Frozen bakery sparks General Mills recovery
General Mills' bakery and cereal products as the company begins a
tentative recovery against high raw materials costs, writes
Chris Mercer.
General Mills, which recorded a 19 per cent decline in net profit for the first quarter of 2005 due to a sharp rise in the price of raw materials such as wheat and corn, has hauled itself back in to line in the second quarter to help the group record a three per cent profit rise to $550 million for the first half of fiscal 2005, compared to the same period in 2004.
A main part of the comeback has been General Mills' self-proclaimed ability to more efficiently pass on price rises to customers, but the company has also praised strong contributions from frozen and chilled baked goods at its Pillsbury USA business and also Betty Crocker desserts at its Baking Products division.
These two businesses increased volumes by four and eight per cent respectively and their success reinforces a growing trend already spotted on the market in 2004.
Earlier in the year, the Canada Bread firm, also a member of the Maple Leaf Foods company, said that competition was growing in the frozen bakery sector across North America and: "the market continues to expand through more in-store bakeries converting to the par-baked model, and due to the rising popularity of premium artisan bread products as a key point of difference for retailers and restaurants".
If General Mills can consolidate in this market then it may gain more time to sort out other areas of its bakery sector that are still struggling. For example, the company's Bakery and Foodservice business, hampered by a seven per cent total volume decline, suffered a drop in profits to $69 million in the first half of 2005, compared to $81 million in 2004.
Sales of General Mills' Big G breakfast cereals were also flat for the second quarter, despite the company recently announcing its intention to make all the cereals under this brand with wholegrains, to try and tap in to the growing healthy eating trend among consumers.
It is still too early to judge the success of that move and 2005 will undoubtedly be crucial for the brand. But General Mills appears to be coping well in a climate where wheat and corn prices have hit seven-year highs, and the company also plans to pay off debts with the proceeds from a deal with PepsiCo; in which the latter will buy General Mills out of the two's 10-year-old joint-venture, Snack Ventures Europe.
