Speaking to analysts after posting a 25% drop in net income to $345.2m on sales down 2.4% to $4.27bn in the three months to August 24, Powell said bosses had learned a lot from acquiring brands such as Cascadian Farm, LARABAR and Food Should Taste Good about how to unlock their potential without alienating their fan base.
He added: “We’ve learned a tremendous amount from the natural and organic companies that we’ve acquired over the years. We've been very good, I think, about leaving them alone. Let them do that thing.
“We will retain Annie's headquarters in Berkeley. These are very talented people. They built a really good brand. And the key is just to figure out where we have capabilities that can really help them and bring them those capabilities which they are actually eager to have to accelerate the growth of this thing.”
The Annie’s brand is very flexible and very expandable
Asked why General Mills had been prepared to stump up a cool $820m for a business generating net income of $15.29m and revenues of $204m, he added: “It’s a unique equity in the organic space… they’ve had consistent very strong growth and we think that the brand is very flexible and very expandable…”
As for driving supply efficiencies and increasing margins, he said: “We think there are many opportunities here and we have actually jointly discussed these opportunities with Annie's management and they are quite excited by those opportunities.”
Meanwhile, other brands in General Mills’ portfolio will benefit from Annie’s expertise, he said: “One other thing that I’d like to add, they have terrific marketing and sales capability, particularly as it relates to the natural and organic channel. They really focused there and that is going to be an opportunity for the entire General Mills natural and organic portfolio. We think that they can really help us to accelerate the growth of our existing portfolio brands.”
Meanwhile, Bridget Christenson, global communications manager, told our sister site BakeryandSnacks that “Annie’s products are not changing”, and that the larger company would “honor” Annie’s “integrity” and maintain its commitment to organics. Meanwhile, Annie’s CEOJohn Foraker (who is staying on post the deal) reassured fans on Twitter that selling up did not mean selling out.
The operating environment in several of our markets has grown more challenging
The importance of reshaping its portfolio via the acquisition of fast-growing natural and organic brands was underlined in the Q1 results, which revealed that combined retail sales of Lärabar nutrition bars, Food Should Taste Good savory snacks, and Cascadian Farm granola bars rose 17%, while much of the rest of General Mills’ portfolio notched up pretty uninspiring sales.
US Retail net sales for the first quarter were 5% below last year, with pound volumes down 2%, mainly due to poor sales of dessert mixes, meal products and frozen vegetables, said Powell, who also noted that “returning the cereal category to growth will require more product news, better innovation and increased investment behind consumer-directed marketing from all the branded players”.
He added: “The operating environment in several of our markets has grown more challenging… Last year we saw aggregate retail sales for our U.S. categories increase one half of a percent in Nielsen measured outlets. In the latest quarter, measured sales for our categories declined 1%.”
However, there were some pockets of success in the US market, with retail sales of the renovated Cinnamon Toast Crunch up 7%, “encouraging” early feedback for new Cheerios protein variants, a recovery in yogurt (US net sales +1%), a 6% surge in sales of grain snacks, a 7% retail sales rise for Totino’s Pizza and 7% growth for Old El Paso Mexican products.
Ultimately innovation and capitalizing on consumer trends is what gets us to higher levels of growth
Asked by a JP Morgan analyst how the big CPG players could get themselves out of a “self-destructive pattern of heavy promotional spending”, Powell said: “Ultimately innovation and capitalizing on consumer trends is what gets us to higher levels of growth.”