BOCA RATON, Fla. — General Mills presented at the 2020 Consumer Analyst Group of New York (CAGNY) Conference, homing in on accelerating product innovation of its key growth areas, one of which is its Blue Buffalo pet food segment.
“In less than 20 years, Blue has grown to be a $1.5 billion brand, with the first $1 billion built almost exclusively in pet specialty and online channels,” said Jeff Harmening, CEO of General Mills, during his presentation at CAGNY. “With only 13% household penetration, and many of those households not yet everyday users of Blue products, we see tremendous potential for continued growth.”
General Mills' pet food category is the company's “newest accelerate platform,” Harmening said. Blue Buffalo also teased four new product lines it plans to release in 2020, including two complete-and-balanced lines and two treat lines.
“We're playing in the best part of the [pet food] category: premium, wholesome natural, which has outpaced overall category growth, including high single-digit growth in calendar 2019, driven by the continued humanization of pets in the US,” Harmening said. “Blue Buffalo is by far the leader in the wholesome natural segment at more than three-times the size of its largest competitor.”
Future growth drivers for General Mills’ pet segment include attracting new consumers, innovating across its complete-and-balanced and treat product lines, and leveraging the company’s capabilities in marketing, product development, and data and analytics.
New Blue Buffalo brands to hit shelves this year include Baby BLUE, a pet specialty-exclusive line of dry food for puppies and kittens; True Solutions, a functional line of wet and dry foods that includes formulas such as fit and healthy, perfect coat, blissful belly and jolly joints to provide specific health benefits in certain areas; and two treat brands: Scooby Snacks for dogs and Bursts for cats.
“And we’re not done yet,” Harmening said. “With the depth of insights and technical expertise in research and development, we're leveraging General Mills' capabilities to build out an innovation pipeline of different – more differential new products across both feeding and treating. Look for launches from Blue in this space in the second half of fiscal 2021.”
General Mills also touched on the successful transition of Blue Buffalo into the Food, Drug and Mass (FDM) channel since it was acquired in 2017. The idea behind this campaign was to expand the brand’s retail presence “so that pet parents can get the Blue products they want anywhere they shop for pet food,” according to Billy Bishop, founder and brand advisor of Blue Buffalo during an investor event on July 9.
“Over the last 2 years, we've successfully expanded the brand into the food, drug and mass or FDM channel, reaching more than 75% distribution. With Blue now available in most places pet parents shop, our communication and education efforts, leveraged against our incredibly broad product portfolio, will be that much more effective in attracting new pet parents,” Harmening said at CAGNY.
E-commerce is also being leveraged to grow the Blue Buffalo brand, representing approximately 25% of sales in General Mills’ fiscal 2019. This omnichannel approach has boosted awareness and household penetration. The brand’s household penetration has grown from 8% in 2017 to 13% in 2019, according to Harmening, and approximately 70% of the company’s FDM customers are new to Blue Buffalo, Bishop estimated in July.
Harmening also touched on the importance of Blue Buffalo’s brand message and product education. The pet food brand’s ad spending throughout calendar 2019 represented about 25% of the total ad spending by US pet category brands, Harmening said.
“This first step in attracting new pet parents is through best-in-class communications. We invest in media to promote our ingredient superiority, and we leverage differentiated signage and display to drive awareness at the point of sale,” Harmening said.
In General Mills’ latest earnings report, covering the second quarter of its fiscal 2020 ending Nov. 24, 2019, Blue Buffalo reported a 16% increase in sales to $389 million.
“We have deep pet industry expertise in the team, including veterinarians and PhDs and animal nutrition. We're committed to the health and well-being of all pets… And we're well positioned to quickly make any adjustments to our portfolio messaging need if pet parents' preferences evolve,” Harmening concluded.
The company reaffirmed its overall targets for fiscal 2020, which include an organic net sales increase of 1 to 2%; increased operating profit, constant-currency adjusted, by 2 to 4%; constant-currency adjusted EPS growth of 3 to 5%; and a free cash flow conversion of at least 105% of adjusted after-tax earnings.
The company said in fiscal 2020 it also expects “foreign currency exchange rates (based on a blend of forward and forecasted rates and hedge positions), acquisitions, divestitures, and a 53rd week to increase net sales growth by approximately 1 percentage point; foreign currency exchange rates to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth; and restructuring charges and project-related costs related to actions previously announced to total approximately $49 million.”
Building on data capabilities
General Mills recently appointed a chief digital and technology officer, Jaime Montemayor, on Feb. 13, who will officially begin on Feb. 24 and report directly to Harmening. This comes as the company hopes to bolster its digital capabilities and data solutions.
“Customers and consumers set the pace in today’s hyper-connected world – and they’re moving fast,” Harmening said. “They are embracing new products, experiences and services. And they are rewarding companies that anticipate their needs and make their lives easier.
“At the heart of this transformation is the unprecedented availability of data. Jaime has impressive credentials in this space and will help us deepen our connection with consumers through data and ultimately help us win in the marketplace. I’m very excited to add his expertise to my leadership team and our entire enterprise,” he added.
Montemayor most recently served as chief technology officer for 7-Eleven. Prior to that, he spent 21 years with PepsiCo under various titles, including senior vice president and chief information officer, digital innovation, and data and analytics.
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