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General Mills: From foodservice to retail, the impact of coronavirus
In the age of coronavirus, American consumer product companies, like General Mills, are working overtime to ensure that people stay fed in an era of self-containment. It has been almost two weeks since President Trump declared a national emergency, and numerous states followed with “safer-at-home” orders. In a matter of days, Americans went from eating out and grocery shopping a few times a week, to all at once bulk purchases.
The coronavirus transition has massive impacts from an operational point of view. Overnight, restaurant and coffee shop sales went to zero and empty shelves became the norm in grocery stores. However, large CPG companies like General Mills are well-positioned to handle it. To understand why, you need to understand that General Mills is three separate business—spread across five segments–wrapped under one corporate entity.
How General Mills is organized
Since its founding in 1856, General Mills has worn a wide variety of hats. In the 1960s, it manufactured toys. In the 1980s, it founded Olive Garden. Today it focuses primarily on food manufacturing through five separate segments.
If you look closely at each segment, you’ll see three different businesses—each with separate corresponding processes:
Manufacturing finished food goods.
Manufacturing food goods that an operator finishes.
Retailing finished food goods.
How coronavirus impacts a large food company like General Mills
The management of General Mills talked about the impact of coronavirus on the firm’s Q3 investor call.
From Motley Fool:
But, look, as we look at March so far, we haven’t seen a big fall-off in our Convenience & Foodservice business through today. But clearly, the situation continues to evolve, and you like us saw stores closing, and that’s a big piece of our business. We also see the restaurant traffic is down and what we’re seeing is those two things, there is some offset by what we see in Convenience Stores where the traffic is strong. And so, unfortunately, certainly with healthcare. And so, we would expect in the fourth quarter that our C&F business would be down for all of those factors. But look, the situation continues to evolve and ways that you would probably anticipate.
Essentially, since almost all restaurants and group food facilities have closed to help slow the spread of COVID-19, General Mills expects foodservice to drop tremendously. This situation could be devastating to a firm that concentrates primarily on foodservice, like Sysco or US Foods. But remember, General Mills is diversified across three separate businesses: finished food goods, operator finished goods, and retail. Demand for goods that an operator finishes and retail have cratered, but the volume may transfer directly to finished food goods. That segment, North American retail, generates almost 60% of the company’s total sales.
In the last ten years, food manufacturers like General Mills have spent hundreds of millions of dollars, reworking their retail offerings to fit changing consumer tastes. New flavors and fresh options flooded grocery shelves. Often, the investment falls flat. It’s hard, even for a large firm, to break through. Consumers have so many options—from restaurants to meal kits. Now, most of that competition is gone, and the volume is pushed back into traditional grocery. In China, who has been fighting the coronavirus for months, General Mills saw its direct-to-consumer retail arm crater, and frozen dumplings rise by double digits.
Jon Nudi, the President of North America, explained the potential impact within America:
We’ve worked hard over the last few years to renovate the majority of our product lines. If you think about refrigerated baked goods, we’ve touched the bulk of that business which is big, important and profitable for us. Cereal has been renovated as well. So we do believe it’s an opportunity, perhaps as consumers come back and try our products again after several years to see the products and the improvements that we’ve made and ultimately, hopefully, drive penetration for the long-term.
I can’t imagine that ten years ago, when General Mills decided to revamp their product lines, it imagined that a global pandemic could help it re-solidify its hold in grocery stores.
But here we are. It’s 2020.
Crazier things have happened.