General Mills' Market Outlook: Challenges in Inventory and Merchandising Strategies
2023-09-21
Exane BNP Paribas analysts held a call meeting to discuss GIS analysis and earnings. The meeting primarily focused on the company's approach to media spend and brand support in the current business environment.
During the meeting, the market outlook for the company was cautiously discussed, particularly regarding potential challenges in inventory management and the effectiveness of certain merchandising strategies. While the company has experienced growth in the pet category and brand over the past five years, factors such as e-commerce and inventory levels continue to impact its performance. The industry is shifting towards quality merchandising, with displays showing a mid single-digit increase. However, the expected lift associated with certain events, particularly endcap displays, did not meet the anticipated incremental growth. This could be attributed to changes in pricing tactics, focusing on higher price points and increased frequency rather than deep discounts. Nevertheless, the company believes that this approach will ultimately drive more revenue for the category and its retailers. Overall, the market outlook suggests a cautious approach to the second quarter, with potential challenges in inventory management and the effectiveness of certain merchandising strategies.
The meeting highlighted several key drivers of the business, including media spend, strategic mergers and acquisitions (M&A), long-term growth strategy, and the pet category. The company plans to grow its media spend in line with sales to provide brand support and promote brand ideas. Additionally, they aim to pursue M&A opportunities that can contribute to growth through acquisitions and divestitures, with a specific focus on bolt-on opportunities that leverage their capabilities, channels, and technology. Furthermore, the company intends to expand its presence in the pet category, as they believe in its long-term prospects.
Several important key performance indicators (KPIs) were discussed during the meeting. Media spend was highlighted as a significant KPI, with double-digit growth reported for the first quarter. The company expects this growth to continue in line with sales throughout the year. Another crucial KPI mentioned was the improvement in the snacking business, emphasizing the importance of the performance of their snacking products. In terms of M&A objectives, the company aims to achieve approximately 50 basis points of growth through strategic acquisitions that can generate both sales growth and synergies. They emphasized their disciplined approach to M&A and their commitment to pursuing acquisitions at reasonable pricing for the benefit of their investors. Lastly, the company acknowledged that pet sales growth may be slower than initially anticipated for the year.
During the meeting, the CEO addressed the performance and outlook of the company's business, particularly in relation to e-commerce, inventory, and merchandising. The CEO acknowledged the challenges of forecasting quarter by quarter in a business with significant e-commerce operations. Additionally, the CEO mentioned an inventory deload in the second quarter and stated that the company does not anticipate a significant rebound in the second quarter to meet their guidance. The effectiveness of merchandising events and displays was also questioned, prompting the Group President, North America Retail, to discuss the impact of pricing actions and the importance of frequency and higher price points in driving more revenue for the category.
Overall, the call meeting provided insights into the company's approach to media spend, strategic growth, and the challenges they face in inventory management and merchandising. The company remains cautiously optimistic about their market outlook and is focused on driving growth through various initiatives, including media spend, M&A, and expansion in the pet category.