Even out of limelight, wheat flour called important at General Mills

by Josh Sosland
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General Mills' management team participated in a press conference following their presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla. From left, Ken Powell, chairman and chief executive officer; Don Mulligan, executive vice-president and chief financial officer; Jeff Harmening, executive vice-president and chief operating officer of U.S. retail; and Chris O'Leary, executive vice-president and chief operating officer of international.

BOCA RATON, FLA. — While other business categories at General Mills, Inc. have been highlighted as focal points of growth, flour milling and flour-based foods remain important to the success of the business, the company’s leadership said in a recent interview.

The executives answered a number of questions posed by Milling & Baking News during a press conference Feb. 17 at the Boca Raton Resort and Club in Boca Raton. The press conference followed a presentation by the General Mills executives at the 2015 annual conference of the Consumer Analyst Group of New York.

During the company’s CAGNY presentation, flour-based foods did not fit neatly into what the company’s executive described as its four key businesses — cereal, yogurt, grain-based snacks and natural and organic. The omission of flour-based foods is notable because the company began as a flour milling business in the 1860s and until the 1960s was the largest flour milling company in the world. Today, General Mills is the nation’s sixth largest milling company but is regarded as the largest user of bakery flour in the United States.

“One of our fundamental capabilities is our flour mills — our flour milling capabilities and our extraction capabilities, and we continue to invest behind it,” said Donal L. Mulligan, executive vice-president and chief financial officer. “Part of the reason that our convenience and food service businesses have grown nicely is margin mix, and part of that is how we manage our flour — from plain flour to high protein and other attributes that the operators more highly value.

“At the same time, when we talk about gluten-free Cheerios, that required both significant R.&D. and capital investment behind our oat flour milling — both of which are going to be instrumental in terms of how we drive growth in our Cheerios business. So flour milling and our flour capabilities are still fundamental to many of our core businesses.”

Challenges in the company’s flour-based foods business were detailed in the interview by Jeffrey L. Harmening. Mr. Harmening in early 2014 was named executive vice-president and president and chief operating officer of U.S. Retail.

“It has been a tough six months on our Betty Crocker business, our dessert-mix business, for a couple of main reasons,” Mr. Harmening said. “One is that we are lapping some significant innovations from a year ago where we had a broad range of Hershey’s equities that we introduced to the marketplace. So we lapped that, but also as importantly, in a few specific segments of the dessert mixes, our pricing just hasn’t been competitive; especially in things like cake mix and frosting. So, as we’ve said before, we’re working on making sure we were competitive enough on our pricing, and we are looking at tactical ways to do that. It’s a very competitive dessert mix area.”

In refrigerated dough, innovation is a driver of success, Mr. Harmening said.

“We have a seasonal cookie business that is up double digits on the back of some really good innovation,” he said. “And again, we didn’t say this (in our presentation), we talk about dough as if it isn’t snacking, but cookies are eaten as a snack, and so what we see is when we innovate behind our refrigerated dough business, which is a great business, we see really good results.”

In addition to dessert mixes, a range of flour-based products, including bakery flour, are marketed in the company’s Convenience and Foodservice division. In the company’s Retail division, baking products is tied with snacks, the second largest category after cereal.

Along those lines, even as General Mills is working to satisfy growing demand for gluten-free products, demand for flour-based desserts is not disappearing, said Kendall J. Powell, chairman and chief executive officer.

“There are different consumer populations and segments who are looking for different things,” he said. “There are groups of consumers who have celiac disease or gluten sensitivity, and they are looking for gluten-free products. And we’re still selling cinnamon rolls because these are great tasting indulgent products that consumers like to eat when they are having a weekend breakfast with their family. And people are still having birthdays — are still buying cake mix and frosting. They’re still making brownies, and they know that these are desserts.”

Mr. Powell said on-line resources have proven a great boon to the General Mills Betty Crocker business.

“There are different ways to serve different consumers, and we continue to see those baking categories as a ripe opportunity provided you innovate,” he said. “And the other point is we have fabulous assets there in Pillsbury and Betty Crocker web sites that are very very highly used by consumers — several hundred million visits a year to these web sites from consumers to help me make a birthday cake, give me some ideas on dinner, help me do something creative for this event that I’m doing. That’s how people get their cooking information now primarily — on-line instead of cookbooks. So we’re very very good at that.”

In his CAGNY presentation, Mr. Powell said the slowdown in General Mills’ financial growth in recent years should not be viewed as evidence that the company’s long-term objectives are no longer attainable. In the interview, he elaborated on his optimism.

“What I would say, which I’ve already said, is fundamentally there are going to be more people in the population around the world,” he said. “Fundamentally, in emerging markets we have more and more people entering the middle class, and as they enter the newer class they want to improve their diet, and they spend more money on food. So that shows the fundamentals of how the consumer opportunity is going to evolve for us in I think positive ways over the next 20 or 30 years.

“And then there is the aspect of how consumer values are changing around food. We tried to describe those in many ways over the course of the meeting. What excites me about General Mills is I think we have a very clear set of ideas, you know, and premises about how the consumer is changing. We’re constantly looking to make sure that we really do have a good understanding, and if there is something we missed we will incorporate that in our model as well. We’re thinking very clearly about what the consumer is doing. And we’re finding new ways to serve that consumer.”

To be clear, Mr. Powell emphasized that growth in the long run will not be driven by the vagaries of commodity markets, economic strength or other external factors.

“It’s not because there’s going to be a tailwind or gas prices are low,” he said. “It’s what we do. And whenever you talk about volatility, whenever you see an upsurge in consumer sales, it is always about some kind of news. It’s always about nutrition news or whole grains news or taste improvement. It’s always about innovation that leads to renewed consumer interest in the category.”

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READER COMMENTS (1)

By Justin Paul 3/2/2015 3:17:11 PM
GMI's slow economic growth is correlated with their decisions to take billion dollar businesses and try to focus on niche/ high margin market segments like organic, gluten free, and "gmo free." General Mills is the big boy with the best products, now act like it! Please stop steering the Titantic based on dingy navigation!