Typically, General Mills likes to be able to meet customer demand 98% to 99% of the time. In other words, when shoppers go hunting for Totino’s or other brands, General Mills wants them to find what they are looking for — almost without fail.
But in the three months ended February 27, service levels for refrigerated pizza and dough dropped to the 70% range, the company noted in a presentation of its quarterly financial results Wednesday.
CFO Kofi Bruce cited “acute supply shortages” that affected those categories. The situation started 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 in the 80% range in the current quarter.
The food giant has had a tough time meeting demand for several of its products through the pandemic, as supply chain disruptions and labor shortages curtailed normal operations.
Meeting customer demand has “been a big challenge for this year,” said Jon Nudi, president of North America retail at General Mills, during an analyst call Wednesday.
The company had been facing bottlenecks within its distribution centers, but that situation has improved, Nudi said. “We’ve done a nice job staffing distribution centers up and feel good about our ability to move product now.”
More recently, the problem has been sourcing ingredients.
When it comes to refrigerated pizza and dough, “the biggest issue we’re seeing is really raw material disruptions, ingredients coming into our plants to run our products,” Nudi explained. “Things like fats and oils and starch and packaging.”
One way that General Mills can deal with ingredient shortages is by tweaking recipes or sourcing from different suppliers. But that could require the company to change a production line or amend its labels, adding complexity to the process.
The company has been able to improve its service levels somewhat, Nudi said, but they “are still quite a bit below historical levels. We’ve got a lot more work to do, and we’ll stay very focused on that.”
“Not only have supply chain disruptions been a challenge, but we are also facing historic levels of input cost inflation,” CEO Jeff Harmening said in prepared remarks Wednesday. “Our market basket … has been at a multi-decade high in recent months.”
Harmening noted, however, that the company has not had to change its outlook for the year, and still expects its costs to be inflated by about 8% or 9%.
He noted that General Mills is “covered on certain key commodities at competitive prices” through the rest of the year, making the company less prone to extreme volatility.