“The current environment presents a once-in-a-generation opportunity to drive trial for our brands, and we’ve seen significant and broad-based increases in global household penetration for most of our largest brands, including Cheerios, Pillsbury, Old El Paso, Progresso, Yoplait, Betty Crocker and more,” General Mills CEO Jeff Harmening said in prepared remarks about the company’s first quarter earnings results.
Specifically, he noted, household penetration gains for General Mills’ products compared to pre-pandemic levels have outpaced that of its leading branded competitor in nine of its top 10 categories, including a 4.5% increase in desserts, 3.9% in refrigerated dough, 3.1% in Mexican products, 2.9% in dry dinners, 2.8% in soup, 1.8% in hot snacks and 1.2% in fruit snacks. The only category where its increase in household penetration is lower than its top competitor is cereal, where it still gained 1.7% vs its competitor’s 2.1% gain.
“We are also seeing some encouraging demographic trends, with new General Mills consumers skewing more heavily to younger Hispanic households than existing users,” and improvement in repeat rates for our brands across the majority of the company’s top categories, Harmening said.
These gains likely helped fuel the company’s 9% increase in net sales to $4.4b and its 29% profit increase to $854m in the first quarter ending Aug. 30.
“With so many new consumers trying our brands, we’re taking a number of approaches to maximize the ‘stickiness’ of this demand,” including the adoption of a three-prong plan to compete effectively, everywhere, drive efficiency to fuel investment in brands and capabilities, and reduce leverage to increase financial flexibility, he said.
First prong: competing effectively, everywhere General Mills plays
The first prong most directly addresses how General Mills plans to maintain consumer engagement as the pandemic continues and eventually resolves through ongoing product renovation, innovation, brand building, and increased e-commerce investment.
“We’ve spent many years renovating our portfolio to improve the taste, nutrition, convenience and value of our offerings,” Harmening said. “For example, we improved the taste and texture of our Pillsbury Grands Biscuits, we added more fruit to Original Style Yoplait, we modernized the nutrition profile of Fiber One brownies for weight managers, we added more of the ingredients consumers love to our Progresso rich and hearty soups and we reduced sugar by almost 25% in our Yoplait Petits Filous kids products in Europe.”
Innovation also remains “critical,” but will happen at a slower pace than in years past, Harmening said. Recent launches include Cinnamon Cheerios, Old El Paso Tortilla Pockets in Europe and innovations in yogurt. He added more new products will come in 2021.
On the brand building front, the company has invested heavily in its websites to provide more of the content that consumers cooking at home need, Harmening said. For example, he noted that General Mills has been adapting recipes on its Bettycrocker.com and Pillsbury.com websites to include more simple meal prep, how to use ingredients on hand and how to recreate restaurant favorites at home.
It also partnered with the LeBron James Family Foundation to encourage families to “spark the magic of togetherness around the dinner table,” he said.
Finally, on ecommerce, General Mills is leveraging past purchase data to reconnect with lapsed consumers to boost purchase frequency and household penetration gains, Harmening said.
“While we don’t expect to maintain all of our new consumers we’ve gained in the past six months, we’re confident that these actions will help us maximize the number of consumers we keep in the General Mills franchise, leading to strong growth over the long term,” he said.
Second prong: driving efficiency to fuel investments
General Mill’s second prong will focus on driving efficiencies to fuel investments in part by maximizing internal capacity use and external manufacturing capacity to drive volume leverage and meet ongoing increased demand.
“In our North America Retail business, we have added around 30 new external manufacturers since the start of the pandemic, providing approximately a 25% increase in external capacity. While this comes at a higher cost than our internal capacity, we still like the profitability of these sales, even if they are at a lower percentage margin,” Harmening said.
Third prong: reducing leverage to increase financial flexibility
The company’s third prong will focus on increasing financial flexibility and building on the company’s strong foundation, which is already at its targeted net-debt-to-adjusted-EBITDA ratio of 3 times, Harmening said.
He added this is “well ahead of our original schedule coming out of the Blue Buffalo acquisition.”
Ultimately, even though the company is unwilling to provide full year guidance, executives believe the company is well situated to make the best of what is to come in 2021.