They explained that while they were pleased with a 4% increase in the quarter that brought net sales to $4.9b – slightly higher than the $4.88b analysts expected – they acknowledged that to continue growing in the current environment the business will need to shift strategies slightly to win back “a changing consumer” and rebuild volume, which fell 2% in the quarter.
To do this, General Mills plans to leverage “remarkable brand building, innovation and advantaged capabilities” rather than offer “deep discounts,” which do more long-term harm than good, said Jon Nudi, group president for North American retail at General Mills.
“I think we all know that driving deep discounts actually drives dollars out of the category and drives profit out of the category as well. So, what you’re seeing is maybe more frequency at higher price points and as a result of that, maybe the lift on each deal isn’t higher, but at the end of the day, when you add up all your merchandising across the year, a little bit more frequency with higher price points actually drives more dollars for the category and our retailers and more or us as well,” he said.
The company plans to justify higher prices and “win with a changing consumer” through increased brand building, innovation and “advantaged capabilities,” CEO Jeff Harmening said.
CFO Kofi Bruce explained the company increased media spend in the double-digits in the first quarter, and expects to grow media spend in line with sales for the remainder o the year.
“In this environment, I think it’s important for us to put support – brand support – behind quality ideas still, and especially so as we see the environment stabilize,” he explained.
Nudi agreed, especially considering increased competition from private label, which he noted has improved on-shelf availability in some categories.
Channel shifting could mask volumes
General Mills, like other food and beverage CPG players, also is tracking a shift in where consumers shop – which could make volumes appear lower than they are.
“In our North America Retail segment, we continue to see elevated retail sales growth for at-home food in the first quarter versus the pre-pandemic period, though the pace moderated from the double-digit growth rates we saw in fiscal 2023, reflecting less impact from inflation-driven pricing and a shift toward value for some consumers,” Harmening said.
Value-hunting has pushed some consumers into channels with lower prices and more deals, which are not tracked by Nielsen and may not be as visible, he said.
“Beyond our Nielsen-measured performance, we saw stronger growth in non-measured channels in Q1, including club, discount and dollar stores,” he explained.
Nudi added that while growth in non-measured channels is up double-digits, traditional grocery remains important as frequency in that channel is up 5%.
Despite these shifts and the “evolving external environment,” Harmening says he is optimistic about the rest of fiscal 2024 and reaffirmed the company’s full-year fiscal guidance.