General Mills sees great potential for its snacks and cereals segments outside North America as population growth in emerging markets looks set to soar.
Speaking at the Barclays Capital Americas Select Franchise Conference in London on Tuesday, Company chief financial officer Don Mulligan said rising incomes in developing markets was creating a larger middle-class looking for convenience products like snacks and ready-to-eat (RTE) cereal.
“Consumers in these markets are shifting to urban living and the percentage of working women in growing. These trends drive strong demand for more convenient food options,” he said.
Around two thirds of the company sales and a quarter of its profits come from the US, but with emerging markets projected to account for 95% of the world’s population growth in the next decade, the company sees potential to expand further internationally.
Increasing cereal consumption in developing markets
RTE Cereal is General Mills’ largest global business with big brands such as Cheerios and Nesquik. It operates outside North America through its Cereal Partners Worldwide (CPW) partnership with Nestle.
“Over the last decade category sales have been growing faster in international markets and today the majority of cereal sales occur outside of North America. We expect this trend to continue as international markets grow at a faster pace,” said Mulligan.
CPW has grown in its share in international markets in recent years and is now the number two cereal company outside North America with a 23% value share.
“CPW is the number one cereal company in many emerging markets, including key ones like Russia and Turkey,” said Mulligan. “We’ve been in these markets for more than a decade and have a great base to build from.”
He said what really excited General Mills was that more than half of today’s cereal consumption happens in just four countries: The US and Canada, the UK and Australia, which make up only 6% of the world’s population.
“For the remaining 94% of consumers, cereal eating per capita is still quite low. With rising consumer demand for health and convenience foods and with growing interest in dairy products and whole grains, we see great opportunities to increase cereal consumption in many markets,” he said.
CPW has strong market shares in Asia with over 50% shares in some markets such as the Philippines, Indonesia and Malaysia and Thailand.
It also has a strong position in developing Eastern European markets, such as Bulgaria, Ukraine, Romania, Poland and Hungary.
Snacking on a global stage
“Healthy snacking is another terrific category for global growth,” according to Mulligan.
Retail sales for General Mills snacks bars have grown at 14% compound annual growth rate (CAGR) over the last five years.
The company’s Nature Valley brand is currently in around 80 markets worldwide with sales growing at 14% in the past four years.
In Canada, it has seen strong growth from the new Fiber One brand and it is still moving this product into international markets.
Out-of home cereal growth in North America
In the company’s core North American market, the firm also sees potential to expand its cereal business in new channels.
“While cereal remains a favourite choice for breakfast at home, cereal consumption is also growing away from home. For example, school breakfast programmes are examining in the US and we expect that trend to continue,” said Mulligan.
“We are the leading cereal company in the education channel. We think our whole grain message really differentiates us,“ he continued.
He said General Mills’ out of home cereals had grown at a CAGR of 4% over last three years and was up another 4% in 2012 with strong growth in Canada.
The company said that it expects double digit sales growth in fiscal 2012.