McCormick & Co. Inc. is under investigation by the Federal Trade Commission for its marketing practices, according to the Sparks-based spice giant's defeated Australian rival.
In a Tuesday evening conference call with Prudential Securities where Burns Philp & Co. discussed its intention to sell its spice business, managing director Ian Clack said that McCormick is the target of an FTC investigation. He told analysts that the federal agency had subpoenaed records of Sydney, Australia-based Burns Philp and grocery stores as part of the investigation.
McCormick spokesman Jim Lynn said that only Chief Executive Robert J. Lawless could respond to questions about the FTC. He said Lawless was traveling yesterday and was unavailable for comment.
"FTC investigations are not public," Claudia Bourne Farrell, an FTC spokeswoman, said. "So I can neither confirm nor deny that the FTC has an investigation."
The likely focus of the investigation is whether the spice industry practice of paying grocery stores to carry only a single line of spices is anti-competitive, said John McMillin, a Prudential Securities analyst.
The practice of paying allowances, or slotting fees, to retailers pitted Burns Philp and McCormick in an expensive bidding war. The war helped to put McCormick into a six-quarter slump, which it snapped early this year, but it ultimately drove Burns Philp out of the business.
"If there's been a spice war, it's the retailer who has won it and garnered most of the benefits of slotting fees," McMillin said.
He suggested that the investigation might actually help McCormick.
"Nobody wants to be audited by the IRS, and nobody wants the FTC in their business," McMillin said. "But to the extent that this gets McCormick out of the allowance box, there might be a silver lining here."
Clack disclosed the investigation in response to a question about rumors that the FTC was investigating the spice industry. Excerpts of a tape recording of the conference call were made available to The Sun.
McCormick controls about 45 percent of the U.S. retail spice market. Burns Philp controls about 17 percent of the market. David Nelson, an analyst with NatWest Securities, said the list of potential buyers for Burns Philp's spice business includes major food processors such as CPC International Inc., ConAgra Inc., H. J. Heinz Co., and Nestle Food Co.
In its war against Burns Philp, McCormick spent millions to keep its products on the shelves and its rival's off. The company's "prepaid expenses," which mirror multiyear shelf space agreements, increased by 53 percent from $137 million in 1994 ** to $210 million in 1995.
Partially to reduce those expenditures, McCormick increased its spending on advertising. In an interview last year, chairman Charles P. "Buzz" McCormick Jr. expressed frustration with the slotting fee system and vowed to try to change it.
Pub Date: 5/22/97