Harmening told investment analysts and industry stakeholders gathered at the Consumer Analyst Group of New York investor conference yesterday that General Mills remains on track to deliver its fiscal 2020 guidance, which includes an expected 1-2% increase in organic net sales, a 2-4% increase in operating profit and an adjusted diluted earnings per share that is up 3-5%.
This is despite temporarily closing nearly half of its company-owned Haagen-Daz shops and severely restricting the hours of the other half in Greater China due to the evolving coronavirus outbreak. The decision could significantly impact net sales from the shops, which represent 40% of net sales in the region. For context, the Greater China region represents 4% of General Mills net sales, according to the company.
Still, General Mills plans to hold true to its financial goals in part by investing heavily in branding and innovation in cereal, yogurt and snack bars – three categories that face significant challenges.
Are the tides turning on cereal?
According to Packaged Facts, cereal consumption in the US has fallen about 2.7% year-over-year from 2013 to 2018 in part because consumers increasingly are skipping breakfast or opting for on-the-go options that they perceive as more protein-packed, nutrient-dense or generally healthier.
However, Harmening noted that after several years of declining sales trends, the tide appears to have turned in 2019 when the $8 billion US cereal market’s sales were flat. Since then, he reports, General Mill’s US cereal retail sales have climbed 2%.
“I am very pleased with the way we’re competing in cereal around the world and in the US retail channels. We took over share leadership in the category nearly two years ago, and we feel great about our performance so far this year,” he said. “Our success is granted on strong performance against fundamentals including innovation, great marketing and excellent in-store execution, which have combined to drive our fiscal year to date retail sales up 2%.”
He attributed this success to “a combination of our strong performance, some improving macro and demographic trends, including a stabilization in the balance of breakfast eaten at home versus away from home, return to growth in the number of households with kids in the US” and the company’s focus on “away from home channels,” including convenience stores and food service.
He reports cereal sales are also up mid-single digits in schools “due in large part to our 2-ounce equivalent grain cereal cups, which are an easy way for schools to meet the USDA nutritional requirements, while requiring less storage and labor.”
Against this backdrop, Harmening says General Mills plans to push sales higher by “launching compelling innovation that offers taste, convenience and health benefits, while investing in brand building that engages consumers and gives them another reason to walk down the aisle.”
This innovation includes a new Morning Summit cereal made with almonds that targets health-conscious consumers and sells for a whopping $13 a box in the club channel. The brand also launched a blueberry Cheerios and a GoodBelly probiotic-packed cereal.
Other recent launches are less health-focused, and instead lean on co-branding. For example, last month, General Mills launched Hershey Kisses cereal and Trix Trolls cereal.
Beyond new products, “bold brand building is the second key to continued cereal growth,” Harmening said. “We’re connecting our consumers through compelling marketing ideas like our Cheerios Heart Health campaign. With more than 100 million Americans having some form of heart disease, Cheerios is on a mission to inspire happy hearts for a limited time” by changing some of the iconic ‘o’ shaped Cheerios to hearts.
Combined with new packaging and a new social media campaign, Cheerios sales are up 5% in the US over the last 14 weeks, which Harmening described as “quite promising.”
New products, broader channel distribution could boost yogurt
General Mills is also bullish about yogurt, sales of which as a category have slumped in recent years – falling from nearly $9 billion in 2015 to about $8.2 billion in 2019, according to Mintel. This trend is predicted to continue with segment sales falling another 10% to $7.4 billion by 2024, the consumer market and trends data analyst firm says.
General Mills has not escaped this unscathed as it seems to have cereal. Rather, year-to-date retail sales of yogurt in the US are down 3%, Harmening acknowledged, but he says General Mills plans to improve yogurt through brand investment and innovation.
For example, he said that General Millis is innovating into faster growing spaces that will soon become sizeable enough to offset declines. These innovations include a new Starburst flavor Yoplait as well as launches in the dairy-free segment with a coconut-based product in the US that “speaks squarely with consumer interest in plant-based foods,” he said.
“We will also look for innovative ways to continue to … drive growth for our yogurts in away from home outlets such as with our YoGo Coolers and in K through 12 schools,” he said.
Renovation and innovation help snack bars overcome hurdles
Finally, Harmening said, General Mills is seeing success as the global leader in the large, growing snack bar category.
“We have a long track record of global growth on bars through fiscal 18 driven by innovations from marketing campaigns and expanded availability in many international markets of US bars,” he explained.
He did acknowledge that the company’s Nature Valley and Fiber One bars both suffered a downturn in fiscal 2019, but “through stronger innovation, renovation and distribution,” he is confident they are on a path back to growth in fiscal 2020.
For example, he noted, “our new Nature Valley wafer bar has been a great success so far. In fact, it’s the biggest launch in the US snack bar category this year and we have additional marketing support on Nature Valley in the back half of the year.”
As illustrated by General Mills’ proclaimed success in these challenged categories, Harmening emphasized the company is charting a path forward for success