NEW YORK — Convenience stores and food service, two categories that consumers may not immediately think of when considering General Mills, Inc., are poised for growth in fiscal 2015, a company executive said during an investor day conference held July 8 at the New York Stock Exchange.
In fiscal 2014, net sales for the company’s Convenience Stores and Foodservice segment fell 2%, but Bethany Quam, newly named president of Convenience Stores and Foodservice, said the decline was consistent with the company’s plan, which included some business exits. Now the company is primed for top-line growth.
“In total, General Mills delivers products to more than 1 million locations where people eat food away from home,” Ms. Quam said. “Food eaten away from home is a large market. It accounts for nearly half of all food expenditures and generates more than $0.5 trillion in sales in the U.S. today. And food service industry sales have been growing. Coming out of the recession of 2008, we have seen a steady increase in sales from food away from home, so this market provides a significant growth opportunity for General Mills and our brands.”
Ms. Quam said General Mills’ focus is on six key product platforms: snacks, cereal, yogurt, frozen breakfast, biscuits and baking mixes. The platforms are similar to those within the company’s U.S. Retail business, she said.
“We take these well-known U.S. retail brands and put them in formats that work in away-from-home locations,” she said. “These six platforms combined generated $875 million in sales in fiscal 2014. That is close to half of our segment sales but more importantly, these platforms combined accounted for more than two-thirds of our segment operating profit. Sales for these six focus platforms have been posting steady growth, increasing at 4% compound rates in recent years.”
Performance through innovation
Ms. Quam said General Mills is driving solid performance through innovation, in many cases taking the company’s successful U.S. retail products and modifying them to meet the specific needs of food service customers. For example, she said General Mills has created Yoplait ParfaitPro from Yoplait yogurt and Nature Valley granola, giving food service operators a kit to make yogurt parfaits quickly and easily.
“Many of our snack items leverage our U.S. retail brands and offer different formats and flavors specifically for our convenience store customers,” she explained. “As we reshaped our portfolio, our segment operating profit has increased significantly over the past decade and the profitability of our business has doubled over the past 10 years. Our operating margin is now solidly in the mid-teens.”
General Mills is putting the consumer first and innovating to meet their needs within several channels. In schools, new rules from the U.S. Department of Agriculture have made healthier meals a priority. This has spurred demand for whole grains, fruit and vegetables, as well as for foods featuring less sodium and fat.
“We believe these new requirements play to the strength of our portfolio,” Ms. Quam said. “We offer nutritious foods that kids want to eat. General Mills is the market leader in cereal in K-12 schools. When schools breakfast requirements called for whole grain cereals, we were in a great place to deliver, as whole grain is the No. 1 ingredient in all of our cereals.
“Sales for our frozen breakfast items in K-12 schools grew at double-digit rates in fiscal 2014. GMI started this segment with heat-and-eat whole grain pancakes and today we have a full line of breakfast offerings.”
Ms. Quam said General Mills’ snacks lineup also fits well with the new Smart Snacks in School nutrition standards that go into effect this month.
“Simply Chex has a short list of simple ingredients and less fat than traditional snack chips,” she said. “This summer we are introducing Nature Valley Crisps with 16 grams of whole grain per serving. Yogurt also makes for nutritious snacks and we see good growth opportunities ahead for our kid-oriented yogurt varieties.”
Beyond high school, college students are becoming more and more interested in gluten-free food options. With this in mind, Ms. Quam said General Mills has been promoting the gluten-free aspect of its current product lines such as Chex cereal, Larabar and Food Should Taste Good. Later this year the company will add more gluten-free Chex cereal varieties to college and university cafeterias across the United States.
“We are seeing more campuses opening their own convenience stores with extended hours allowing students to use their meal plans to make food purchases whenever they want,” she said. “We see great opportunities for our snacks portfolio in this growing channel.”
Convenience on the come
General Mills’ convenience store business also has been on the rise, increasing at a 9% compound rate over the past six years, Ms. Quam said. The company’s core business in the convenience store channel is salty snacks, and she indicated that it’s not all about chocolate in the convenience channel.
“This channel is skewed toward young men and they like bold flavors,” Ms. Quam said. “In 2014, we launched Chex Chips in flavors like Wasabi and cheddar jalapeño. This fall we will launch Totino’s Pizza Chips. And for consumers who prefer a sweet snack, we launched Pillsbury’s soft cookies in C-stores earlier this calendar year and they are already turning in the top third of their category.”
General Mills is currently in about 50,000 C-stores across the country, and Ms. Quam said the company will continue to increase distribution and strengthen its portfolio. To that end, the company is partnering with Crossmark Brokerage to enter an additional 50,000 convenient store locations.
“We have a strong arsenal of sales capabilities and consumer insight tools we bring to our customers, and these capabilities have been recognized externally,” she said. “In the latest Advantage survey, which is completed every two years by C-store distributors and retailers, General Mills ranked as the No. 4 food manufacturer, marking a significant increase from previous years. As a matter of fact, the only people ahead of us were those candy companies.”
She pointed to General Mills’ entry into ready-to-eat baked goods as an example of how the company is converting its capabilities into action.
“We know that C-store consumers are looking for baked goods in the morning as the packaged bakery category generates nearly $2 billion in sales,” she said. “We have been testing several baked goods products with a national C-store customer with great results, so a new line of Pillsbury ready-to-eat bakery products will hit shelves later this year.”
By innovating in the fastest-growing food service channels, Ms. Quam said General Mills sees great opportunities to grow its business in fiscal 2015 and beyond.
General Mills also is driving growth by partnering with key restaurant customers. Earlier this month McDonald’s began offering GoGurt yogurt in a tube in its Happy Meals. This is a side option in Happy Meals at 14,000 McDonald’s locations across the United States. Ms. Quam said General Mills expects to sell “millions of tubes” of GoGurt through McDonald’s in the next 52 weeks.“This will be significant incremental volume for us in 2015 but it is also a great sampling opportunity for GoGurt, and when you include the advertising McDonald’s will be doing to support this initiative, this partnership will provide millions and millions of impressions for our GoGurt brand,” she said.