Cereal and packaged food giant General Mills reported earnings this week, and the reading was clear and unambiguous: The consumer is nervous, staying nervous, and the company is planning around it rather than hoping for a turnaround.
The key message is that it does not assume any improvement.
Dana McNab (Chief Operating Officer) put it straight: “What we expect is that as we enter this new fiscal year, the pressure on the consumer will continue. We expect to see them continue to change their behavior because of that, being more intentional in how and where they shop, buying more on promotions and less at everyday prices, making trade-offs between package sizes and channels, all while putting value at the forefront.”
CEO Jeff Harmening doubled down on it: “We’re not anticipating an improved consumer environment or an improved category environment. We’ll be successful this year.” And then: “I think it’s really important that I reiterate that, which I think I did, but reiterate that we don’t expect that environment to improve.”
There have been good signs of overall spending in the US recently, but it is skewed towards wealthier consumers, while General Mills has a better view of the middle and lower market. They’ve been struggling for years as consumers turned to store brands. After the pandemic, they tried to increase prices of their flagship brands like Cheerios and consumers refused, sending shares tumbling.
GIS inventory
The company rose after this week reporting earnings per share of 95 cents compared to a consensus of 80 cents. Revenue was unchanged, rising 1% year over year (although flat for fiscal 2027).
After trying to squeeze prices, the company pivoted and lowered prices to compete on volume with store brands.
Regarding pricing, the company said its inflation forecast is between 4 and 5 percent assuming the price of oil approaches $100, but even with oil falling, it expects it to be at the lower part of the range.
Regarding the K-shaped economy specifically, McNab said:
“We’ve seen lower-middle-income families eat a little more at home and spend a little more on staples, so think about cooking from home, but nothing major.” Eating at home remained “very stable… at 86%.”
I used the term explicitly: “There is a part of the economy in this Korean economy that will spend more.” The playbook opens up price points and packaging innovation for the lower end, great value packs for larger families, and premium functional benefits for the high end: “Making sure we understand how much stress the consumer is going through this financial year so that we don’t take that for granted.”
One thriving part of their business? People give up children and spend their money on cats.
“Our trend of humanizing pets will continue, and cats are on fire, and cat development is on fire,” McNab said.
General Mills Chief Operating Officer Dana McNabb
My general view is that companies are no longer modeling recovery, and instead are building plans that assume the stress is permanent.
