Generally, General Mills wants to be able to meet customer demand in 98% to 99% of the time. In other words, when shoppers go looking for Totino and other brands, General Mills almost certainly wants to find what they’re looking for.
However, in the three months that ended on February 27, Refrigerated pizzas and dough fell to the 70% range, the company said in a quarterly presentation. Wednesday’s financial results.
CFO Kofi Bruce cited the “serious supply shortage” that affected these categories. According to the company, the situation began to improve in the last few weeks of the quarter, but supply is still below normal levels. General Mills expects to reach service levels in the 80% range this quarter.
Food giants struggled to meet the demand for some products through a pandemic as supply chain disruptions and labor shortages reduced their normal operations.
“It was a big challenge this year,” said John Nudy, president of General Mills’ North American retail division, on Wednesday’s analyst’s phone call to meet customer demand.
The company was facing a bottleneck within its distribution center, but the situation has improved, Nudi said. “We’ve done a great job of staffing distribution centers, and now we’re happy with our ability to run our products.”
Nowadays, the problem is in procuring materials.
For refrigerated pizza and dough, “The biggest problem we’re seeing is actually the raw material mess, and the raw materials coming into our factories to run our products,” Nudi explained. “Fat, starch, packaging, etc.”
One way General Mills can address the shortage of ingredients is to tweak the recipe or source it from a variety of suppliers. However, this requires the company to change production lines and modify labels, which can complicate the process.
According to Nudi, the company was able to improve its service level somewhat, but “it’s still well below historic levels. We still have a lot to do, so we’ll focus on this.” ..
General Mills also pointed out that commodity costs are rising. Wheat prices have skyrocketed this year, and high inflation has hit products across sectors.
“Not only was supply chain disruption a challenge, but we are also facing historic levels of input cost inflation,” CEO Jeff Harmening said in a prepared statement Wednesday. .. “Our market basket … has been at the highest level for decades in recent months.”
However, Harmening said the company does not need to change its outlook this year and expects costs to rise by about 8% or 9%.
He said the company is less likely to fall into extreme volatility as General Mills “covers certain key products at competitive prices” for the rest of the year.
General Mills is raising prices to offset inflation, passing those costs on to consumers.