MINNEAPOLIS — General Mills, Inc. plans to cut back on contract manufacturing once pandemic-fueled demand for its food and beverage products levels off, said Kofi Bruce, chief financial officer.
In an interview with The Wall Street Journal, Mr. Bruce said the Minneapolis-based maker of Cheerios and Betty Crocker enlisted approximately 200 contract manufacturers prior to the coronavirus (COVID-19) lockdown in March 2020. As demand for its products ramped up, the company signed up an additional 50 new contract manufacturers, he said.
The plan, Mr. Bruce told the WSJ, is for General Mills to cut back on contract manufacturing as quickly as possible as the process costs more and cuts into a product’s gross margin.
“If demand starts to taper off, that is the capacity that we will shed first,” Mr. Bruce said. “There is a fair amount of flexibility.”
Mr. Bruce told the WSJ that General Mills also has its eye on other costs, such as rising commodity prices and other inflation. Industry also has experienced an uptick in costs related to packaging materials, energy and transportation in recent months.
He said higher freight costs are “costing us extra,” primarily because General Mills doesn’t have fixed rates for the shipments it is receiving from external suppliers.
The company could raise prices to offset the increase in inflation, but at this point doesn’t have plans to do so, Mr. Bruce said.