“It’s not really the time to back down”

“I don’t think I’m going to say that the economic outlook for many developed markets is not very positive,” he added.With rising inflation, tight labor, tight supply chains and the Federal Reserve raising interest rates, General Mills CEO Jeff Harmening told dbAccess last week. Global Consumer Conference.

But, he added, “we tend to do well in environments… where the economy is getting tough,”and therefore, Harmening said he saw no reason to change strategy.

“We don’t feel like we have to choose between doing well in the present and preparing our well for the future,”he said. “Now is not really the time to back down. Now is really the time to make sure we are performing well in the current environment, which we are… but also to invest in capabilities such as strategic revenue management or data and analytics capabilities”​ that will set General Mills up for future success.

He explained: “We have invested over $100 million in our data and technology capabilities over the past two years because our goal, which we believe is entirely achievable, is to emerge from the pandemic stronger than we entered it. .

“And history has shown that companies that not only operate in the present, but also build capabilities that prepare for the future, are the ones that emerge even stronger from times like this.”

A strong balance sheet during an economic downturn

History has also shown that General Mills traditionally performs well during tough economic times, which further reinforces Harmening’s decision not to hold back, but rather to push forward.

Reflecting on the 2008 recession, Harmening explained that many consumers abandoned meals at home to eat at home, which helped General Mills’ categories grow a few percentage points faster than during periods when the economy was doing well.

“When people talk about reducing ​[during economic uncertainty] often they start with what the private label is going to do. But that’s actually not the best place to start. The starting point is where people go to eat, and more and more they eat at home,”said Harmoning.

“And we’re actually starting to see that already, even in the last two months, the percentage of eating occasions that are happening at home has increased by a point or two even in the last two months, when people are looking forward to getting outside, but they are concerned about the economic scenarios they face that require them to be more at home,” he added.

That should help General Mills retain its share even if private label sales also increase as consumers seek value, as it did in 2008, Harmening said.

“I think the lesson learned there is that if you have strong brands and apply good capabilities and good branding with that, you can own a share in an environment that grows a few points more rapidly”,he said.

He warned that “It’s the brands in the middle that are in a hurry or the companies that don’t invest…that end up on the wrong side of the ledger, and we’ve applied that thinking in the current environment, and we’re really happy with our brand performance and the development of our capabilities.

Ongoing portfolio restructuring will help General Mills grow 2-3%

With that in mind, Harmening said General Mills will continue to reshape its portfolio through potential mergers, acquisitions and divestitures going forward with a growth target of 2-3%, “despite a period of inflation”,​ and deliver mid-single-digit operating profit growth and mid-to-high single-digit earnings per share growth.

“Over the past few years, we’ve remodeled about 20% of our portfolio, meaning 20% ​​of our sales are coming from different places than they were four years ago, which is a lot. And it is added on a growth point for context,”said Harmoning.

Satisfied with these results so far, Harmening added that General Mills would consider shaping its portfolio further and would target assets that fit the strategy and can be realized at a price that adds value for shareholders.

He also noted that General Mills was looking for long-term results from deals, not immediate impact.

“We look at discounted cash flows at the internal rate. What we’re not really looking at…is the dilution that’s going to cause over the next fiscal year. We’ve been around for about 155 years and we’re going to play the long game. So, we’ve been really pleased, and we think there’s more on the horizon.he said.

The company will temper investments by deprioritizing areas and activities that “don’t generate the returns we want in order to do more of the things like data and analytics that we think will be more important to us,”he added.

Additional pricing remains an option

As General Mills seeks to add value through investment, it also remains open to additional price increases to offset rising input costs – a move that appears to run counter to recent comments from Walmart and Target. .

Over the past few months, Walmart and Target have noted that while many consumers are yet to cut back or reduce spending, they are paying attention to price, prompting retailers to consider how they can lower prices. or take advantage of promotions to move inventory.

However, that doesn’t mean the window is closing to pass on additional price increases to consumers to offset inflation, Harmening argued.

He acknowledged that everyone cares about the welfare of consumers and their ability to absorb price increases, which is why the company “The first defense against rising prices is our productivity”,which has generated $4 billion over the past decade.

It’s a “good number, but when your inflation is in the double digits, you can’t really get away from pricing, and so we see prices going up…as long as inflation keeps going up,”he said.

Thanks to a combination of investment, awards and productivity increases, Harmening is optimistic about the future, even as the economy becomes increasingly strained.

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