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Cheerios maker General Mills is raising prices to offset inflation costs

May 24, 2021 00:00 AM UTC
- Updated July 29, 2021 13:20 PM UTC

CEO Jeff Harmening blames the hikes on higher prices for raw materials and freight costs.

Transcript
Jeff. So good to see you again and to get an update on what's going on at a general mills because you know, it's been so fascinating to see that during this covid pandemic, how much consumers eating habits have changed so much there as you know, they are cooking and baking from home and this has been a big boost to General Mills business. But now that uh, you know, uh, everybody's pretty much vaccinated and uh, you know, restaurants are opening and people are talking about going back to the office, what impact is this going to have on your business? Susan, you're right. We saw quite a bit of change over the last year, whether it's how our factory workers worked, our own employees worked, how people ate, how they got their food. We even saw people treating their pets differently and in many cases better than they did before. But you know, as we return to some sense of normalcy, which we're all looking forward to. Um, you know, people's eating habits won't go back to exactly the way they were before. And people, as you said, people have gained new cooking skills. They found they can save money by eating at home. And so while people are going back to restaurants, I would submit to you that that their eating habits and the way they get their food is has changed forever. Well, I know you collect a lot of data on your shoppers and you know what their habits are and things like that. What have you learned from reviewing data recently about what stays and what goes as covid 19 is winding down in terms of eating habits. One of the things that's pretty clear to us is that people are making more and they continue to make more. They've got new skills and baking our Betty Crocker and Pillsbury dot com websites. The traffic is up 50% from before. The pandemic and people have found a love for the kitchen and baking at home so we think that will stick. But also people are ordering more of their food online and we're fairly certain that's going to stay as well. What about prices? You know everyone's been really surprised to see how high and how fast food prices have shot up. And you told investors recently that general Mills plans to increase prices due to inflation cost. Have you begun that process? So what we've seen is a is a rapid rise in our input costs and inflation for things like commodities and for logistics and for many of the areas that we track all over the world, not just here in the U. S. And so when we see something like that, the first thing we do is we try to become more efficient at what we do and so we have a program productivity but inflation is so high right now the productivity alone won't won't offset that. And so we are we will start to see prices increase And we've already started to put that in place. Well you have over 100 food brands. I mean what categories have you targeted for? Price increases when we look all over the world it really goes category by category and geography by geography. And so we'll see increases pretty much across the board in terms of the categories where we sell food and and the amounts may change the way we do. It may be different because the categories are different but you know inflation is pretty holistically all over the world higher than it was a year than a year ago by how much do you expect to increase prices? Can you quantify it a little bit for us? You know what I will I will reflect back to 2019 where we saw about five inflation and we saw about two pricing increase and you know, we'll see what the inflation ends up being this year. And so I'm not going to quantify what we see now. But I will say that when you see inflation figures, you don't have to offset that completely with pricing. Because I said, our first line of defense is becoming more efficient generating productivity and so it'll be something less the inflation that we see. I think the big question for many people is how long are these price increases going to last? Are we talking months or maybe years? It's really hard to say. And you know, it really is determined by you know, how the planting season grows, how crops go, whether we can get workers back and logistics increase, uh, logistics capacity increases again. And so, you know, time will tell. We look, certainly for the next 12 months, we see an inflationary environment. Well, as you look ahead to this year, 2021, what impact do you think these higher prices will have on your business, on your sales and profits in terms of demand? I don't think the higher prices will have a big impact on demand one way or the other. I don't think the man will go up because the prices are increasing, but I don't think they'll go down because as I said, you know, all, all people who are producing food are going to see prices going up in terms of profitability. We'll see being, look, we're trying to offset high levels inflation and that's really our, that's really our goal. You've said that General Mills is going to be focusing on five product categories for growth, including a serial ice cream and mexican meals. What are you doing differently to get consumers interested in? Those? Are you, you know, changing the recipes are the ingredients, what are you doing differently? So, you know, we we grew our cereal business for the three years before the pandemic and that's accelerated during the pandemic. We've increased our marketing support for cereal and you know, some of our biggest brands, cheerios, we've we've made it heart healthy. We're talking about the heart health nature of cheerios, Cinnamon toast, crunch is the second largest brand in the cereal category. And that's growing again. And so we've increased the marketing on that and in areas like pet food, we've come up with new varieties of pet food, a new a new cat food and some new innovation and in Mexico mexican food, some innovation as well, especially in europe. And so, you know, it's not enough to ride the wave of the current at home environment. We need to keep innovating. We're doing that in a variety of ways. You mentioned pet food. That is a strong category for your company. And you recently announced that General Mills is paying more than a billion dollars in cash to Tyson Foods to buy its animal treats business. Tell us why you're expanding into pet food. What's the attraction there? Well, we love the pet food category because because, you know, people treat their pets like members of the family and for us, it's very natural to do not only serve human food, but also pet food because there's really a trend in the pet food category to humanize pets. And I think it's especially important as times as challenging as we have right now, pets really are a valued member of the family. And so it's a great category and, and the number of heads around the world is increasing. And so it's a growth category. And as you said, Blue buffalo has done well over the last three years in this, the, hopefully the acquisition of this business that Tyson had will, will further our investments and our growth and our natural treats business. Well, you have been doing acquisitions, the buffalo brand that you just mentioned a moment ago and now this recent one, where else? And what else are you looking at in terms of maybe doing some more acquisitions? I'll start the answer by saying the most important thing we can do is grow the brand that we currently have and I'm really proud that we've been able to do that. In addition to that, we're going to look for opportunities to grow our business through acquisitions. We've done it through Annie's, we've done it through Blue Buffalo and uh, and now it is treats business and so we'll look for businesses where we have the capabilities to win and that are adjacent to businesses that we already have. As, you know, many companies are trying to figure out the best solutions for the post pandemic workplace. What are you doing at General Mills? What are your plans? Well, you know, the first thing we're doing is we're listening to our employees and trying to understand what they want because we feel as if an engaged workforce is going to be the most productive workforce and you know, our employees like many employees that have told us, especially when coming back to the office that they want to come back some of the time, but they want some flexibility and how they work. And we've certainly seen during the pandemic that we're working a lot differently, a lot better. And so One of the things we anticipated employees coming back to the office, but we don't anticipate they'll come back all the time every day because we found that we can be most productive when we are, we give our employees some flexibility. So what's the feedback you've been getting from your 40,000 employees who are spread all around the world First? I think our employees are really grateful the way that general mills has treated them over the past 12 months. And our our engagement scores have never been higher as a company and that we were worked really hard at that. And, and you know what they said, Look, we trust the company to do the right thing and we're looking forward to coming back to sing our colleagues. The ones who are in the office is certainly the ones working at manufacturing plants have been there for a long time. They said we're looking we're looking forward to coming back and seeing each other in person. But we also value the flexibility that we've seen. And I think both of those things are true. But do you have any concerns about continuing the virtual work arrangements? And I'm thinking about things like innovation, collaboration and productivity. Yeah. You know the current way we're working, you know, it's not going to be sustainable for the long term for the reasons you suggest that the innovation, you get the ideas that are generated when you're meeting face to face. Also the onboarding of new employees. It's very, very difficult When you're in a virtual environment. So we know that getting back to the office at least some of the time is going to be very important to our culture. It has been an important part of our culture for 155 years and it will continue to be so, but we don't, we don't think that the future is going to look exactly like the past. So looking at the way that you've been leading general mills during the pandemic, has this influenced the way that you want to leave the company going forward? You know, it really has. What we've learned is that clarity is more important than certainty and that when you have, when you have uncertainty around what you need to be clear with employees about how you interact. The other thing we've learned just the value of communication, you know, I'm talking to you today from my kitchen, I can't tell you the number of times that I've done employee communications from my kitchen. And and that's important because, you know, employee, I'm in it with them. I've changed the way that I work. They've changed the way that they work and employees want to know as a leader that you are with them, that you're empathetic Um to what you're going, you're going through. And so those things have changed. I think the other thing is that what we found is that we're really adaptable as a company and you know, we have been successful for 155 years, not because we haven't been willing to change, but because we are willing to change. And so as we come out of this pandemic will keep changing and we'll keep changing our portfolio as we just talked about and we'll keep changing the way we work. Well, you know, talking about your kitchen that you're talking to me right now, you were doing a lot of videos every single week. I understand as a way to communicate with your employees all around the world. Will you continue doing those kind of home videos is their value in that? Yeah, there is a lot of value in that and we will continue to communicate through a variety of ways, including home videos. Um important part is is that, you know, there during its something like a pandemic that you don't want to have avoid being building and employees are really anxious about what was going on in the world around them and we could fill that void by communicating with them. And it's been really valuable to hear from, not only from me but from the rest of the members of senior leadership team in settings that are very familiar, like the one I'm in right now and so we'll continue to connect with their employees in this way. I've been asking a lot of the Ceos I interview about what's the best lesson that they've learned during this pandemic and I'm wondering what has it been for you and that you wish you knew this less than leadership lessons when you became ceo exactly four years ago. I think it's the value of dialogue with your employees. I mean it's communicating to employees but also receiving the feedback from them. And you know, I thought I knew about that before this pandemic, but now I know it and you know a lot of our interactions with employees. My interactions with employees have been very informal and there's been a lot of question and answer and I think that's been a valuable lesson. I guess the other would be just a humanity involved in being a ceo and yes, I'm the ceo of a company, but I'm also a human being who is enduring the same kinds of things that they are and there's real value for your employees to know that you're going through the same kind of situation that they are.