Input cost inflation, shifting consumer preferences and stiff competition are spoiling the broth for most companies operating in the food space, including General Mills, Inc. (GIS - Free Report) . Amid such concerns, the company has been trying to revamp operations by focusing on customer-centric innovations, strategic marketing efforts and in-store executions as well as savings initiatives. Let’s take a closer look at some of these strategies and see whether they can offer some respite to the company.
Key Growth Strategies
As part of the Consumer First strategy, General Mills focuses on customer-centric innovations to enhance sales. Additionally, it is inclined on augmenting marketing efforts and in-store execution for attracting more shoppers. The company focuses on executing such growth efforts across four main platforms, which include Haagen-Dazs ice cream, snack bars, Old El Paso Mexican food as well as General Mills’ natural and organic food brands.
Speaking of organic food brands, General Mills has been heavily investing in this area to keep pace with consumers’ growing preference for health and wellness related products. Markedly, the company has an outstanding portfolio of products and brands in the organic category. The company’s net sales from North America natural and organic portfolio including its fast growing Liberte brand in Canada have already crossed $1 billion. Also, the company expects to reap consistent benefits from Annie’s, the company’s biggest natural and organic brand.
Apart from these four key priorities, the company focuses on improving e-commerce channel, considering its popularity. Notably, General Mills’ U.S. e-commerce business grew nearly 70% in fiscal 2018 and global e-commerce sales surged 50%. The company expects double-digit growth for global e-commerce business, courtesy of performance in the United States.
Another mention worthy focus area of the company is the generation of adequate cost savings for supporting growth-related investments. The company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply chain optimization and continued expansion of zero-based budgeting across the business. These are expected to accelerate margin expansion. Further, the company is on track with its Holistic Margin Management (“HMM”), which is expected to generate greater savings in 2018. Management expects cost of goods HMM savings of roughly $450 million in fiscal 2019. Notably, this will exceed the company’s savings in the year-ago period and will be backed by global sourcing initiatives.
Finally, this Zacks Rank #3 (Hold) company is working toward reshaping iportfolio via prudent buyouts and divestitures. In connection with this, General Mills acquired Blue Buffalo Pet Products in April 2018 and is on track to integrate the same.
Factors Spoiling General Mills’ Show
General Mills has been battling input cost inflation for a while. During the first quarter of fiscal 2019, General Mills’ adjusted gross margin and operating margin declined year over year, thanks to input cost inflation as well as one-time adjustment related to inventory. These headwinds are expected to linger as the company anticipates input cost inflation of 5%, a point greater than the level in fiscal 2018. To top it, sales in the North America Retail segment, which contributed 58.3% to General Mills’ first-quarter figure, dipped 2.1% due to low volume contributions. Further, organic sales in the region slipped 1%. We note that shifting preferences of consumers is the primary reason causing such declines. Such deterrents have caused the company’s shares to decline 3.3% in the past six months compared with the industry’s rise of 2.7%..
Nevertheless, we expect General Mills’ aggressive strategic efforts to revive the company’s lost sheen in the long run.
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