General Mills typically likes to be able to meet customer demand 98% to 99% of the time. In other words, when shoppers go in search of Totinos or other brands, General Mills wants them to find what they’re looking for – almost without fail.
But in the three months ending Feb. 27, service levels for refrigerated pizza and dough fell to the 70% range, the company noted in a presentation of its quarterly financial results on Wednesday.
CFO Kofi Bruce cited “acute supply shortages” that affected these categories. The situation began to improve in the last few weeks of the quarter, according to the company, but supplies are still below normal levels. General Mills expects to achieve service levels of 80% in the current quarter.
The food giant has struggled to meet demand for more of its products through the pandemic, as supply chain disruptions and labor shortages limited normal operations.
Meeting customer demand has “been a big challenge for this year,” Jon Nudi, president of North America retail at General Mills, said during an analyst call Wednesday.
The company had faced bottlenecks in its distribution centers, but that situation has improved, Nudi said. “We have done a good job of staffing distribution centers and are happy with our ability to move product now.”
Recently, the problem has been purchasing ingredients.
When it comes to chilled pizza and dough, “The biggest problem we see is really disruptions of raw materials, ingredients that come into our factories to power our products,” Nudi explained. “Things like fats and oils and starches and packaging.”
One way General Mills can handle the shortage of ingredients is by customizing recipes or purchases from different vendors. But it may require the company to change a production line or change its labels, which adds complexity to the process.
The company has been able to improve its service levels somewhat, Nudi said, but they “are still a lot below historic levels. We have a lot more work to do and we will remain very focused on that.”
“Not only have supply chain disruptions been a challenge, but we also face historic levels of input cost inflation,” CEO Jeff Harmening said in prepared remarks Wednesday. “Our market basket … has been at a high level for decades in recent months.”
Harmening noted, however, that the company has not had to change its expectations for the year, and still expects costs to be inflated by around 8% or 9%.
He noted that General Mills is “covered on certain key commodities at competitive prices” throughout the rest of the year, making the company less prone to extreme volatility.