General Mills boosts sales guidance after seeing favorable elasticities
Despite rising prices, the maker of Cheerios, Wheaties, and Cinnamon Toast Crunch is keeping most consumers happy.
In General Mills news, the Minnesota-based manufacturer of Cheerios, Chex, and Pillsbury increased guidance after the company exceeded volume expectations despite another round of price increases. Management now expects annual organic net sales growth of 6-7%, a 200 basis point increase from its earlier projection. “Elasticities have been more favorable to us than we had anticipated in the current environment,” CEO Jeff Harmening said on the recent investor call, “particularly as consumers have traded to away from home eating to more at-home eating consumption.”
General Mills reported organic net sales—the metric excludes acquisitions and divestitures—of 10% for the quarter. Overall, driven largely by a boost from selling some legacy boxed-food brands, operating profit increased nearly 30% to $1.1 billion.
Foodservice, which accounts for about 6% of total sales, had minimal impact on profitability. Most contracts are tied to indexes—meaning it’s a commodity business. The big driver for the business was North America Retail. The segment, which includes all products sold in the US to consumers, accounts for about 60% of the company’s sales each year. Led by Snacks, which saw a 14% sales increase, the segment reached sales of $3 billion. Overall, North American Retail grew by 10%.
General Mills is facing somewhat of a perfect storm right now. The company can pass off almost all inflation costs onto consumers through price increases—while cutting back on trade spending. And management is doing just that.
At a recent Barclays Event, Harmening revealed that overall, General Mills prices are up 19%, while promotional spending is down nearly 20%. Most promotional spending is included in the SG&A expense category. It’s hard to calculate an actual number without detailed pricing data, but consumers are getting hit with a double whammy—higher list prices, along with no promotions to offset the pain.
Promotional spending refers to coupons, marketing displays, and other temporary price reductions that you may see in stores. This is also referred to as trade spend.
Consumers have reacted to a dual price increase—but not as negative as you might imagine. Here’s Jon Nudi, Group President of North American Retail, addressing the topic:
As we look at the unit declines, the vast majority of that is due to promotional pulling back and not so much frequency, but really adjusting our price points. So in most categories, it's up to about 75% of the unit decline is due to promotional pullback.