Incorporate OpenAl o1 model to your financial research today 🎉🎉

General Mills' Approach to Tackling Inflation and Consumer Demand

September 22, 2024

Note: We reveal investment insights through the quotes of top business leaders.

Key Takeaways

  • General Mills is strategically balancing cost recovery with consumer value, adapting pricing and marketing to reflect new consumer price sensitivities.
  • The company has successfully implemented productivity initiatives that offset inflation impacts, allowing for continued brand investment despite lower sales.
  • General Mills is leveraging product innovation to drive consumer demand, with successful launches enhancing market share across various income segments.
  • Supply chain management has improved significantly, achieving pre-pandemic efficiency levels despite ongoing inflationary pressures.
  • Long-term growth strategies focus on sustainable profitability, targeting 2% to 3% sales growth while navigating evolving consumer behaviors.

cover_img

Pricing and Marketing Strategies Amid Inflation

General Mills acknowledges the challenging pricing environment amid inflation but remains focused on balancing cost recovery with consumer value. They recognize that consumers are adjusting to new price points, which informs their pricing strategies and marketing investments aimed at maintaining brand strength.

"As always, we will continue to manage our coffee business through a strategy that demonstrates a balance between recovering inflationary input costs, while providing consumers with attractive options ranging from value to premium." --- (SJM, earning call, 2024/Q2)

"For the full year, our total productivity initiatives and cost savings programs more than offset the impact of inflation. Turning to Slide 26, Q4 other operating items included adjusted marketing and selling." --- (CPB, earning call, 2024/Q2)

"In a pricing environment that's going to be challenging, also an inflation environment that's not going to be particularly high either, I don't think." --- (GIS, conference, 2024/05/29)

"And the consumer is just now, I think, starting to come to grips with new retail price points coming to grips with the whole inflationary cycle that they've been through." --- (Kellanova, conference, 2024/06/11)

"Of the $70 million, roughly one-third will benefit gross profit and two-thirds to be realized in the marketing, selling and general and administrative expense categories. Additionally, in line with our continued commitment to brand investments, we expect adjusted marketing and selling expense as a percent of net sales to return to our targeted range of 9% to 10%." --- (CPB, earning call, 2024/Q4)

Supply Chain Management During Inflationary Pressures

General Mills acknowledges unexpected supply chain disruptions and persistent inflation, prompting proactive measures like reconfiguring their European cereal supply chain. Despite these challenges, they report high supply chain performance, achieving pre-pandemic efficiency levels.

"We didn't predict the depth of the supply chain disruptions and inflation certainly wasn't transitory." --- (GIS, conference, 2024/05/29)

"In the first quarter, the Company proposed a reconfiguration of the European cereal supply chain network and completed collective bargaining obligations and consultation with impacted employees during the quarter ended June 29, 2024." --- (GIS, sec filing, 2024/Q2)

"Risks Associated with Commodities and Our Supply Chain During the 12 and 24 weeks ended June 15, 2024 , we continued to experience higher operating costs, including on transportation and labor costs, which may continue for the remainder of 2024." --- (PEP, sec filing, 2024/Q2)

"And then we were hit by a pandemic. And following that, supply chain disruptions and following that inflation, which we hadn't seen in my 30 year career." --- (GIS, conference, 2024/05/29)

"Our supply chain right now is performing at a very high level, like think about pre-pandemic high watermarks in terms of on-time in full." --- (K, earning call, 2024/Q1)

Product Innovation Driven by Consumer Demand

General Mills and its peers emphasize product innovation as a key driver of consumer demand. Successful launches, such as Reese's Caramel and Uncrustables, demonstrate how targeted innovations can enhance market share and appeal across various income segments, ultimately boosting sales and brand loyalty.

"I would say that overall, it was in line with our expectations. However, our market share did exceed expectations and our strength was really driven by very strong performance in seasons both overall and takeaway as well as market share and also the strengths that we had in innovation with Reese's Caramel, which not only did well with consumers, was the best innovation in the category and also was able to drive strong merchandising for us, particularly as we launched around Super Bowl." --- (HSY, earning call, 2024/Q1)

"Mark, I wanted to drill down on something you said earlier, talking about innovation in elevated segments and Snacks, which would speak to focus from your peers on middle to higher-income consumer. But then you also mentioned Rao's has seen growth across all income segments, and that's despite being a premium product." --- (CPB, earning call, 2024/Q4)

"Our performance on volume meanwhile, improved sequentially for a fourth consecutive quarter and turned positive in the second quarter. Industry-wide elasticities continued to be a growth headwind across our retail categories but our return to full commercial activity, including our launches of innovation reaching shelves during the second quarter led to volume growth in both consumption and shipments in our US retail business." --- (K, earning call, 2024/Q2)

"Tucker Marshall: Rob, good morning. As you think about the flow for the year, we achieved the 9% growth really being driven by ongoing momentum in the Uncrustables frozen handheld portfolio, continued success with the peanut butter chocolate innovation or launch, ongoing momentum within Café Bustelo, which continues to perform at and above expectations and seeing continued momentum across Meow-Mix. And then as you think about some of the more discretionary aspects of the portfolio, our overall pet snacks portfolio has slowed a little bit, to Mark's opening comments." --- (SJM, earning call, 2025/Q1)

"About General Mills General Mills makes food the world loves. The company is guided by its Accelerate strategy to drive shareholder value by boldly building its brands, relentlessly innovating, unleashing its scale and standing for good." --- (GIS, press release, 2024/04/16)

Shifts in Consumer Behavior Due to Inflation

Inflation has led to significant shifts in consumer behavior, with many consumers consciously switching products in response to rising prices. This trend has been observed across various sectors, indicating a broader adaptation to economic pressures and changing shopping habits.

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q1)

"And it seems as though there was a sort of a meaningful shift really just in the last quarter, or maybe last month or two in terms of how you see the consumer and sort of shopping behavior." --- (SJM, earning call, 2025/Q1)

"You cited it as one of the areas that was most declining in this quarter. Are you seeing -- I just wanted to get your pulse on that segment and be consumer behaviors around that and make sure that it's not going to be an on-going drag for you in fiscal '25." --- (GIS, earning call, 2024/Q4)

"We remain steadfast in our view that consumer behavior will continue to normalize, and that we are uniquely positioned to deliver sustained and dependable growth with one of the best portfolios in all of food." --- (CPB, earning call, 2024/Q4)

"Certainly, has been some inflation and put pressure on consumers. And what we've really noticed, this started in early 2022, was some conscious switching amongst products and you can see that pronounced suddenly in the store, but based on what people are having delivered and our flexibility, convenience and other things that we have improved over the last few years have made a difference on our ability to serve more of our existing customers more often with more units and then meet some new customers as well, which is great." --- (WMT, conference, 2024/06/11)

Financial Performance Amid Inflationary Challenges

Despite inflationary pressures, companies like Mondelez and Campbell Soup are navigating challenges effectively. Mondelez reports strong financial performance, aided by rising consumer incomes and improving economic conditions, while Campbell anticipates 6.5% to 7% EBIT growth through cost savings and favorable pricing strategies.

"And so we were able to deliver, in fact, I would say, well above the financial algorithm, also driven by inflation in the recent years." --- (MDLZ, conference, 2024/06/04)

"Full-year adjusted EBIT growth for the combined business is expected to be approximately 6.5% to 7%, reflecting the partial-year contribution of the acquisition, inclusive of integration savings, and base business performance, including lower adjusted marketing and selling expenses, and favorable net price realization, productivity, and cost savings more than offsetting inflation and other supply chain costs." --- (CPB, earning call, 2024/Q1)

"Consumer incomes are rising, which helps to reduce the inflation-driven financial strain on many households." --- (MDLZ, earning call, 2024/Q1)

"They see their incomes rise, the inflation is softening, they see quite stable employment, particularly in the UK is important for us in Europe and there the confidence which was relatively low last year is rising because they feel that their broader economy is doing better and they feel better about their personal finances." --- (MDLZ, earning call, 2024/Q1)

Competitive Landscape and Market Positioning

General Mills aims to enhance its competitiveness and regain growth leadership by leveraging its diversified product offerings and innovative customer insights. The company is focused on balancing pricing and volume while adapting to evolving market dynamics, as highlighted by industry peers navigating similar challenges.

"I think you highlighted Cheez-It. So just how would you characterize your go-forward in Europe, I know looking for another year of growth, but maybe how do you view exit rate and the complexion of trends in the market as you think about balancing pricing and volume going forward?" --- (K, earning call, 2024/Q2)

""Looking ahead, we'll continue to work to improve our competitiveness and get back to leading growth in our categories." --- (GIS, press release, 2024/09/18)

"Given our industry-leading position with a diversified product and service offering and our expansive and innovative customer base, we have a unique perspective from which to evaluate the evolving dynamics impacting food retailers, suppliers, and consumers." --- (UNFI, earning call, 2024/Q1)

"And one of the things that we're seeing a lot of growth on right now is the expansion in capacity that we've been adding on snacking and enabling our foodservice teams to be able to sell with confidence against those brands." --- (CPB, earning call, 2024/Q1)

"We've got more first party data than we ever had before. So we think about from a consumer messaging standpoint, innovation types of things that technology can bring to really increase that speed to value in that speed market is equally an area that we're very excited about." --- (K, conference, 2024/06/06)

Long-term Strategies for Sustaining Growth

General Mills is focused on long-term sustainable growth through strategic planning and profitability targets, aiming for 2% to 3% sales growth. The appointment of a Chief Strategy & Growth Officer underscores their commitment to building capabilities for sustained growth in a dynamic market environment.

"Together we will continue to deliver on our commitment to achieve long-term sustainable growth, while making a meaningful and positive impact on society." --- (SJM, earning call, 2024/Q4)

"And so I'm really pleased with what we have done so far. And it's all in service to really get back to a sustainable level of profitability and profitability growth, kind of mid single profitability driven by 2% to 3% growth over the long term in our sales. So we think we're somewhere around 2.5% growth long." --- (GIS, conference, 2024/05/29)

"As we continue to control the controllables in a dynamic environment, I remain confident in our outlook and continue to see this moment as a tremendous time for the company to begin its next chapter of sustained growth." --- (CPB, earning call, 2024/Q3)

"Steve Cahillane: Thanks, John, and good morning, everyone. Two quarters ago, we became Kellanova, with a more focused and growth-oriented portfolio, a refreshed strategy, more ambitious financial targets and the continued commitment to deliver long-term value for our share-owners." --- (K, earning call, 2024/Q1)

"He will report to Jeff Harmening, Chairman and CEO, join the Senior Leadership Team, and have global accountability for the company's comprehensive strategic planning process and for building long-term, sustainable plans and capabilities to accelerate growth." --- (GIS, press release, 2024/07/18)

Impact of Inflation on Brand Loyalty

Inflation is expected to negatively impact consumer volumes, affecting brand loyalty. Companies are responding by investing in brand strength despite lower sales, indicating a strategy to maintain loyalty amid economic pressures. Productivity improvements are also helping to offset inflation, supporting brand investments.

"We expect consumer trends to continue to evolve and our volumes to improve over time, however, economic pressures on consumers, including the challenges of high inflation, may continue to negatively impact our volumes throughout fiscal 2024." --- (CAG, sec filing, 2024/Q3)

"Adjusted gross profit and adjusted operating profit both improved 0.3% over prior year, despite lower sales, as strong supply chain productivity helped offset cost of goods sold inflation, absorption impacts from our lower volumes, and the brand investments we made during the year." --- (CAG, earning call, 2024/Q4)

"Operator: The next question comes from Chris Carey with Wells Fargo. Chris Carey: One thing that did stand out was that the inflation impact to margins did get a little bit worse quarter-over-quarter -- can you just expand on that if that's driven by commodities, non-commodities, I think you mentioned tomatoes with respect to some incremental pricing." --- (CAG, earning call, 2024/Q1)

"Adjusted gross margin improved 62 basis points over prior year to 27.6%. Productivity improvements, which approximated 4% of cost of goods sold in the quarter, more than offset net inflation, which approximated 2.7% of cost of goods sold, which helped fund trade merchandising investments in our brands." --- (CAG, earning call, 2024/Q2)

"The higher gross profit was due to inflation driven pricing that was primarily implemented in the prior year, productivity, lower transportation costs, lower inventory write-offs, and a net benefit of $7.4 million related to insurance proceeds received for lost sales from our Armour Star ® brand recall." --- (CAG, sec filing, 2024/Q1)

See also