The CEO of US food group General Mills said he expects the promotional environment in the US to “moderate” in the next six months.
General Mills today (16 December) posted a 2% fall in underlying half-year profits as chief executive Ken Powell spoke of a “particularly challenging” first half of the company’s fiscal year.
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Powell said that the US grocery sector had seen high levels of price promotion by food manufacturers and retailers over the last six months. The activity appears to have weighed on General Mills sales growth in the US. The company’s sales volumes rose 3% in the second quarter to 28 November, but sales only rose 1%.
However, on General Mills’ earnings call today, Powell said he expects the “promotional environment” to “moderate” in the next six months.
“We have taken a number of list price increase across several of our categories and they will take effect in January,” Powell. “We expect the promotional environment to moderate in the second half. A number of players in our space are also taking price increase, and as we look at the inflation environment going forward, we believe we are beginning to see the industry respond with some list price increases and we expect to see a moderating in the promotional environment going forward.”
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Inflationary pressure on input costs hit profits from General Mills’ US grocery retail business in the first half of the company’s financial year. Operating profit from the division fell 4% due to a mix of higher input costs and the promotional activity across some of General Mills’ categories.
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By GlobalDataGeneral Mills said it was experiencing inflation again this year, with the biggest sectors affected including dairy ingredients, cocoa and wheat.
Food manufacturers will hope that they can pass on higher input costs to retailers in the form of higher prices in the months ahead. However, Powell cautioned that consumer behaviour will also determine pricing across categories.
“The consumer does continue to be careful and you see that in different kinds of behaviours, the way they plan, make lists, and couponing,” he said. “As we take our pricing, we always look at it in a larger context with all of the activities we have under way. We monitor very closely the inflationary trends in our input markets and we think that those trends are telling us whether we need to have some pricing in certain categories.”
Powell, meanwhile, said General Mills was “highly focused on innovation” and had a number of initiatives under way for the new year in the US.
The firm said it will be highlighting the “strong health benefits” of several products in the second half involving a national media campaign for its cereal portfolio in the US, as well as the firm’s “first national media campaign” for its gluten-free products.
General Mills will also put “significant marketing” behind Yoplait in the US, where its holds the local licence for the yoghurt product. The company is also planning a new flavour for the Yoplait range of Greek yoghurts, and product launches for other categories will include Cinnamon Burst Cheerios and additional varieties for its fruit snack bars.
Looking to the UK, meanwhile, Powell said General Mills is experiencing a “very challenging macro-economic environment”, particularly in the cereal category.
“It is very different there [UK] right now and it has led to an intensely promotional environment across many categories,” he said. “As we move on to economic recovery, albeit slowly, I think those trends will moderate, but right now it is very promotional there across many categories.
He added: “We are feeling the promotional intensity on cereals in the UK but we have good growth internationally. The UK is a stand-out in promotional intensity but overall, our international business is performing quite well right now and in the places where we need to see it.”
