BOCA RATON, FLA. — Humanization is central to General Mills’ strategy to grow its Blue Buffalo pet food business. During a presentation at the Consumer Analyst Group of New York conference taking place in Boca Raton Feb. 21-24, Jeffery L. Harmening, chairman and chief executive officer, said the company sees an opportunity for an additional $2 billion in Blue Buffalo retail sales over time.
Acquired five years ago, General Mills’ Pet Segment generated $2.3 billion in sales during fiscal 2022, ended May 29, 2022.
“We've increased our distribution in the US by four-times, and we more than doubled our household penetration, helping contribute to compound annual net sales growth of 15%,” Mr. Harmening said. “Building on this strong foundation, we believe that Blue Buffalo is very well positioned for continued growth.”
To capture that opportunity, the company is focused on three strategies — to continue to lead the humanization of dog feeding; capitalize on the business’ position in natural treating; and drive the naturalization of cat feeding.
“We're building on this leadership position with renovation and innovation news, including significant news launching in the second half of this fiscal year,” Mr. Harmening said. “We're adding 20% more meat to our core Wilderness dry dog food products. We know that high protein is a top attribute sought by pet parents, and we’re ramping up spending behind this news.”
Other product innovations on tap include the launching of a premium blend in the pet specialty channel and a new fresh product to be sold under the Blue Buffalo brand.
“These vegetable products deliver remarkable experience with great tasting, home-style chicken and beef recipes, packaged in a convenient, deli-style resealable tubs,” Mr. Harmening said of the fresh product. “With this 200-store test in the food, drug and mass channel, we're hoping to learn more about how pet parents respond to the product, packaging, convenience and value of this differentiated fresh offering.”
In pet treats, the company is taking inspiration from human food, said Mr. Harmening, with Benebars and Nudges snack-like pet treats.
The company also sees a natural positioning of cat food as an avenue for growth.
“This segment has lagged dog feeding and the journey toward naturalization with only 23% of cat food retail sales containing a natural claim compared to 51% in dog food,” Mr. Harmening said. “Cat parents tell us they’re highly interested in natural products, but the lack of natural offerings that deliver on taste has been the key limiter in their development.”
General Mills estimates total US retail pet food sales are approximately $44 billion. International markets offer an additional $30 billion opportunity, according to the company.
“We're seeing the same trends toward humanization drive growth across these global markets, including in China, where pet food retail sales totaled roughly $8 billion and have been growing at a 20% rate in the last five years,” Mr. Harmening said.
General Mills began testing Blue Buffalo in China by importing product from the United States and selling it online.
“We've learned a great deal about how the brand position fits within the Chinese pet food category and have been encouraged by the results so far,” Mr. Harmening said. “Building on that positive test, we're planning to expand our offering in China and to begin testing in other international markets in fiscal ‘24. While there's still much to learn, we're optimistic that international can become an exciting new source of growth for our global pet food platform.”
While the company sees a long runway for growth, it is dealing with more immediate supply chain problems. During the first six months of fiscal 2023, ended Nov. 27, 2022, Pet Segment sales rose 8% compared to the previous year to $1.2 billion, but the business’ operating profit fell 15% to $210 million. Higher input costs, capacity issues and lower volume were cited for the operating profit decline.
“… Given the capacity challenges and retailer inventory headwinds we experienced in the second quarter, I’m pleased to say that customer orders have accelerated nicely so far in Q3, and we remain on track to deliver double-digit organic net sales growth in the third quarter and for the second half of fiscal ‘23 with a back half segment operating profit margin ahead of our Q2 results,” Mr. Harmening said.