commerce. Breakthrough innovation such as our new breakfast platform is a second driver to deliver approximately a third of our top line growth. And we expect another third to come from acquisitions with a steady stream of value enhancing businesses that expand our portfolio for flavorful healthy eating. In our consumer segment, we will continue to win across retail channels with a particular emphasis on e commerce. And across both our consumer and industrial segments, we'll continue to adapt our products to the emerging value drivers we reviewed.
As a company, we'll be more technical as you'll hear about today with greater use of technology throughout our business, including in product development through computational creativity and in product quality with a new proprietary natural sterilization process for spices. We'll leverage our global footprint and operations and with our new McCormick Global Enablement initiative intended to build scalable processes, capabilities and an operating model to support our future growth. As we perform in line with our long term financial goals, you can expect greater profitability in both our consumer and industrial segments and 16% operating income margin for the total company. We expect to reach earnings per share of $5 and from 2017 to 2019 to generate $2,000,000,000 cash flow. We're excited about this outlook and believe that it makes McCormick a compelling investment.
Let's move next to a discussion of our global consumer segment and strategy and hear from Brendan Foley about the strong brands, unique market position and the strategies driving growth for our consumer segment. As he steps up here, I'd like to give a quick introduction. We were pleased to have Brendan join McCormick 3 years ago from Hines, where he served as Zone President for their North America business and had leadership positions in both the foodservice and consumer businesses. Prior to that, he worked at General Mills and Ketchum Advertising. At McCormick, Brendan led our U.
S. Consumer business and was then promoted to President, Global Consumer segment in North America at the beginning of 2016. Brendan?
Thank you, Lawrence for the introduction and good afternoon everyone. McCormick is a global leader in our consumer segment and our brands are aligned with the direction of today's consumer. I look forward to discussing how we are gaining traction with our growth strategies and continue to build sales and profit for this part of our business. Let me start with a quick overview of our Consumer segment. We have 3 growth platforms spices and seasonings which accounts for almost half of our segment sales, recipe mixes accounting for roughly 15% and our regional leaders that account for just over a third of consumer total consumer sales.
These are the other flavor categories where we have regional strength such as our Zatarain's brand here in the U. S, Bahine brand desserts in France and Daichao bullion brand in China. Importantly, we have leading spices and seasoning share positions in our top 4 developed markets, the U. S, Canada, U. K.
And France. The global category for packaged spices and seasonings is $11,000,000,000 of retail sales and McCormick is nearly 4 times the size of its nearest competitor. There continues to be exceptional category growth and as Lawrence indicated, Euromonitor projects it will exhibit strong growth in both developed and developing markets. In the U. S, category growth is robust with retail sales growing around 6%.
Additionally, spices and seasonings sold in bulk are estimated to be similar in size to packaged products. There is strong growth potential in large markets for consumers to switch to safer more hygienic packaged products. McCormick operates across the world and our brands are present in approximately 150 countries and territories. Our brands are leading and iconic. For example, Camus was recently named the 11th most valuable brand in Poland in all categories, up 8 places from 2015.
And in China, our McCormick brand has been a standard for quality and flavor for approximately 25 years. We operate across all price points including private label to ensure that consumers have the opportunity to buy our brands. And these brands have helped us grow the consumer segment sales to $2,800,000,000 and operating income to almost $500,000,000 We operate in a wonderful marketplace as the demand for flavor and our products continue to grow. I'd like to spend a few minutes sharing important insights and their alignment to our business largely based on U. S.
Data. Lawrence showed a chart indicating a rise in the percentage of consumers that alter recipes and add flavor. Across the general population, the demand for flavor has grown 10 points since 2007. And we also see that same demand among millennials accelerate even further to 73% from 48% in the last several years. As you would expect, our business is tightly connected with cooking at home.
And today, we see that 81% of all meals and snacks are made at home, which is a healthy 3 percentage point increase in the last decade. Going just a little deeper on millennials, our business is particularly well suited to meet their demands in other ways. With 64% saying they love to cook, millennials have a great desire to make ordinary dishes extraordinary or epic as they might call it. In this context, spice blends are considered superheroes within the kitchen, especially to new cooks. They also have a strong interest in global cuisine with 32% preparing ethnic dishes for dinner.
Our brands like Thai Kitchen, Zatarin, Simply Asia and Lawrie's make this very approachable. Our category index is well with this generation and studies of brand attitude, household penetration and share of purchases are all positive and on par with other generations. McCormick already well aligned as millennials make up 1 third of mccormick.com traffic. McCormick also has a leading share with this generation and 80% of them view McCormick spices as the best or one of them. The fast pace of change and shift in media habits is also having an impact on consumers explore and make food choices.
Just consider, 76% of shopping trips begin online, 73% of millennials trust food bloggers for recipes and almost 70% of moms watch instructional videos when cooking. As you will see later McCormick continues to shift more focus and brand investment to digital communication, content, e commerce to drive that day to day dialogue with the consumer, especially millennials. Similar to media habits, consumers are increasingly shifting their buying between channels. The industry outlook in the U. S.
Has a greater share of growth coming from e commerce, club and discount formats and many are projected to grow well ahead of the 3% average across all channels. Importantly, we have increased our focus over the last 2 years on nontraditional channels. We saw mid single digit growth in grocery and mass and mid double digit growth in these new areas. We accomplished this through increased resources, a greater focus on customer intimacy and dedicated innovation. We saw earlier that consumer drivers have expanded and consumers continue to demand more transparency in how and where their food is grown and made.
The digital era has increased awareness and made this information even more accessible allowing consumers to exercise stronger choices including a desire for clean label, pure and sustainably sourced ingredients, traceability and products produced in an ethical manner. In line with these demands, consumers are eating more fresh produce and protein and the perimeter of the store is growing twice as fast as total food and beverage. Our products provide a perfect way to flavor fresh and we are actively encouraging consumers to use the purity of our flavor to make healthier foods taste better. As we have highlighted McCormick has built considerable momentum over recent years towards winning flavor. There are 4 key drivers that we are focusing on to deliver that growth and they directly link with McCormick's growth strategies.
The first is to drive category leading growth of spices and seasonings. The second, accelerate the pace of our innovation. 3rd, drive growth of our other markets and flavor categories. And 4th, accelerate our digital connection with consumers. Before I outline our strategies to grow, our spice and seasonings platform globally, I'd like to review the recent performance of the U.
S. Portion of this business, which accounts for approximately 1 third of consumer segment sales. We are making excellent headway on our growth initiatives in the U. S. Market, particularly with key growth segments of the population and are confident we will deliver strong long term performance in the U.
S. As you see here, we grew sales in this portion of our business 4.9% in measured channels in 2016. And we saw more room to grow as evidenced by the category 6.2% growth rate. When you include unmeasured channels, we grew another 70 basis points in 2016. Importantly, on a unit basis McCormick branded sales rose 3.6% ahead of the category and our household penetration was up 0.6% versus 0.1% for the spices and seasonings category.
Millennials are a big reason for our gains in household penetration in the U. S. We are growing U. S. Millennial household penetration for our McCormick brands at twice the category rate for spices and seasonings.
In fact, the household penetration for U. S. Millennials of the McCormick brand is higher than any other age group. And McCormick is growing this penetration with millennials faster than any of our nearest competitors. Our results also carry over to Hispanic households where we are building our brand faster than with any other ethnic group.
Our McCormick brand is outpacing the category in Hispanic household penetration. And versus competition McCormick has increased category share of spices and seasonings and we've outpaced a large Hispanic competitor in household penetration growth. Our Lawrie's brand index is very strongly with Hispanic consumers and in late 2016 we launched a full product line of Lawrie's KOCERO targeted to these households. And in 2017, we are further expanding distribution to continue driving growth. Overall, we are seeing good growth in our spice and seasoning brands in the U.
S. Market and we have more room to grow. Quarter to quarter, our sales growth is going to be impacted by retailer actions and other marketplace factors. However, as I stated, we are confident the initiatives we have underway are gaining traction and positioning us to continue our trajectory of long term growth. Let's take a look at the initiatives in core renovation, innovation, robust category management and high impact marketing that are all contributing to a very strong healthy progress in driving the McCormick brand to more households in the U.
S. And across our global footprint. A major initiative towards driving category leading growth of spices and seasonings and recipe mixes is renovating our core, anticipating consumer demands and reinforcing transparency. While we had some early efforts in North America as shown here, the pace of renovation really took off in 2016. Our addition of non GMO labeling had a hand in growing dollar share of our core urban spice items, up 10 basis points in the Q4.
And during the holiday period, our share of vanilla was up 130 basis points. For our transition of gourmet to organic, by the end of the Q4, 73% of our gourmet units sold were organic and we expanded shelf space with 4 of our top 10 retailers. This initiative also enabled us to win new distribution to come in 2017. Our latest renovation includes all natural extracts, which were converted from imitation and all natural food color. We're also excited to announce the launch of BPA free packaging for McCormick Black Pepper and Old Bay and have a company wide goal for all of our packaging to be BPA free by the end of 2017.
We are active in other regions renovating our core platforms with new on trend flavors including ethnic cuisine. We are catering to all tastes across all of our markets. Under the Schwartz brand, our recipe mix business in the U. K. Is strong and we continue to encourage trial with 4 new flavors.
Under the Ducro brand, we also have a strong spice and seasoning business in France and recently launched 23 new varieties. And in China, our new recipe mix flavors included family classic spicy wings and under the world flavor line Brazilian barbecue inspired by our flavor forecast. All of these are examples of McCormick building upon a leading position across these markets. But we are not stopping at just renovation. In the U.
S, small sized packages are 13% of spice and seasoning category sales, but are driving nearly a quarter of the category growth. These trends drive category So in 2017, we are taking this a step further with McCormick Gourmet Organic Minis. Every year through McCormick's flavor forecast, we are constantly discovering and launching new exciting flavors. This smaller package reduces the barrier for consumers to try and discover these innovations, which all households tell us they want to explore. Additionally, we continue to see growth on large sizes, especially those staple often used items in the kitchen.
For those heavy users, we are launching a new super deal format that offers better value and includes 21 SKUs and 5 new flavors. We also note through our research there are opportunities to address barriers millennials have towards using herbs and spices more often. As we said earlier, their motivation to cook is very strong, yet their skills and know how limit their exploration. For example, 50% believe that combining herbs and spices to make a flavor is confusing. This is why we are working with our customers to test smaller sachets of individual herbs and spices with simple guidance on how to make, for example, Moroccan flavored meals.
And I know all of you know that it's a combination of cinnamon, gimme and turmeric. This new package format and meal inspiration is already in market and will be supported by product merchandising displays to help drive in aisle awareness. In Canada, we launched a line of organic gourmet in a pouch. And while it is still in its early days, we have had some impressive results. 40% of sales are incremental to the category.
And for the retailer, this product line is driving a 71% increase in total organic spice sales. In 2017, we are further expanding the line with 4 new flavors and a merchandising display to help drive incremental placement within stores. In France, the overall organic segment is growing 19% and we are launching later this year a new range of Ducro Organic Herbs and Spices and vahine organic homemade dessert items. Improved merchandising is another key platform for driving category growth. Through our consumer research and customer feedback, the themes are consistent in that shoppers want to improve findability, education and inspiration.
These themes are consistent across many of our developed markets and we're using the benefit of our global scale to test and learn different approaches. For example, in Canada, Poland and France, we have trialed and are integrating new fixtures to help convert more shoppers entering the aisle to purchase. And we are seeing strong early test results including double digit lifts in France and Poland. Along with our core renovation purity message across multiple vehicles of communication. This brings our message to a broad consumer base, which improves sales and strengthen perceptions of our brand.
And in 2017, plan to further increase our spending behind the purity message and campaign. Building off the success in the U. S, the purity message was launched in Canada in 2016 with strong end market results. This included a 7% to 14% increase in sales of Clubhouse core spices and herbs and household penetration among millennials rose 4 percentage points. We are taking this message to the U.
K. And Poland too. Let's take a look at the video running in Canada.
Pure flavor is big, bold, bright, and just better. That's why at Clubhouse, we source quality ingredients to bring you pure flavor. It's been our mission since 18/83. That's why the smallest pinch of Clubhouse can fill the holidays with great memories. So as the purveyor of the flavor, we want you to discover its power this holiday season because
we want you to
taste the rich pure flavor that Clubhouse can bring. When taste matters most, choose pure flavor.
Let's move now to how McCormick is accelerating the pace of innovation for our consumer segment. Innovation is a critical bedrock for McCormick's success and we expect new products to drive 1 third of our sales growth. In 2016, we continue to make strong progress with new product launches, increasing the percentage of sales from new products by 40 basis points over 2015.
As we look ahead at
the next several years, we have identified 3 major innovation platforms that will further drive our global leadership in the category. The first is extending into new occasions. 2nd, delivering closer to fresh. And third is to continue to drive health and wellness. As Lawrence mentioned, our mission is to make every meal and moment better.
The breakfast occasion flavor expertise beyond where you typically find McCormick. Breakfast is 17% of all eating occasions and consumers have told us that both flavor and nutrition is a major opportunity. Consumers are looking for products that can enhance their oatmeal, yogurt, eggs, weekend pancakes and even smoothies. With this in mind, we developed a range of 4 product lines: breakfast toppers, breakfast seasonings, slow cooker breakfast and smoothie boosts. Whether it's your morning oatmeal, yogurt or even planning a weekend brunch McCormick Good Morning allows you to flavor your favorites real ingredients and fewer calories.
All of them are clean label and most will be gluten free. Research results with thousands of consumers have been outstanding, purchase intent has been best in class and customer reaction has been consistently strong. We are planning to launch this range of around 18 items later this year. The second innovation platform closer to fresh is supported by consumers' desire for fresh flavor and ingredients. In 20 16, we acquired Gourmet Garden, a leader in chilled packaged herbs that is based in Australia with business in both the U.
S. And U. K. And there are plans to introduce it in China and Canada this year. As evidence of consumer demand for fresh ingredients, retail sales of Gourmet Garden grew 27% in the U.
S. Last year and household penetration increased 110 basis points. This business greatly advanced our closer to fresh innovation with patented technology and knowledge of fresher ways to deliver herbs. We now have a lightly dried technology that keeps herbs fresh and protects against wilting without any additives or artificial preservatives. Consumers, especially millennials really sparked to this product promise.
We plan to further expand the application of this technology and innovation as it is an important platform for us in the perimeter and center of store. Health and wellness is a third platform, innovation platform, which we are driving through these broad initiatives. Increasingly, consumers view herbs and spices as a healthy way to add flavor to their diet. We are thrilled to see herbs and spices included in the latest dietary guidelines for Americans in 2016 as a way to reduce sodium. And we just got results from an MSI funded study that demonstrated the ability of spices to help consumers reduce sugar.
To date, our health and wellness platform has also helped fuel key improvements across product across the product line like gluten free, organic, clean label and BPA free. And we recently commissioned a global study across our top 7 markets to better understand health and wellness as it relates to our spice and herb business along with interesting innovation space and potential acquisitions. The research is already revealing interesting insights about health centric consumers. This includes an affinity for cooking from scratch and using spices and seasonings to eat more healthy foods. It's notable that this group consumes 40% more herbs and spices per capita than the general population.
And McCormick's brands skew high to these consumers.
With the insights coming from
our proprietary research, we are planning an even more robust innovation pipeline for the next several years. Our 3rd sales driver is to grow in other markets and flavor categories and we are having great success here as well. I'm going to discuss 5 topics China and the 4 category areas that drive our regional leaders segment: Stock Broth and Bullion sauces, condiments and marinades, regional cuisine and homemade desserts. We have been in China for over 25 years building sales of our McCormick brand organically. And in 2013, we made our first acquisition Wuhan Asia Pacific Condiments, which has been a real success exceeding our targets for sales, profit and EVA.
This accelerated our growth going forward with a leading brand of bullion based in Central China. As seen on this chart, the growth rate has been exceptional and we are in the process of completing a new factory in Shanghai, which will add significantly to the current production capacity. Within China, we are investing in our brands for the future. Core spices and seasonings account for 20% of sales and we are growing share under the McCormick brand. However, liquid products are the most common way of flavoring in China.
We have launched new condiments this year such as black pepper sauce. McCormick already has presence and leadership in other flavoring categories like bouillon, tomato ketchup and is expanding into new categories like salad dressing. We see a long runway of growth for our brands in China. I mentioned our bouillon business in China. We have an expanding global platform with stock broth and bouillon.
Acquired in 2011, we have had great success with Kitchen Basics in the U. S. And continue to build this brand. In 2017, we have a push behind our launch of bone broth, organic varieties and a high protein vegan creamy beanstalk. We are particularly encouraged by the prospects of these new launches.
For consumers purchasing the Kitchen Basics brand, 53% of bone broth buyers and 80% of organic buyers are new to the brand. And our Kitchen Basics bone broth is an Amazon's Choice item, a designation for highly rated and well priced products. Another flavor category that has our focus is sauces, condiments and marinades. We've got some terrific brands in this segment that we are building. In the U.
S, we continue to strengthen the GrowMates franchise with 3 new flavors of single use liquid marinades. This builds upon the success of our 2016 launch, which drove McCormick Dollar share growth in the marinade category. Later this year, we will launch a line of McCormick brand liquid gravies and a larger size of stubs for the grilling season. In China, we introduced a new squeezable ketchup pouch and we'll be launching vinegar and cooking wine in 2017. And we are expanding our Thai Kitchen brand into France with a broad range of coconut milk sauces and paste.
1 of our favorite regional leaders is Zatarain's, a brand that is national in scale, but particularly strong in the Southeast and with African American consumers. With the strength of this brand, we are launching in 2017 bold on trend New Orleans inspired flavors into new categories such as cornbread and biscuit mixes and a bottled hot sauce. We will also integrate the acquisition of Cajun Injector, which provides a third new category injectable marinades. We are moving the entire rice mix line to a new package design and clean label reformulations that don't sacrifice the bold unique flavors that its consumers love. We also have a strong presence in homemade desserts in both Australia and France under the iconic brands of Aeroplane Jelly, which is celebrating its 90th anniversary this year and Wahine.
Homemade desserts are very receptive to innovation and our latest in France includes 11 new Wahine items and another 28 relaunched with a resealable ziplock pack to preserve freshness. We are rolling these out these dessert items for the first time in both Poland and Russia under the popular Camas brand. Turning to our 4th growth driver, accelerate our digital connection with consumers. Let's kick it off with highlights of our recent progress with digital marketing in the U. S.
As you know media consumption habits are changing fast. McCormick is adapting and globally we now spend more than 40% of our investment behind digital vehicles. And in the U. S. Digital was 62% of our ad spend in 2016.
In the U. S. We drove over $7,700,000,000 digital impressions and built stronger partnerships and better targeting. Our activity is working for us and we are beating the returns on consumer product industry norms across display, paid search and social media. We are proud that McCormick has been recognized by L2 Research in their Digital IQ Index.
For the 3rd straight year, the McCormick brand was ranked 5th among approximately 100 food brands for effectiveness of website, e commerce, digital marketing and social media. Let's look at some digital highlights from around the globe. In France, we increased social impressions 46% and almost half of the Ducro website visitors are now millennials. In the U. K, total video views for Schwartz nearly tripled engagement from the prior year and a refreshed website drove a 35% increase in organic traffic.
And in China, we achieved 51% growth in community size with higher engagement rates than competitors. Globally across McCormick, our digital priorities will be to deliver best in class content, drive e commerce along with dedicated product offerings, strengthen digital connectivity across our ecosystem from our websites to e commerce to store shelves to the product package. Providing relevant and engaging content has never been more important and this is reflected in the amount of content we have developed over the last 2 years, which has increased 7 times. We will drive content development even further in 2017 and beyond as we are greatly increasing the amount of global and regional resources and technology dedicated to drive industry leading engagement. Content is particularly important in e commerce and an important way to build our with pure play and omnichannel retailers.
We have dedicated teams in place to build our business in the channel for years and these investments are paying off with significant sales increases as shown on this chart. As consumer habits change and more and more consumers, especially younger ones shop online, we need to continue to tailor our offer to ensure we win in this area. By 2020, sales coming through e commerce could represent 1 third of our growth. And to support this we continue to add more resources to cover an expanding range of e commerce customers and develop e commerce dedicated innovation packaging and products. To summarize, McCormick's consumer segments fall squarely within on trend growing categories and we see further momentum behind the move toward fresh, healthy, flavorful eating in all markets around the world.
We operate from a position of strength as a global leader and we can out innovate our competitors, have a greater share of voice and invest in more robust category management tools to effectively partner with our customers across all channels. And we are executing on strategies that have traction in the marketplace and are designed to drive exceptional growth. As we prepare for Q and A, let's look at some of our latest media starting with a U. K. Partnership with the BBC and then moving to the U.
S, France and then our joint venture in Mexico.
I think we're here, someone that doesn't like stuff.
So today, we're going to talk about how using pure flavor can help make healthy food delicious. Having a good source like McCormick is easy to transform healthy food kids love. So these are some cinnamon carrots.
You put cinnamon on them?
Yep. Cinnamon and
a vegetable. It doesn't sound like these 2 together, but it was actually
really good.
You're getting hungry again? Thank you, Brendan. It's my pleasure to introduce Malcolm Swift, who has joined us upfront. Malcolm is President, Global Industrial Segment and International Business. His career has included leadership roles at Mars and Diageo.
Since joining McCormick in 2005, Malcolm's role has expanded into our international businesses across both the Consumer and Industrial segments. Also joining us is John Bennett, our President, U. S. Consumer Products. John joined us in 2015 following a career at HIND, where he held leadership roles in marketing and brand management for both the consumer and the foodservice businesses and at General Mills and Chef America.
Here to moderate is Joyce Brooks, who many of you have worked with during her years leading Investor Relations for McCormick. Joyce?
Thank you. And for the Q and A, because we are webcast, we've got microphones. If you raise your hand, we'll get the microphone to you and we'll get started. I'll hold the first hand right over here.
Thank you. Rob Dickerson, Deutsche Bank. So I just had a question upfront, I guess. Frankly, it doesn't seem like you've really touched on this yet, but it was it is in the slides, which is just regarding the guidance in the back around the financial outlook. So excuse me if it's not entirely on topic, but it is important.
So you have a $5 EPS number for fiscal 2019 at least $5,000,000,000 in sales, a
little bit higher than where
consensus is at this point. And then this year we're also talking 5 percent to 7%. So I just I'm wondering if we're saying off of an implied 3 year forward CAGR off of 16%, it's really around 10% for 2017 guidance with currency implies around 5% to 7%. So I'm just curious as everything you just walked through there, is the implication that as you kind of get further along over the next few years that potentially your EPS and your growth algorithm could even improve a bit because of the innovation and all of the steps that you're taking to improve the business?
Thanks.
I'm going to let most
of that question wait until Mike Smith, our CFO comes up here to do his portion of Mike. So let's not lose track of that thought. I will say that for the guidance that we're giving for this year, we are very optimistic on our outlook for the year. And if you are reading confidence into our view of that guidance and through this presentation you're getting a correct read. We expect to have a building strength as we go through the year on both the top line and on the bottom line.
And our outlook for the upcoming several years is what gets us to that $5 EPS $5,000,000,000 in sales. And again, we're pretty confident in that as well. I'll let Mike walk through the math a little bit later this afternoon.
Thank you. Akshay?
Akshay Jagdale, Jefferies. Thanks for the question. Just wanted to ask about the market share trends in the U. S. Is it even relevant to going forward think about market share as a metric to track us?
I mean there's fragmentation of share across a lot of categories in food and across beverage as well. And 4% growth is not bad, but if your categories are growing 6, people are looking at that very negatively. So should are you still running the business to grow share? Should we expect you to continue to sort of grow above what the category has grown? And the reason I asked that is because over the last several years, obviously, we've had some share loss.
And I'm just curious to know what you think caused that? And if it's relevant going forward how that's going to be fixed?
Akshay, I'm going to let Brendan Foley start with that.
Well, if I go to
the beginning of your question, you asked me whether or not or asked us if it was still a relevant measure in terms of how we look at the business. What I would say is that we're looking at a broad set of metrics. I mean everything from dollar sales to unit sales, household penetration as well as progress in unmeasured very fast growing channels. So all of those are important metrics to us. But that's still an important metric as you look at total measured channels.
We have to perform above the category rate. So I don't know that we're necessarily walking away from that as an objective of ours. But as you can see, it's a dynamic environment out there. And it's important for us to look at the measures broadly. We want to make sure that we're all that we're in as many households as we can.
So we're also taking a very strong look at household penetration too as a measure of our success. And I'm going to let John maybe add to the answer.
Yes. Thanks, Brandon. The thing I would add to that too is that I think when you look at spices and extracts or herbs and spices as a category, it's a very broad category. And there's really about 15 different segments that we track carefully. Vanilla is going to behave very differently from gourmet, very differently from grinders, things like that.
And what I'll tell you is that in more than half of our key segments, we are growing share and have been growing share for recent periods. There are a couple of segments, namely gourmet, which we've talked about. There's a bagged spices that is especially Hispanic bags that we've spoken about as well. There's a couple of that where we are not growing as fast as category. And those are some areas that we're focused on improving.
But I think with everything that you saw up here today, we feel pretty good about our momentum in a lot of areas. And I think also just sometimes not seeing the unmeasured channels might hide a little bit of our share performance as well.
Alexia Howard with Bernstein. You've got some very impressive growth rates in your e commerce business, but you haven't quantified how big that is overall. Can you give us any hint on that? And also, are you even able to track your market share in those online channels? I'm thinking particularly around the meal kit development that seems to be exploding right now.
Surely, there's got to be a big opportunity. Are you able to represent yourselves properly in that area? Thank you.
Thanks, Alexia. That's a great question. We have not really quantified the percentage of our business from e commerce. I will say that when we talk about e commerce, there are many ways you can describe e commerce. There's the click and collect from retailers.
We don't include that in e commerce. That's we can't really distinguish those sales from other sales to the same brick and mortar retailers. There's a direct to consumer model where we might ship products directly to consumer households. I would say that's a very small part of our e commerce business. And then there are the pure play e commerce retailers.
That's really what we're talking about when we talk about e commerce. The growth of that part of the business has really been explosive. And it has grown at a depending on the market at a double or triple digit rate. And over time, that's gone from being pretty small. As the base gets bigger, it doesn't take long for that to compound into a pretty big number.
So we do see this as an important and emerging channel. The largest e commerce retailer in the U. S. Is one that we've resourced as a top 10 customer for some time, even though they are not a top 10 customer, just in the anticipation of this channel is very important. So it's big enough, although it's not big, its contribution to our growth is disproportionate.
And so that is why we on a couple of recent calls, we've talked about these unmeasured channels, which include e commerce and the impact that they have on our overall growth rate. Unmeasured also means that we can't see what everybody else is selling in there. And so we don't know what our share is in e commerce. We do know though that we're doing pretty well with we have said with Amazon that we were their grocery vendor of the year in 2015 and we've got a strong relationship with them. Do you guys want to comment on that John or Brendan on how we're resourcing this area?
Yes. Just to add one little bit. We did get in early I think in terms of resourcing to point. And I think at this point now it's about how do we add even more learnings and more capabilities. And a couple of examples would be developing more products that are specifically designed for online.
So you might find more kits, spice racks, holiday packs, those types of things. I think that's a whole area of growth that's very relevant and outside of other channels. So we're doing that. We're learning how to better leverage search and other types of tools to drive online and e commerce sales fashion than we have before.
And it goes well beyond the U. S. Business. So our comments so far have been mostly about the U. S.
Business. But our e commerce business in other parts of the world is doing really well. We're having strong growth in Europe and in China. It's really contributing a disproportionate amount of our total consumer growth as well. In fact, Malcolm, do you want to elaborate?
Yes.
I think the key thing about the question of Alexia is the amount of resource that we're allocating to it. And in China, we've already seen, as Laurence said, that it's accounting for quite a high proportion of our growth. And that's from a very modest base at the moment in terms of the number of pure play retailers we're working with. And what we found is that we've increased that. The growth has become much, much higher.
So as we look forward, we can see quite a long runway of growth, and we're actually reviewing how we resource it right
now. Also, e commerce retailers have been a great way for us to introduce new product. So as we've introduced new items into the market, we've also in general have led with the e commerce retailer in order to get quick access to consumers everywhere. It's also surprising sometimes the items that do well in e commerce that may be very different from the items that perform strongly in the center of store or in our brick and mortar customers or other channels. Thai Kitchen coconut milk is a whopping big seller on e commerce, whereas maybe not so big in the brick and mortar channels.
Bone brought this.
An example
of an item
that we launched very clearly with e commerce in mind at the very outset because of the appeal to a very unique group right away who knew what that was. And so as that builds out, it will become more popular. You'll see it on more store shelves, but that's the type of thing that we're doing with e commerce.
Comment in the back, John?
Thank you. Is this thing on? Great. Thanks. Back to the room here.
Your private label business, can you comment on what is it telling us the recent growth in private label in the Americas, if anything, about the category? What when you look at the strong growth in unmeasured channels, I know Costco has developed the private brand portfolio in Spice and Seasoning very aggressively. Is that is it stronger or weaker? Is there any shift between measured, non measured for your private brands business? And how do those how do you dialogue with the retailer about private brands with all this innovation that you have?
I mean, is it do you ever reach points where you wish you hadn't developed private brands so much? Or how do you that conversation sort of serving both sides of the buying world from the same capabilities? Thank you.
Well, John, it seemed like from the nature of your question you wanted to maybe hit a couple areas on private label perspective. So we'll just start off with that and then I'll hand it over to John for a couple additional comments. As we look at the growth particularly in spices and seasonings right now, it is growing pretty well. It's not necessarily as high as you might think because there's a lot of reclassification going on. But I would say it's growing faster than the category right now.
I think there are 3 primary reasons we're seeing private label grow particularly in spices and seasonings. The first is from our category management efforts, we're encouraging customers to bring up some of their private label prices in many ways. So that's not necessarily going to help us from their dollar share will certainly accelerate as they do that. We're also seeing a shift from other forms of private label, let's say, up to premium and organic. That certainly is growing quite aggressively right now.
But I would say that is a store phenomenon. You're seeing that happen in many categories across the grocery store, not just in our own category. And pragmatically, there are higher prices because of vanilla and garlic as a reason why you're seeing some private label growth there too. What's interesting is that what we're seeing in many cases is some customers are taking tertiary brands and they're converting those into the private label opportunities on the shelf. So that's where we're probably seeing a lot of the private label activity.
And then I'll let John maybe wrap up some thoughts on that and then comment on our own participation in private label.
Thanks, Brandon. Yes. And just one quick comment on the tertiary brands piece. I would expect that to continue in our category. We're seeing more and more of these brands that maybe wouldn't have been able to survive on their own retailers almost pushing those suppliers into a private brand type of scenario.
So I think you're going to see continued upward pressure on the private brand growth number. But in many cases it's just a shell game in terms of where that volume is coming from. The I also want to just comment in terms of this reclassification. Yes, I think that we'll see more and more of that from other retailers moving forward too. Wanted to hit your last question, which was just in terms of how do we deal with our customers in that way.
It's our opinion and we have I think great discussions about this that a healthy urban spices category has a good blend of both private label and of branded products. And so we've been able over time to prove that out and we have models that show that and we oftentimes can help assortment changes to make sure that the prices are in the right places, the assortment, you have private label in the right areas and maybe not the wrong areas where you might be leaving dollars on the table as a retailer. So those are the ways that we would interact with them. And I guess maybe your last one was about channels. Obviously, Brennan talked about this before where we have are very focused on all the different growing channels whether they're measured or not.
And in some cases, there are going to be channels that are more focused on private brands. And we will obviously, I think communicate and serve our customers in a way that meets their strategies. So I think that's been the key to our channel growth is really making sure that we have the right channel insights and right customer insights to go after that type of growth.
Evan?
Just back to the e commerce topic. Given the complexity of e commerce, pack sizes, what have you, how are you set up from a supply chain standpoint right now to take advantage of this growth opportunity? Or is this something where you're going to need a pretty big capital investment over the next few years to be able to reshape your supply chain?
I'm going to do what Laurence said earlier, which is later in the afternoon Jim Radin will be up here and that will be an opportunity to go even deeper on this point with Jim. But I'll open it up with saying that the way we are satisfying those channel needs today is largely through our existing network and structure. But I think what we're learning is that things have to change over time. We're going to have to build different networks and different ways of thinking about how we go to market fulfill this type of business. So that is still work yet I think we need to do overall, but we're able to right now handle it in the way that we have been.
But as we see this growth kind of exploding and kind of continue to increase, it's going to require I think some adjustments within the supply chain network in order to accommodate it and handle it efficiently. I think from there, the degree to which there's certain capital number around what that looks like, I don't think we have an answer for that right now. But Jim will probably be able to expand on that later today.
If I can just also elaborate on that just for a second Evan. Again, for dealing with the e commerce retailers, our conventional packs pretty much are able to do the job. We do some customized packing for some of the meal kit companies that Alexia mentioned in her question earlier. We really would need to do a fair bit of pack engineering and some logistics engineering would be to pursue any kind of a direct to consumer model of our own.
Vincent deBryack, go ahead.
I
just wanted to jump back to private label real quickly as a follow-up. As we think about some of the things you just talked about maybe some conversion to private label, legal coming into the market for instance as well, maybe gaining a customer there. As we think about potential mix impact to margins, what gives us confidence that margins can stay at this level in consumer or move higher? Is it just CCI? Are there other things there?
Just again high level type of conversation. Just as you know as the retail set becomes more and more competitive as you look at private label as a way to fight that and gain consumer loyalty as a retailer. How do you guys fit into that and continue to keep margins stable or move them higher?
As we look at this from a margin standpoint, I would point back to our efforts around CCI and making sure that we continue to drive as efficient organization as we can. As we've done that particularly over the last 2 years that's really and Mike will expand on this in his talk. We've been able to really I think source a lot of margin improvement just through that alone. We're also putting that back into advertising promotion too. But that's where we've in many ways in order to be competitive we've also had to make sure that we're as efficient as possible in the marketplace.
And as we look at margins certainly there will be pressure, but it's also it's the reason why we have a robust cost agenda as well across CCI.
Yes. And I'll also add that you got to look at the whole mix. So we are investing behind differentiating our brands. We are creating real product points of differentiation with things like non GMO and organic to elevate the value of the brand and give consumers a reason to continue to purchase. And our work with retailers on rationalizing their assortment and rationalizing their pricing for the category as a whole as well.
That helps protect the margin for the entire category as a whole and encourages reach helps our retailers identifying areas where they're maybe pricing irrationally and leaving dollars to the category on the table. Those moves are generally positive moves for us as well from a margin standpoint. And I'd also like I could see Malcolm down here is at the edge. He's just chomping at the bit to say something about European Private Label. Let me let him come into the conversation as well.
I was just going to say that when you're talking about legal, I mean, we've been living with, discounters in Europe for many years. And as you'll know that in the U. K. And French markets, they have about 10% share of the market. And you may not be aware, but in Poland, the leading player is actually a discounter called Biedronka.
And we found a way to have a category conversation, work very collaboratively with them and put together a vision to say how do we represent this category in your stores. And there has been a way through. Some of it's been brand. On occasion, we've also done unlabeled as well. So there are multiple options, and Brendan and I continue to have a dialogue on that.
Okay. So we're coming up on the break time. Chris, why don't you ask your question? Rob, you had a question, and then we'll take a break.
Thank you. I just had a quick follow-up and then one question for that which is that as you think about the pricing you've taken so far a
lot of which has been
in the U. S. But also I think including in Europe so it could be a broader answer. But just the elasticity that you're seeing, I know we're kind of early into the process that went through in the Q1. Just to understand how you're seeing that come through in certain categories?
And then I just wanted to follow-up on as we've talked about the challenges of the U. S. Market in tertiary brands and I recall a couple years ago hearing about the kind of the core 12, if I recall, and putting some money behind kind of your core spices. Just to understand kind of how that's working, how that process is going? And then, as you think about tertiary brands, is it cheaper products?
Or is it gourmet? Is it both? Where are they kind of attacking you on the tertiary brands?
Let me take the tertiary brands question and then give the ball over to Brendan and John. I think the story has changed on Tertiary Brands. I think what you're referring back to is like the 2014 CAGNY when we talked about a large number of small brands each of them gaining half a
a tenth of a share point or half
of a tenth a share point. And cumulatively, that added up to a lot. I'd say that that battle has been fought and we've addressed a lot of the challenges that we had from that proliferation of tertiary brands. And if anything, the pendulum is going back the other way as retailers are now beginning to convert some of those brands to private label or reduce the shelf space that they've got. This has been a combination of our selling efforts and the retailer's own realizations about the needs for their category.
When we were talking about conversion of tertiary brands driving private label, that's a big part of what we were talking about there. Some of those brands, well, there's one particular retailer who's converted a brand that they had over to their private label that actually accounts for about half of the reported private label growth. It's not new units in the category. It's just no longer being counted as a brand. It's being counted as private label.
But regarding the tertiary brands in our category, we're seeing between our efforts and private label a lot of those tertiary brands are getting squeezed out.
So I'll address the question you had around sort of the top ten question that you asked and then I'll ask John to address price elasticity. What you're referring to there, we almost call often like our top 10 spices or even A through Z. So when John mentioned earlier about this the spices and seasonings segment has like 15 different category has 15 different segments. We're growing share in many of them. That's one that we're probably growing the most share right now.
So our efforts up against kind of those core herbs and spices has really been driving I think a lot of growth for us. And it gives us if you will the confidence that what we're doing is working and what we're doing is really having an impact not only getting us into more households but really just the strategy on the shelf is really resulting in some nice share growth in that particular segment.
And I think the last part of
the question was about price elasticity with recent pricing. So we just took our most recent pricing action in early January. And so as you mentioned, it's probably a little too early to tell. But I can tell you at this point, we feel like things are going right where we would have expected in terms of elasticity. I think for some of these products, vanilla is a perfect example where there's been a very high increase in the cost of vanilla.
We'll have to see how it performs in holiday times. I think Easter will be a good touch point for that to look at as well. But at this point, we feel like it's right where we would have expected it.
Okay. So let's wrap up this segment. The question for Rob.
Rob Moskow, Chris. I had a question about, marinades and condiments, sauces. I remember a few years ago, not so clever way of asking this question, I guess. But a few years ago, I think Alan said that he wanted to push a little farther into that direction and soon bought Stubs. And then you have Lowery's.
And I just wanted to know like what's been your experience in this kind of subcategory? Do you feel like your advantages in spice and seasonings translate into that part of the shelf or not? And what are your plans longer term?
It wasn't exactly the question. I thought you were about that.
I'm more clever.
But we see condiments and as an important part of the flavor universe. And we see condiments and sauces as core to our business. You look at our business in the U. S. And you see relatively modest participation in condiments.
But if you look at our business globally, condiments in some of our markets are a very major part of our business on the consumer side not just on the industrial side. So we look at condiments and sauces as core. We think we know a lot about them both in terms of marketing them as flavors for consumers and all of the technology related to the supply chain side of them as well. We actually think we bring quite a lot to the party there.
Great. We're to take a break there. Let's be back in our seats at 3 o'clock and we'll get started. Thank you.
Great. So please be seated and we'll get started. Let's turn now to our Industrial business. Malcolm Swift, who I introduced before the break, leads our global strategy work for the Industrial segment and will take us through the discussion for this part of our business. Malcolm?
Thank you, Lawrence. I'm pleased to have this opportunity to share our plans to continue the momentum underway for our industrial segment. McCormick is an industrial leader in attractive categories. We are a global player and well positioned for success. We are working to strengthen our position by executing our competitively differentiated strategy.
Let's start with a quick overview of our business. This business is all about flavor, great tasting flavors for our customers and ultimately the consumer. Our Industrial segment accounted for nearly 40% of 2016 sales. The portfolio consists of branded foodservice products, flavorings, adding flavor to anything from snack bars and crackers to chips and beverages, condiments, coating systems oriented to protein and ingredients which are bulk herbs and spices. We have one of the broadest ranges of flavor solutions among our competitive set.
Our business is global in scope and we serve a wide breadth of customers. We develop great flavors for 9 of the top 10 packaged food companies and 9 of the top 10 restaurant chains. We also have a strong business with Broadline Distributors and the catering channel, especially in North America. Working with the top industry customers, McCormick provides solutions in attractive categories which offer substantial growth potential. We are a top 5 global flavor company, supporting a food industry worth over $700,000,000,000 The largest single part of our industrial sales is snack flavors and seasonings, which is expected to grow at 8% over the next 5 years.
Likewise, strong growth is projected for branded foodservice and compound flavors. These are some of the most value added parts of our portfolio. For McCormick, this is profitable growth. Since 2011, we have increased net sales 11% and adjusted operating income 48%, with both of these measures including a headwind from unfavorable currency. Improved productivity and a shift to more value added products, including through acquisitions are the main contributors of this margin expansion.
As I said earlier, McCormick's Industrial segment is a global business and well positioned for success. We have operations, joint ventures and co manufacturers in 20 countries with a presence in each continent. With such an extensive infrastructure, we can service our customers globally and we continue to invest in and develop our infrastructure to unlock growth. Recent examples are the construction of our new substantially larger factory in Shanghai, a new plant recently opened in Dubai and plans for significantly expanded capacity with a new facility in Thailand. Brendan spoke of our growth opportunities in China for the consumer business.
For both segments, Asia is an important region with the middle class projected to increase 7 times between 2,009 2030. For our industrial segment, we are particularly excited about Asia. We have a solid base to build on and regard this region as one of the biggest growth opportunities with our existing customers as they expand globally and also with new regional and local customers. Our heritage is food. Our roots are from the land and not the laboratory.
This differentiates McCormick from some of our largest competitors in the flavor industry. We leverage our knowledge of product development, sensory science, flavor creation and consumer insights, coupled with our deep knowledge of flavor science to create an approach to designing flavor solutions that are authentic. And authentic resonates with today's consumers who crave natural and great flavor. With this differentiation, we're able to win with consumers and therefore win with our industrial customers. So let me expand on this a bit more.
As you've already heard this afternoon, consumers want not just great taste, but transparency, health and products they can trust. These comments are as relevant for our Industrial segment as they are for the consumer segment. As those who follow the food and restaurant industry know, our customers are working hard to align their product portfolios with these trends and McCormick is an ideal partner. Our flavors are culinary inspired and consumer preferred. Let's take a look at this video developed to introduce McCormick to industrial customers.
Let's now turn to McCormick's 4 growth drivers for the Industrial segment. We are driving growth for our priority customers and categories, growing our portfolio in value added products, investing in innovation and technology and accelerating customer intimacy, making the experience of working with McCormick unsurpassed in the industry. To drive growth, we are expanding our current customer relationships and engagements whilst gaining new customers, channels and categories. We are supporting customers' efforts to renovate their portfolios and develop new products using technology and approaches to accelerate speed to market. The geographic expansion of our own supply network and capabilities is fundamental to supporting the growth of our strategic customers, whether global or regional.
At the same time, we are building our base of other regional and local customers. We are also developing expertise in new categories with expanded technology and talent. And we are growing our channels, particularly in foodservice, where we are exploring and entering markets to more directly connect to the operator. This includes building upon our expertise in e commerce as an emerging channel. We are particularly excited about the growth prospects for our Branded Flavor Solutions business, which is margin accretive to the overall portfolio.
In the U. S, we grew sales of Branded Flavor Solutions by 9% in 2016. Driven by the influence of millennials, spending is projected to exceed a 4.5% compound annual growth rate. We are pursuing 3 enablers. First, our broad portfolio of best in class foodservice solutions and leading brands around the world gives us a competitive advantage in the market.
We are leveraging this advantage not only in back of house applications, but also front of house where our iconic brands like Old Bay, Keene's McCormick and Zatarain's appeal to restaurant patrons around the world. 2nd, we are expanding with customers. In an ever more dynamic marketplace, we are building resources and capabilities to partner at even deeper levels with established foodservice distributors while investing into rapidly growing in emerging spaces like cash and carry, e commerce and supermarket foodservice. And 3rd, with our leading brands and our unmatched culinary expertise, no other company is better positioned to connect with operators and inspire menu innovation. Pairing this foundation with new digital platforms allows us to reach operators in a relevant and credible fashion and further change the perception of our brands.
Let's now turn to our 2nd growth driver, growing our portfolio in value add. We're making great progress with adjusted operating income margin of 10% in 2016, up from 7.5% just 3 years prior. One of the key drivers of this margin improvement is the migration of our portfolio to categories that require culinary expertise and technology or have brand equity that combines higher margins. With our recent acquisition of 2 flavor companies and rapid growth of branded flavors, we expect nearly 2 thirds of our total segment sales will be flavors and branded foodservice this year, and we are working to accelerate this trend over the next 5 years. To add value organically, we have a global team working on creating and executing our growth strategy, with particular focus on high demand areas in Asia and our more mature markets North America and Europe.
We are ensuring that we develop and deliver value added products for our global customers and for our regionally based customers too. Our industrial teams are focused on a robust innovation pipeline, superior win rates and flawless execution. For many of our U. S. Customers, there are up to 5 flavor companies competing on new product briefs.
And our win rates for products launched and in the market range from 1 third to 1 half. Targeted acquisitions, which enhance our portfolio, further strengthen our innovation pipeline and improve our ability to win new product briefs. Through industrial acquisitions, we can also expand the range of products for existing customers and establish inroads with new customers. This is demonstrated by our great success with Brand Aromatics acquired in 2015. We have exceeded our expectations for this business with double digit sales growth.
This is a great business with strong technical capabilities, providing savory flavor solutions that are USDA organic. These product offerings align with many of today's consumer demands for natural authentic flavor, clean and simple labels and have already been used to advance our own consumer products. We see a long run rate for future growth with savory flavor solutions. Our second recent acquisition, Giotti, also hit the sweet spot in our drive to migrate our portfolio to high value flavors. We closed on this acquisition in December.
Based in Florence, Italy, this business has an on trend product portfolio that includes natural flavors, organics, herbal extracts and juice concentrates for application in chocolate, dairy and beverages, categories that demand value added flavors. We have also added a highly technical and experienced group of talent to supplement our existing resources in EMEA and globally. Giotti delivers 3 areas of competitive advantage. First, in our EMEA Industrial business, it creates significantly more flavor capability, underpinned by technology, delivering new expertise in a high growth segment. 2nd, as with brand aromatics, it enables us to deepen existing Geotty strengthens our industrial business with an expanded margin accretive growth platform.
Our 3rd growth driver is to invest in innovation and technology. Our technical investments are directly focused on solving specific customer challenges and many of these are related to clean label. Approximately 50% of our new product briefs in the U. S. Last year had some type of better for you attribute and it is our advantaged technologies that allow us to stay at the forefront of consumer trends.
As our customers move their portfolios to more natural, better for you and organic, they want to ensure that the taste of their iconic branded products is not compromised. To solve these challenges, we have strengthened our flavor toolkit in technologies that mask and or enhance certain flavor attributes, so enabling us to deliver consumer preferred clean label flavor. Our distinctive food first approach, our deep understanding of food and the use of natural ingredients like herbs and spices really sets us apart and is so valued by our customers. We are continuing to invest in technology and science. Flavor delivery technology allows us to deliver flavor when we want and where we want for a unique consumer experience.
For example, flavoring in dough is challenging, but not with our proprietary flavor cell technology. We can deliver natural flavor in high heat with remarkable results. Over the past 10 years, we have been building capabilities that create natural flavors that meet our customer requirements to deliver clean labels, so that brands, for example, can claim no artificial on pack. While still a small part of our business, in 2016, we grew sales of organic industrial products 72% in the U. S.
McCormick's unmatched global supply chain for sourcing spices, herbs and other raw flavor ingredients provides competitive advantage in meeting customer demand. We also believe our investment in computational creativity will be a game changer and I will elaborate more on this exciting new technology in a minute. In addition to our flavor toolkit, we are building infrastructure. This includes continually updating our state of the art culinary center in which we enjoyed lunch today. Another example is the construction of our new R and D center in China.
When it opens later this year, it will be one of the largest food R and D centers in China. It includes a pilot plant and even has room for further expansion. And as part of our expansion in Asia, we have built a new R and D facility in Singapore, which is our regional office hub. It includes a creative center, full spectrum laboratories and a sensory evaluation center. This facility will be operational starting next month and will create a truly world class R and D hub for this critical growth region.
Our 4th growth driver is our strategy to accelerate customer intimacy. We are a leader in processes, insights and technology, capabilities which we leverage to deliver growth for our customers. Create It is a patented and proven process at McCormick. We work with customers to highlight and align with new consumer trends and create applications that deliver value. Create It has led to a 1st mover advantage that increases our speed to market and success rate for new product launches.
Another example of our collaborative ideation is Safari. With its origins in Europe, Safari is a process where we host a food immersion experience with our customers, visiting innovative food markets and fairs to spot early flavor trends and work together on creating authentic new innovations. Each year, we publish our flavor forecast. And as you've heard from Brendan, this helps drive consumer innovation. It is also an invaluable source of inspiration in developing consumer preferred products for industrial customers.
For those attending this afternoon's reception, you'll have the opportunity to experience directly the flavors from our 2017 forecast. We are very excited about our work in computational creativity led by Doctor. Hamid Faridi, our Chief Science Officer. As a flavor company with both the leading products and in consumer products and industrial business, we have accumulated an unparalleled repository of over 30 years of flavor data related to consumer preferences. We have partnered with a leading technology firm in the field of artificial intelligence using advanced analytics to harness this big data to accelerate our product development of consumer preferred flavors.
Our early pilot program with this technology is very promising and we expect to start commercial application later this year. We believe this technology will significantly increase our value to our customer by helping our flavors take product development to a new level with new perspectives and even greater speed. As I wrap up my remarks on customer intimacy, we pride ourselves on working collaboratively with our partners. We were recently added to the global flavor list of a top food company who said that McCormick was best in class in terms of insight and proactive development of concepts with application of new concepts to diverse categories. McCormick's winning formula for consumer preferred products includes a distinctive food first approach, our unique technologies and understanding that lead to winning products, deep consumer research and insight and our top talent.
This is our winning formula to deliver a taste experience like no other. To summarize, McCormick's Industrial segment is a global leader in attractive growing categories. We are executing on a differentiated strategy to drive growth from priority customers and categories, migrate to a more value add portfolio, invest in innovation and technology and accelerate our customer intimacy. We are succeeding with a food first competitive differentiation. As we prepare for Q and A, let's look at just a few of the products our industrial customers launched in the past year containing a McCormick flavor.
Included are many of the products for which we've helped lower sodium, reduce fat or calories.
Thank you, Malcolm. Joining us upfront is Brendan Foley and Megan Ford. Megan is President, U. S. Industrial and has 30 years with McCormick.
She's contributed to our success and leadership roles in both our consumer and our industrial businesses. I'll turn it over to Joyce now to moderate questions.
Thank you. I just have a few small detailers type questions, mainly centered around computational creativity. So just so I'd make sure I had this right, the breakdown in industrial about 50% food away from home, 50% large CPG, is that about right?
For sales, yes.
For sales, sorry. Yes. So on the CPG side, how what percentage would you say would be done on briefs? Would the majority of that business be done on briefs?
Yes. The majority of our business in the manufacturer space would predominantly be around a briefing process.
Okay. And so just to understand the computational creativity part, it does make sense. You guys have so much breadth across that business, so much data. When you go into a brief with say, if you're against an IFF or a GIA Butan or whoever, how important is time to market in that brief just so we can understand okay you have all this data, you have all these capabilities, you're first to the customer with that new product. Does it matter?
Is there a certain window that's open? Just trying to understand time to market. And then if you can also address your ability to bring blends to market, our understanding is that they're gaining more and more importance with customers that would help us understand your capabilities as well.
Yes. So in the briefing process, it's very much staged. So it depends on where you come into that stage, whether it's in the very innovative or early, early part of the innovation plan. Typically, we have an alignment with the customer around what time is required and what, testing that we need in order to meet the criteria. So speed is important.
Obviously, the sooner you can get it to the customer and we get a great product, the faster they can get to market. And then your second question was around blends and around what specifically, I'm sorry? Yes. So if you think about our blend business, a lot of our IP is included in those blends. So we have the ability to create our own flavors that we use that are unique.
So we look at a wide breadth of how we think about flavor. So depending from a modulation perspective, the customer will typically outline what they're trying to do, whether it's reduce the salt, reduce the sodium and then we develop a system around whatever that criteria would
look like.
Any questions? Akshay?
Thanks. Just wanted to ask about the competitive set globally, if you can add some color on who your competitors are, what the size of the market is, maybe what share you have, because it's always some confusion around your 2 largest competitors that are public and their size versus yours and where they play versus where you play. So just trying to get inside your brain as to how you think about the competitive picture and clearly you've said that you're closer to the food culture than they are. There may be just a bunch of scientists looking at some pretty complex formulas?
Well, actually, let me say just a couple of words. I'm going to pass this to Malcolm to handle that is that our industrial segment is made up of 3 main slices. There's about half of it is flavors and seasonings that are competitive with the major flavor and seasoning houses worldwide and on which we would have really a comparable financial structure to them. Another piece of it would be branded foodservice, which has many branded consumer goods characteristics. And then the final piece would be more, I'd say, commoditizable ingredient condiment and coating businesses that have a different competitive set yet again.
So, Malcolm, do you want to pick up those three pieces?
Yes. So I don't particularly want to run through a list of names and competitors. But as you can imagine, several of them are public. Several of them have a significant part of their business in the fragrance industry, of course, in which we don't compete. And when you take that element of their business out, you find that our global industrial segment, as we're defining it, is very substantial in comparison.
I think the other interesting thing is the geographical reach of the competitive set. We are a global business, but we have significant opportunities to expand in certain regions and indeed with certain customers. So we have certain strengths, but we have certain opportunities, which we believe our other competitors don't have. So that gives us a good degree of comfort in the competitive environment. There's a lot of the space for us to grow.
One follow-up. So several years ago, I think when we were thinking about this business, it was more about margin upside and there were some targets that were set and it was a bit of a bumpy road to get there. So when we look forward, I mean is this a top line growth opportunity equal to the margin opportunity in the business? How should we think of the two components just long term?
I'm going to jump in first and then again I'll give it back to Malcolm. But we see this as both the top line and the margin expansion opportunity for us as a company. We see a great deal of growth runway and we see margin expansion opportunities from continuing to change the mix of our portfolio. So a major reason for the margin enhancement that we've experienced in the business over the last several years to get to the margin goals was changing the mix of the business to put more emphasis on both the flavor and seasoning portion and that branded foodservice portion. And we continue to put our resources disproportionately into those.
The two acquisitions that we've done on the industrial side of the business were really done specifically to strengthen our flavor and seasoning business to accelerate the shift in that portfolio and to put more resource both technical capability and frankly talented flavorists to work on our business to drive that transition and to and frankly put less emphasis on resource against the lower margin portion of that business where and our competitive set tends to be more private family owned businesses.
We also continue to expand customers. So that's the other thing over the past several years that we've looked at is how do we continue to gain traction with emerging customers as well as on trend customers that maybe we hadn't had relationships with in the past.
Right. And in fact, a great deal of the what makes it possible for us to win new customers is in fact that additional resources that we put in that have given us more of a global reach with our flavor business. I would say historically our global flavor business has been supported heavily from the U. S. And the technology that the TIC that we had lunch in today provided a great deal of that support.
Today, we're able to do much more flavor development and flavor application work actually in region closer to the customers that makes us a better partner for them, especially for these global customers who expect the same level of service from us all over the world.
Yes, I think that's a good summary. So as Laurence said in the earlier part of the presentation, we've been added to the list of 4 major customers in the last couple of years, and that gives us the opportunity to expand globally with those. But as Megan said, other customers, when you overlay the geographical element onto that, it's increasingly attractive. We have a large larger business in the U. S.
We have successful businesses outside the U. S, but we have significant opportunities in regions where our existing competitors have already got quite large businesses. So lots of
white space. And I'll also add that we've found great cross synergies between the two segments. So some of the biggest synergies that we've gotten from the acquisition of Brand Aromatics have been actually back into our own consumer business in our ability to develop more savory products for the consumer business and to use more of produce more of our own flavors for that business.
Okay. Let's take one more question. Andrew, you had your hand up. We're making Lara run here. Thank you.
Thank you. Andrew Lazar at Barclays. Laurence, I think on the most recent conference call you had mentioned that sales to your CPG customers in the industrial space had held up really well. And I was trying to get a sense of whether that was a function more of having maybe some very large snack customers who maybe sales have held up really well relative to kind of it seems like every other category on the planet. So I'm trying to get a sense of if it was more of that or if that's more of an indication that we are seeing a broader sales trend that's a little less scary maybe than what we'll see.
I'm just going to let Megan answer that one directly for our U. S. Business. I will say that we do have some really large net customers. I'm glad you've noticed.
We've also won some new business in this area as well.
Yes. And we did see pockets of softness. But I think our portfolio of customers because we have such a depth in food away from home that it really balances out how our portfolio looks. So not only do we sell in the manufacturer channel, but also in the restaurant and the broad line distributor channel. So it gives us I think that breadth to really cover the full spectrum of food eating occasions.
Great. Okay. So we're going to stop there. I'm going to turn it back over to Lawrence to introduce the next section of the discussion.
Thank you, Joyce, and thank you everyone for those questions. We now want to turn to business development and our acquisition strategy, an integral part of our growth algorithm and then wrap up with the performance part of our strategy. We'll hear first from Nikka Rimmer. Nika joined us 2 years ago from Boston Consulting Group, where she executed large scale transformation initiatives for Global Consumer Goods Corporations. As McCormick's Senior Vice President, Corporate Strategy and Development, she's responsible for shaping overall corporate strategies, including acquisitions.
Our last speaker will be Mike Smith, Executive Vice President and CFO. Most of the research analysts and many of our investors have met Mike in current role and in prior leadership positions in finance at McCormick. Among our senior executives, Mike has the greatest tenure at the company with over 25 years. Please join me now in welcoming Nika to the podium. Nika?
Thank you, Lawrence, and good afternoon, everyone. You just heard from our consumer and industrial leaders about the alignment of our business with the direction of today's consumers. We demonstrated how we are driving growth through insight driven innovation and technology, building our brands and customer intimacy. I want to update you on our efforts to accelerate this growth through acquisitions and a project underway to create the operating model we will need in the future to support a bigger business. M and A has been an important part of our legacy and heritage.
Lawrie's, Camus, Wuhan, all critical to our current leadership position in North America and globally. As you've heard, we have recently accelerated our deal flow with 6 deals in the last 2 years. This is intentional as we plan for M and A to play an expanded role in our growth going forward. We have fine tuned our M and A strategy in the last 18 months. Lawrence has spoken a few times about us having a bigger, broader acquisition agenda.
But you may wonder, what does this mean? Our agenda is now bigger as we anticipate doing our tuck ins, but also potentially larger deal. It is worth noting that a deal the size of Lawrie's would be a much bigger than our traditional tuck ins. We plan for periodic deals of similar relative size to be part of our portfolio going forward. We have dozens of assets that would be considered larger than tuck ins in our funnel at the moment.
Our agenda is also more diverse. Prior to 2015, we had not done an industrial deal in over 10 years. In the last 2 years, we've done 2. We are actively looking across our full portfolio in a way we haven't done before and this is purposeful. We believe our strengths in both segments can be extended with the right strategic transactions.
We are also open to active portfolio management. That is to say a corporate development agenda that is focused on acquisitions, but may also include some smaller divestitures as well. We will not change our algorithm. We still expect approximately 1 third of our growth to come from acquisitions, but we also want a future portfolio that we are all excited by. Our employees, our customers and our consumers and our investors.
So we recognize that may require some pruning. Importantly, we have opened our funnel, but the final filter remains the same, which I will speak to in a moment. The trends that you have heard everyone speak about today, the importance of taste, more real food, natural ingredients and healthy eating drive not only our business unit strategies, they also drive our M and A agenda. As we apply our filter, we are looking for deals where we can break compromise of choosing. With McCormick, it's not flavor or health, it's flavor and health.
The best example of what we plan to do is what we've already started to do. So let me just highlight how a few of our recent deals meet our strategic goals. You've heard from Malcolm and Brendan already about Gourmet Garden and Giotti, 2 of our 3 2016 deals. These are both clear on how they fit into our flavor and health intersection even in their name, Giotti, your natural flavor health and Gourmet Garden. Our other recent deals also fit well in this intersection.
For example, our 2015 Stubb's barbecue sauce acquisition added a leader in premium barbecue category to our portfolio. Stubb's is known for its authentic and rich flavor profile, but it also has a very clean label, flavor, meat health. Brand Aromatics is a similar story. As a reminder, Brand Aromatics was an acquisition we made in early 2015, our first industrial deal in more than a decade. In addition to growing our scale and improving our industrial customer mix in North America, this provided us with a new savory technology.
This technology allows us to manufacture cleaner products for a broader set of customers. This transaction was also ideal and that it also provided the foundation for innovation in our consumer portfolio, including enabling our expansion into kitchen basics bone broth. Our kitchen basics bone broth is certified heart healthy by the American Heart Association and provides up to 10 grams of protein with only 50 calories per serving. Once again, flavor meets health. Importantly, we have while we have retained our financial discipline and have a great track record.
While we have completed 6 deals in the last 2 years, we have also considered and bid on many more than that. As with anyone in this space, we have both won and lost. Importantly, we have also walked away when that was the best course of action for our shareholders. Investors should expect McCormick's acquisitions to fit our long term strategic vision of becoming the leading flavor company, avoid unnecessary complexity or confusion and improve our margins and meet our financial thresholds for EVA and EPS and drive greater shareholder value. Fortunately, that still leaves us with plenty of deals in our to consider with an M and A pipeline of over 1,000 assets.
As we execute this bigger, broader, balanced strategy, we have made certain incremental investments as well. 1st, we have gone from a pipeline that was primarily developed independently by our business units to one that is coordinated with our corporate strategy team using new analytical tools and frameworks updated with broad category and market data. 2nd, we have gone from a team that was global, but headquarter based with constrained resources, a great team, but one that overly relied on our banking partners for Dealflo to an expanded corporate team with dedicated regional resources partnering with our business units. And finally, because we have a greater need for integration resources, a need we anticipate continuing, we have centralized our integration processes process with dedicated resourcing. It's lean, but it's a philosophy that's already showing its value in increasing our integration speed and capacity.
Let me say a bit more about this last point as I think it is critical to translate our M and A strategy into sustained increased shareholder value. With this accelerated M and A strategy, we will have more integrations. We will likely have more intensive integrations. We are committed to executing these new deals in a way that realizes the full advantage of our scale. We have acquired a range of targets from a small regional consumer brand that's a perfect fit with Zatarin's and Cajun injector to a multi regional high growth consumer brand that extends our presence into new growing spaces in gourmet garden.
These assets couldn't be more different, but their integrations overlap, putting a finer point on a challenge that we had already recognized that while we are a global company, we are not yet globally aligned in many of our processes. It underscores the need to have simpler, more standardized and more efficient processes in place to provide a platform for bringing in their growth at our scale. This need for scale is not isolated to our acquisition agenda, but it is true of our entire growth agenda. We have plans to accelerate our growth and also to accelerate the benefit we realize from our scale. To create this incremental benefit of scale, both from growth in our base business and growth due to acquisitions, we have recently launched the McCormick's Global Enablement initiative.
We are looking to execute a step change in acceleration and working globally and cross functionally to align, simplify and grow. Our objective is to explore processes, capabilities and an operating model that we can readily scale up for future growth. We are engaging our employees and external resources to evaluate ways to expand end to end processes building upon our current shared services foundation, reduce customization where it adds limited value, prioritize more effectively across functions and engage in a broader change to enable faster decision making, increase agility and eliminate low value work. At this stage, we anticipate that this is a long term initiative that will lead to us having the capabilities and operating model to support growth and drive performance that will be needed to support a larger McCormick. Mike will have some additional remarks on this important initiative.
In summary, we see M and A as a critical component to drive to driving our exceptional growth. We currently have a balanced M and A strategy that is bigger, broader and purposely balanced between our segments. We also have a strong pipeline of potential deals that occur in the intersection of flavor and health that we look forward to executing while holding tight to our financial discipline. Finally, to maximize the impact we can achieve with this bigger, broader, balanced But now it is my pleasure to turn it over to Mike.
I just realized on the last presentation before spicy drinks. So hang on. Thanks, Mika. As Lawrence indicated, I'll wrap up today's discussion with a focus on performance including our financial outlook. And I'll start with perhaps the most important part of our financial outlook, top line growth.
We heard this afternoon about the growing and global consumer demand for flavor and how McCormick is capitalizing on this with our growth strategies. Our people and strategies have delivered a 5 year average sales growth rate at the upper end of our 4% to 6% long term constant currency objective. Given our track record, we reaffirm the sales guidance and our algorithm for the growth to be driven by similar contributions from base business, new products and acquisitions. We regard sales growth as a vital element to building long term value for McCormick Investors. To illustrate, Boston Consulting Group has measured over time that sales growth is the leading factor in creating sustainable increases in shareholder return with an impact well ahead of margin expansion, multiple expansion or cash flow.
We certainly feel that our sales growth has been instrumental in driving shareholder return. Alongside our focus on sales growth, we also have initiatives underway to drive margin and cash at McCormick. So let's take a look now at these and turn to our second strategic imperative, performance. Our goal is to deliver superior results and to do so through accelerating our fuel for growth, driving continuous value creation, and pursuing functional excellence and collaboration. Our focus on performance has led to a strong long term track record of financial results.
In the last 3 years, we grew sales on an average constant currency rate of 5%, increased cash flow from operations 42% and delivered 12% total annual shareholder return, a return that was ahead of the food group and broader market. During this period, we overcame some significant headwinds including raw material and cost inflation, employee benefit cost increasing and unfavorable currency rates. Productivity improvement was an integral part of our profit growth. We have a 2 fold objective in productivity improvement, generating fuel for growth to fund investments in brand equity building, product innovation and acquisitions and second increasing our operating income margins. We are leading productivity improvement with our comprehensive continuous improvement program, BCI.
This program harnesses our power of people at McCormick, tapping into our employees' knowledge and engagement in the company's success. As a result, our cost savings are comprised of numerous projects that span regions across functions and CCI is truly continuous generating our fuel for growth since inception in 2,009. In 2015, we stepped up our savings with greater resources including global and regional leadership and an increased focus on selling, general and administrative expenses. In 20 16, we've set a 4 year $400,000,000,000 goal to share our confidence in the sustainability of this program and a higher level of annual savings. Last year, we exceeded $100,000,000 of cost savings for the first time, reaching 2.5% of net sales.
And we expect cost savings of approximately $100,000,000 in 2017. There is a long runway ahead with opportunities in shared services, vendor consolidation and process reliability in manufacturing with goals like 0 waste and reduced energy consumption. Our productivity improvements, including the journey to excellence that those on this morning's plan tour learned about, also include increased sustainability. We are proud of our efforts to reduce our environmental impact. As Lawrence mentioned, this contributed to our inclusion in 20 seventeen's Global 100 Most Sustainable Corporations by Corporate Knights.
In 2014, we set sustainability goals for 2019 including investment in waste projects an objective to reduce our carbon footprint by 43%, plans for greater recycling and a 5% reduction in greenhouse gases. We have already met this last goal, 3 years early. We manage a unique supply chain with spices and herbs from optimizing crop yields at source and achieving better outcomes both from McCormick and our farmers, all the way to our facilities, all part of our journey to excellence. This continues right through to our industrial customer or to the store shelf, optimizing sales and profit for McCormick and our customers with more sophisticated category management tools and resources. We take pride in our sourcing, quality and traceability.
This is vital to our customers and consumers. It's something we demonstrated to those who have visited our Technical Innovation Center. McCormick is a taste you trust. To drive continuous value creation at McCormick, we're in pursuit of greater functional excellence and collaboration. The most compelling example of this is McCormick Shared Services.
We developed this organization beginning with our North American finance operations in the mid-2000s. Since then, we have expanded our services and geographies with a focus on delivering end to end process services. Today, McCormick Shared Services is driving efficiency and effectiveness with teams across North America, EMEA and India helping to create our fuel for growth. We are taking this to the next level with the McCormick Global Enablement project that Nika discussed. The objective is to align, simplify and grow.
In addition to building a scalable platform for future growth, we expect this initiative to help lower our costs. We should know more about the outcomes including potential investments and cost savings later in 2017 as our work on this initiative progresses. To sum up my remarks on CCI, as you consider our 4 year cost savings goal, keep in mind that our CCI program is an ongoing effort. We expect the program to deliver our fuel for growth and higher margins and it is embedded in our long term financial outlook. Our sales growth and margin improvement together are driving an increase in earnings per share.
In 2016, this growth was in line with our long term target of a 9% to 11% constant currency basis and we expect the same level of performance in 2017. While there is a lot of focus on operating income as a driver of earnings per share and in many of the valuation metrics used by the investment community, you should keep in mind that McCormick has a measurable profit contribution from unconsolidated operations. In the past 3 years, this has accounted for 8% of net income on average. The largest portion, more than 80% of this unconsolidated income comes from a great joint venture we have in Mexico. McCormick de Mexico celebrates its 70th anniversary this year.
Despite a currency headwind, the underlying business has been thriving. Its main product McCormick brand mayonnaise is a market leader and has a great brand equity. Sales in local currency reached a compound annual growth rate of 9% in the last 5 years and we expect continued success with our business partners. We generate strong cash flow from our business. Over the last 5 years on a rolling 3 year basis, we have had a steady increase and delivered a 10% compound annual growth rate.
Key drivers include higher net income and improvement in our cash conversion cycle. Our first priority for cash is capital expenditures. The majority of this capital has a very positive ROI driven by profitable sales growth and lower costs. Recent manufacturing investments include expanded capacity in Eastern Europe, a larger facility in China, a new plant in the Middle East and plans in 2017 for expansion in Southeast Asia. These supply chain projects have a strong return reaching 28% in 2016.
Our next priority is dividends. We have paid a dividend every year since 1925 with quarterly dividend increases in each of the last 31 years. McCormick Investors can expect dividends to increase in line with our long term 9% to 11% earnings per share objective. A third priority is acquisitions. Anika commented on our financial discipline as we identify and conduct due diligence for these growth opportunities.
As many of you know, we manage our debt levels conservatively to maintain an investment grade credit rating and to provide flexibility to leverage up when those opportunities become available. And in the absence of acquisitions or the pay down of debt related to our acquisitions, have been returning cash to shareholders by repurchasing shares. We are more than halfway through our current $600,000,000 authorization. Our efforts to drive profit and cash are leading to increased economic value added or EVA. We are proponents of EVA at McCormick and an early adopter back in 1996.
I was part of the training team back then. We believe that over time there is a strong correlation between EVA and shareholder value And we can see this in our own results for the past few years with adjusted EVA up 29% from 2013 to 2016 and the stock price up 32% over the same period. The increase in EVA was ahead of our rate of growth in earnings per share. We use EVA for capital allocation decisions, portfolio management and acquisition analysis and it has a role in our incentive programs both the operating unit level and executive level. In 2016, we reinforced EVA across our organization and with our top leaders and teams in each major market.
And we are building EVA tools that include enhanced metrics and benchmarking. We expect this work to lead to even better deployment of cash and optimization of our resources and portfolio. Based on our growth performance and people, we are well positioned to meet the long term objectives that we've had in place for our business since 2,008 to grow sales 4% to 6% and earnings per share 9% to 11%. We expect to achieve operating income growth of 7% to 9% and implicit in this guidance is about 40 basis points of annual improvement in operating income margin. In 2016, we achieved 60 basis point increase in adjusted operating income margin and we expect a further increase in 2017.
Including our dividend, this guidance should deliver a double digit total shareholder return to McCormick Investors. Our 2017 constant currency outlook including 5% to 7% sales growth at 9% to 11% growth in adjusted earnings per share is at or above each of these long term targets. We have confidence that the momentum of our business is sustainable. When you compare our long term guidance to that of other large food companies in the S and P 500, McCormick is in the top tier for both sales growth as well as for our expected increase in earnings per share. As we look at these long term objectives and our latest strategic plan, we wanted to share the exceptional financial results that we expect our business and strategies to deliver by 2019.
Net sales of at least $5,000,000,000 adjusted operating income margin of approximately 16% and adjusted earnings per share of about $5 From 2017 to 2019, we expect to generate approximately $300,000,000 of CCI led cost savings and over $2,000,000,000 of cash flow from operations. We are excited about our strategic roadmap and our prospects to reach these financial milestones. Let me leave you with these final remarks. We are driving sales, a key element of our long term growth. We are balancing efforts to grow sales with lowering costs.
Through our CCI program, we are delivering both fuel for growth and increased margins. Our sustainability goals are an integral part of our performance strategy. We are increasing cash flow and funding acquisitions and other investments to build our business, while also funding a return of cash to shareholders. And we are bringing greater focus on EVA to drive greater shareholder return. Thank you for your attention.
And now let's have Lawrence, Nika and Jim Radden join me for a final round of Q and A. As they walk up, let me introduce Jim Radden, Vice President, Global Supply Chain. Jim joined McCormick in 1991, the same year as I did, and his career with the company includes a number of operations and supply chain roles, including an extended assignment in our business in Europe. Joyce, I will turn it over to you.
Why don't we start with a question we had earlier from Rob that was deferred to this part of the discussion and it had to do with those 2019 Mike from Pearson's response has to say this 2019 efficiency. Somebody standing in
the hallway, it's all about the numbers. It's all about the numbers. Rob, just I think to paraphrase what you were saying, you were wondering how this 2019 financial numbers we just threw out there $5,000,000,000 $5 earnings per share kind of came back to 2017. If you do the math, if you look at where kind of the midpoint of our guidance is this year between $4.05 and $4.13 so that'd be $4.09 that implies about 0.5% EPS growth for the next couple of years. If you do the same, on consensus at $407,000,000 it's about 11%.
So kind of at the upper end of that 9% to 11% long term guidance. From a sales perspective, if you build it off the consensus, it's about 5%. It's actually right in the middle of the 4% to 6% long term constant currency growth
rate.
And so and that excludes all acquisitions or any acquisitions?
No. Acquisitions are a third of our 3rd base innovation acquisitions. I thought we have a strategic acquisition, obviously, that changes.
So then it's a target. It's a soft target because you obviously don't know what the acquisitions will be. So it could be above it. It could be like how do we like how should we kind of conceptualize if a third of contributions coming from acquisitions, how do you get to like an actual specific $5 number? Is it just kind of that's the target?
Well, I think like Nikky said, if you look back at our acquisitions we made, over the last 10 years, we've been in that 4% to 6% range. About a third of that growth has come from acquisitions. So there's bolt on acquisitions like Stubs and Gourmet Garden fill that very nicely. So that gives us confidence we can continue to do those bolt ons, but we also have bigger aspirations as we talked about.
Okay. Let's test down to Cornell, please. Thanks.
Thank you. Cornell Burnett, Citi. Kind of a 2 part collection surrounding margins and guidance. So on the 16% op margin target for 2019 that's coming off last year at about 14.9%. So just a little bit over 100 basis points of growth over 3 years considering everything that you guys are doing in terms of improving mix and CCI.
I just wonder why can't that number be pushed a bit higher? And then secondly, when I do the math on a $5,000,000,000 sales base in 2019 and a 16% margin. It seems a little bit difficult for me to get to $5 a share. So can you get to that with the current assets that you have right now and maybe some tuck ins? Or does that $5 number kind of require more substantial M and A as you kind of were discussing earlier?
Thanks.
Yes. I'll take it first and if someone else wants to jump in. If you look at the $5 a share and it does assume the normal tuck in base as I said. But one of the things you have to remember and what's happening this year if you look at our growth rates that we're calling 5% to 7% at the net sales line, 9% to 11% in operating income. We're a little higher at the 9% to 11% to still get to our 9.11% EPS growth because we're not getting the leverage below the line, primarily because currency rates in Mexico are going against us.
And we do have a tough tax comparison this year. So all else being equal over the next couple of years, if those go back to a more normal period, I think that you can do the math to get to the $5 that way. But it doesn't assume a major strategic acquisition. It assumes continued bolt ons for about a third of our sales growth, continued synergies, things like that, CCI program. And then just going back to margins, maybe what's kind of constraining them so that the growth expectation isn't more robust?
I'm an optimist like you. I hope you're right. And what we're saying is our long term algorithm 4 to 6 at the net sales line, 7 to 9. That gets you to about 40 to 60 basis points a year. So one of the things we're doing too is we want to make sure we're robustly building our A and P to make sure we drive our brand equity.
So this year we're talking about the high single digit range of investments. So I think you'll see continue to see investments to help protect our brands against some of those small competitors or private labels we talked before.
And just if I can add to that, putting on my corporate strategy hat as opposed to the development, it is fuel for growth. And so we are funding the innovation, we are funding the A and P, we are funding the growth activity that's driving that far end growth rate in our sector. And so we do believe that we have to save some of that margin improvement to be able to fund that increased growth.
Okay. Rob had a question up here. Sorry, Lars.
Hi. Thank you. I had
a question about the shared services development. You said that you've been doing it all along. Do you feel like you're behind your CPG peers in terms of utilizing shared services currently? And also, if so, what were some of the obstacles that you saw over the last few years in terms of why not push harder to expand it to more functions? Do you think some of the risks are of expanding?
I think we were kind of an early adopter as we actually have been working with Boston Consulting Group. They gave us a lot of credit for in the mid-2000s we've put in McCormick share services in North America. And we have really good process end to end on things like collectible collecting receivables, payables. When I went to Europe in 2014 to run the be the CFO of EMEA, I think we looked at the opportunity to really expand it across Europe because we have a lot of operations across those countries. So we got a lot synergies.
We put it in the share service center in Lodz, Poland. And recently we've been moving other functions other than finance such as customer service, quality and regulatory, some of the transactional type stuff together. So I think we've been proving that we can do this. And with our agenda and acquisitions, with the way SOX is and processes, you want to have something that you can replicate around the world and bolt these on faster. So I think it just came to having Niko's great thoughts on this.
A lot of us have been trying to push for these processes and efficiencies. You can get cost savings, but it really allows you to grow. And we really see it as an enabler around the world. And a lot of credit goes to Lawrence too for helping us drive this initiative also.
I'd also just add, I don't think we are behind our competitors. I think that we are regionally very strong and we see an opportunity to do things globally. You heard from Megan and the industrial team about our global customers wanting global service delivery and there is a bit of that that we are struggling with at the regional intersections right now that we believe that having more end to end processes on our functional side would allow us to be able to serve that better.
We have a question from Ken.
Thank you. It's Ken Goldman with JPMorgan. I am Mike, I just wanted to follow-up with you on the EVA comments, and I'm paraphrasing a little bit here, but I think you had commented about maybe sort of reemphasizing EVA culturally within the organization. So first, I wanted to make sure I interpreted that right. But second, can you give us some examples of maybe where the culture of the people sort of slipped away from that?
Because you don't have to reemphasize it if it's already as strong within the organization as you think and maybe what some areas where you wanted it to maybe be a little bit more robust? I'm just trying to get a sense of what happened.
Yes. I don't think like anything, we introduced this concept 20 years ago. We made some pretty major changes to portfolio at that time. And like anything, you need to keep reemphasizing it. And we've been measuring McCormick profit, which is EVA light.
That's how we bonus size ourselves to make sure the cost capital is really embedded in the business. So I think we've had the metrics. I think what happens is as new people come in and new organization we found, we have a lot of leaders that really while maybe on paper they're getting something that says this is McCormick profit and it's going up to really understand the concept of EVA, which is actually quite simple once you break it down. It is actually very powerful and it does produce some sometimes counterintuitive things and you have be careful when you're driving cost savings to really not drive up inventory for example. There's conflicting goals sometimes, but that education and when Lawrence came in as the CEO really driving us on cash, that focus on cash that we hear about and cash and EVA really go hand in hand from a financial theory perspective.
So I think it was the right time just to up our game there.
Yes. I would say that as Mike and I came into our roles really at the end of 2015 is when we committed to a major reeducation of the organization throughout 2016 on the EDA concept. There was a with all of the news out there about people refinancing their houses and just looking at interest rates, there was an idea that money was free. Well, the money, of course, is not free. Money is expensive.
But there was an attitude that money was free. We were not running as tightly on cash as we could have. And so we wanted to put a greater emphasis behind three things: EBA, profit realization from our growth and turning both of those into real cash that we could redeploy for our business.
I've had a good discussion actually. As a good example, we talked about extending our terms and we the finance teams work with procurement and said we can drive $100,000,000 of cash. That's like buying stubs for free. That was the example I gave our head of procurement and it sunk in at that level. And if you think about cash and capital that way, it actually makes sense.
Go ahead with your question. Thank you.
When you think about CCI, dollars 300,000,000 in incremental savings, I'm trying to figure out how much when you you've obviously identified projects to come up with that number. What are the gating factors prevent you if you look at what like 3 gs has done at Kraft Heinz from doing all those savings right now? I mean is there is this just largely earnings management and you'll get around to it as sort of pacing your against your long term algorithm? Or what are the logistical things preventing you from doing all that at once? Thank you.
Yes. If you look at our history of CCI, we started out in 2,009. And if you look at the dollar basis, it was about 1% of net sales. It was really focused back at that time, probably 90% or so on cost of goods sold, the vendor consolidation, I think raw material change outs, things like that. But over time, we've increased that to the 2% to 2.5% range.
Really, it comes down to resources. And when we did our North American effectiveness initiative a couple of years ago, which is a big cost savings initiative as well as an efficiency play and a customer focus play, we reinvested in some resources for both business development and CCI to drive more savings. So it takes teams cross functional teams to really drive these projects. You have to balance though cost savings and growth because a lot of the same resources that work on say a reformulation might be in a new product innovation development. So there are limited resources and what you're trying to do is make sure you have a balance.
And we've always said, we could cost with the best of them if we wanted to, but that would threaten our growth rates. And we want to make sure that we grow the business. That's what differentiates HSUS and we can do both at the same time.
And I want to be clear, if anybody is wondering, we have very different business model than the company that you mentioned, Jonathan. Our focus, 1st and foremost, is on growth. We see the growth prospects for our business to be strong. We've got a solid growth momentum. And we want to make sure that the actions that we take on cost, we need to chew gum and walk at the same time.
We want to make sure that we don't jeopardize the growth. That's the most important thing. So the long term guidance that we've got, which includes that CCI, does include a margin improvement that over time amounts to a number that stands up with some of the best in the food industry. But we don't want to do it in a way that jeopardizes our growth prospects.
And just the last thing on that. As Brendan mentioned, we're the category leader in multiple countries, not just in multiple customers. And we believe that we have a responsibility to continue drive the category growth and to drive innovation in the category. And so we have to make sure that we are protecting the investments that we're making there as the leader that we are.
We're also big believers in technology and new technology continues to come available that enables us to take out costs that would have been inconceivable in the past. So even this project that we were just talking about the McCormick global enablement wouldn't have been possible a few years ago because a great deal of what we're going to do will involve automation of work that you wouldn't have thought could be automated in the but which we've done some piloting on and robotic process automation really works. And so it is possible you can standardize processes, make them rule based to automate them. So let
me just jump in on that from a supply chain perspective. For folks who are on the factory tours this morning, you heard about our journey to excellence. And equally important from my perspective anyway on the journey to excellence is not only the delivery of an $82,000,000 number which you saw which is a global number over years that contributes to the $400,000,000 target, but it's the 100 percent engagement of our employees as well. And we really think that's the gift that keeps on giving and it's part of our legacy that we want to carry forward. Thanks.
Over to
Akshay. Okay.
All of
them, Mike.
There you go. Okay. Over to Akshay? Okay. I'll open the mic.
There you go.
During your presentation, you indicated that the more recent acquisitions were flavor and health and you kept emphasizing health. And what I'd like to know is give me a few examples of what you're looking for. That's the first thing. And then secondly, for us that have followed McCormick and Company for I don't know how many years, we wait each year for the smell of your annual report. So smell is a very important factor at McCormick and Company and yet all we do is talk about the palate.
Do you have any plans down the road for incorporating smell with the pallet?
Do you
have some of the actions? Do you have anything to do?
So we specifically wouldn't comment on particular assets in the 1,000 assets that I talk about in the pipeline. One of the things that I do think that is exciting though is the fact that our research that Brenda mentioned that was done on health in 7 different countries actually allows us to think about what our product, what our assets that are either fast growing right now or have established themselves to be more clean label, positioning themselves for more of a healthy consumer that we're able to think about relatively early because we are combining the things that we're doing in our strategy group and with our business units with what we're doing in corporate development. The interesting thing about, the smell, which I love the question, is that aroma is part of taste, right? It's one of the things that Hamed taught me right away, maybe in my second day here, that it absolutely adds to the way that you experience. And so when we talk about experience on the second half of Lawrence's on Lawrence's plate, that's how we're thinking about it.
Not just health specifically, but health very, very broadly, taste relatively broadly and making sure that we can be as broad as possible in the way that we think about what goes into our pipeline.
But to be clear, we're all about a passion for flavor and a taste you trust. When we so to the extent that aroma and scent enhances food, we're all in. But we're a food centered company and many of the kind of flavor houses that also have fragrance businesses, those fragrances are directed towards household products and things like that, that we just don't see our core competency in.
Excellent, Excellent clarification. We're not doing anything in flavor in fragrance.
I wanted to ask about M and A and EVA. It's very refreshing to hear about EVA from a financial perspective. But the environment is in the food space in general is pretty ripe for a lot of M and A. And there's a lot of desperate buyers more so than historically. And I don't see any of your competitors really talking about EVA.
The insights were wonderful. Thank you for presenting them. It gives us really a good view into how you're thinking about it. But what's the risk of like continuing to lose on bids with this EVA focus? And how does that I mean, is there some flexibility there?
Maybe you can help us understand the filter and how there might be some flexibility there that prevents you from losing out on something that's truly strategic.
Well, first
of all, I'm going to say we do win some and we lose some. We've done 3 deals in the last 2 years. So we clearly are winning some. I can tell you we looked at more than that and we were not always the successful bidder. We do bring financial discipline to the work we do.
We don't expect acquisitions to be EBA positive the 1st year, but we need to see a path to being EVA positive in a reasonable amount of time. And so there are going to be times when we're not going to be the competitive bidder. I think that we're willing to stretch for something that's more strategic. But ultimately, if we're not earning the right return on the capital, it's just the poor deployment of the capital. Mike?
You said that as a good CFO. That's what I would say.
Next question, Chris.
Thank you.
You put up a slide initially and I've seen it before some Euromonitor data saying 5% global category growth. If I strip out acquisitions from your guidance very simply on the top line, I'm at 2% to 4% revenue growth. I'm just curious what may keep you below that rate of growth globally. Would it be acquisitions to fill in emerging markets? Or just trying to understand from that very broad number obviously and every year can be different I realize.
What would hold McLaren back from that faster rate of growth?
Start it and I'm going to pass it over to Mike. But first of all, that Euromonitor data that's for spices and seasonings globally. And spices and seasonings are an important part of our business, but they're not the only part of our business. So I think that that's one reason why our growth rate is going to be different from the category for the spice and season category growth either globally or in any particular country.
Yes, it's only half the picture and you'll have things like recipe mixes or zatarins or other things not in there that may be growing in the whole industry. Industrial. So it is focused just on that 50% of
our business, which we like a lot.
Just to be clear on that, it's 50% of the consumer business, so probably about 20% of total company sales. Brett, yes, over there.
Just want to go back to M and A for a second. Mike, you talked about investment grade, just for my benefit. Is there a ceiling on leverage ratio that I should think about 3 times, 3.5 something that you'd be willing to go up to?
Yes. We don't have a specific target, but we talk about in a normal course, we're between 1.5 and 1.8. Right now, we're a little over 2 as we bought Giada in December. Looking back in the past, we have levered up when there were a strategic asset, whether it was Mallory's or Ducro back in 2000, last year with Premier, we would have been levering up again. So I think a combination of the EVA look that actually talked about, strategic asset, it's a little bit of an it depends.
And would you issue equity if the deal is right?
Yes. We talked about in the past, Hal, for the right strategic asset, we would consider that. Now being an EVA company, equity is the highest cost way to build capital. So it's a consideration.
And then just one more if I may. As you think about M and A, Niko, your presentation was really helpful. When I think about regional leaders, do you think you have scenarios where within 2 to 3 years regional leaders are 50%, 60%, 70% of the revenue mix in the consumer segment. Maybe you and Mike can talk about that together. I appreciate it.
With the 1,000 assets in our pipeline, I've got scenarios of everything. Depending on how you mix and match them, a lot of different things can happen. I think that we are in the geographies where we want to be and we are always looking for scale positions in those geographies where we already are, not in other geographies. And so I could see different things that lead us to a different position. I would say though that a lot of our portfolio as it is today is how we think about it going forward as well unless there's a relatively large strategic asset that shifts it.
In which case some of those regional leaders might be core categories.
Exactly. All right. Looks like that's it for our questions and it's my pleasure to turn it back over to Laurence for some closing remarks.
Thank you, Joyce. Let's wrap up. We're glad you had a chance today to meet with our broader leadership team. We've discussed the strategies driving our growth, demonstrated how these strategies are delivering high performance and shared our financial outlook. And behind this momentum, we have the right people and a deep culture.
Our success begins with our principles, notably the power of people. We're strengthening our organization with faster decisions, more personal accountability and actionable insights. Throughout our company, I'm proud of the work we're doing and I want to recognize McCormick employees around the world for their efforts, engagement and passion for flavor. At the outset, I shared 3 key takeaways. I hope that you leave today with a greater appreciation of our opportunities to capitalize on the increased interest in flavorful healthy eating and the unique position we have in the marketplace for both our consumer and industrial segments.
With our strategies, growth prospects and leadership McCormick is a compelling investment. Thank you for your attention and for participating in today's event. That ends today's webcast.