General Mills – US Snacks & Cereals – Strategic Update

& Mid-term Outlook – 12 February 2021

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Specialist:

Title:

Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst

Adam Dill (AD)

Former VP, Trade & Strategic Capabilities, Corporate Officer at General Mills Inc

Agenda:

1. Category trading and consumer demand dynamics

2. General Mills' (NYSE: GIS) competitive landscape

3. Portfolio, category and brand review, including growth, innovation, marketing and channel strategy

4. Mid-term growth and profitability outlook for US snacks and cereals divisions

Contents

Q: Could you give an overview of 2-3 broad category trends you were noticing pre-pandemic, relevant to

General Mills’ US cereal and US snack business?

Q: Could you give an overview of General Mills’ US snack portfolio?

Q: What are your thoughts on General Mills’ pre-pandemic performance in the snacking category? Would

you say its US snack business struggled to generate meaningful sales growth, considering the snacking

category has been on-trend and growing?

Q: How would you rate General Mills’ performance in taking advantage of elevated at-home consumption in

its US snacking business?

Q: Can you share a near-term outlook for General Mills’ snacking portfolio, highlighting your 12-month

market share growth expectations, given that you think it is moving slightly slower than it should?

Q: What headwinds caused by freight capacity might impact near-term margins?

Q: What longer-term structural impacts might the coronavirus have on General Mills’ snacking category?

How might consumer behaviour have changed? Could you expand on the few trends you mentioned earlier? 5

Q: You mentioned a health and wellness trend, but consumers are also increasingly seeking indulgence.

Where do think General Mills stands across each of these trends?

Q: Could you expand on consumer demographics of US snacking, separating the health and wellness group

from the indulgence group?

Q: Who are some of the dominant US snacking industry players that are competing directly with General

Mills for market share?

Q: How has the pandemic affected the market share dynamics of smaller players?

Q: What do you think is the most significant threat to General Mills’ market share position in US snacking? 7

Q: You mentioned profitability prospects. Are there any areas you think General Mills should improve on to

heighten its operational efficiency?

Q: How would you assess General Mills’ e-commerce capabilities?

Q: Could you give an overview of General Mills’ US cereal brands and its largest brand by sales?

Q: How do you think the pandemic has impacted the cereal category? Presumably it benefited from the stay-

at-home guidance. Do you think this will reverse as we enter a post-vaccine world?

Q: How can General Mills innovate to align with new consumer behaviours and create stickiness for its new

products as consumers increasingly view cereal as a snack as opposed to just a breakfast food?

Q: How responsive is General Mills to consumer cereal trends? You mentioned it was a little behind in the

snacking market, but do you feel the same about the US cereal market?

Q: Do you think the health and wellness trends have been impacting General Mills’ traditional

manufacturing capabilities such that it can reformulate products to make them healthier? Can you discuss

health and wellness innovation in the cereal industry?

Q: You mentioned the retail distribution channel. Which distribution channels do you think CPG companies

are generally prioritising, perhaps supermarkets, convenience stores or e-commerce? Can you expand on

your thoughts on the cost implications for packaging?

Q: Why do you think General Mills has been able to command a generous price premium over other cereal

brands?

Q: What are your thoughts on General Mills’ ability to maintain its market share and price premium as

consumers become more price-sensitive due to the tough economic conditions?

Q: Could you expand on the US snack and cereal competitive landscape? You have emphasised brand

strength and how people often revert to the familiar, but are there any looming potential threats that you

think should be of concern, perhaps private label?

Q: What best- and worst-case scenarios do you expect for General Mills over the next six months?

General Mills – US Snacks & Cereals – Strategic Update

& Mid-term Outlook

Transcription begins at 00:00:18 of the recorded material

NH: Welcome to Third Bridge Forum’s Interview entitled General Mills – US Snacks & Cereals – Strategic

Update & Mid-term Outlook. I am Nyree Hinton and I will be facilitating today’s Interview with Mr Adam Dill,

former VP of Trade and Strategic Capabilities, Corporate Officer at General Mills.

Adam, before we start today’s Interview, please state I agree or I disagree to the following statement: You

understand the definition of material non-public information and agree not to disclose any such information,

or any other information which is confidential, during this Interview.

AD: I agree.

NH: Thank you, Adam. Could you begin by giving an overview of your background and relevant roles?

AD: I’ve spent the last 27 years in the CPG industry. Currently, I’m the Chief Customer Officer for Wicked

Foods, a plant-based food that’s entering the United States. Prior to that, I spent 25 years at General Mills in

20 different roles. Half of that time was in traditional CPG sales roles, some managing retailer relationships

like Walmart, Costco, wholesalers, grocery, club businesses as well. Then the other half of my career was really

focused in sales strategy and trade marketing. Working with and in the operating units, helping translate the

go-to-market strategies for the sales force and how it’s going to happen in market, and then also focusing on

capabilities, so shopper marketing insights, category management, data and analytics, that help facilitate the

sales team to achieve their goals.

[00:02:08]

Q: Could you give an overview of 2-3 broad category trends you were noticing pre-pandemic, relevant to

General Mills’ US cereal and US snack business?

AD: Before COVID, what I saw personally were a few trends. The first were retailers were really taking on a lot

of emerging brands, and as many as they could. You saw a big increase in SKU proliferation and probably

pressure against the larger CPG firms, as they were trying to create space on the shelf for these brands. There

was a lot of energy by retailers to bring in more and more of these emerging brands and I think part of that

that drove it is there appeared to be this big food had a bad perception with consumers. Consumers were

looking at more of these emerging, small brands, regional brands, and trying them more and more than they

would the traditional large CPG food brands. I think those two combinations were really impacting a lot of the

large CPG. Then the third trend I saw pretty significantly was this real growth in health and wellness. Think

about different kinds of diets like keto diet, gluten-free, plant-based. You also saw this increase in protein. I

think it’s that fundamental shift that consumers were starting to eat more meals, but smaller meals, so

especially for the snacks category, snacking became more of a role because consumers were looking how could

they replace a meal with more of a snack item or a smaller something to eat. Trying to fill the day with smaller,

more frequent meals saw a nice push against especially in the snacking and even in cereal, where people were

using it to be that snacking occasion. You saw this trend across the store of any kind of the snacking, protein-

based, saw a lot of pressure and growth, because consumers were looking for those solutions.

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[00:04:33]

Q: Could you give an overview of General Mills’ US snack portfolio?

AD: Yes, General Mills’ snacking, their snacks operating unit in the 2020 annual report for North America

retail accounted for 19% of their business overall. The operating unit really covers three areas of snacking,

what they would call grain or snack bar business, fruit snacks and then salty snacks. In salty snacks, you have

items like Chex Mix and Gardetto’s. Fruit snacks are equity fruit snacks. They have products like Welch’s, they

have Mott’s at General Mills. Then in the bar set, which would probably be the biggest of the three, Nature

Valley, Fiber One, Annie’s, Cascadian Farm, Lärabar, Epic bars and then the cereal treat bar line would all fall

into their snacks operating unit.

[00:05:43]

Q: What are your thoughts on General Mills’ pre-pandemic performance in the snacking category? Would you

say its US snack business struggled to generate meaningful sales growth, considering the snacking category

has been on-trend and growing?

AD: My opinion is really General Mills had a stronghold in that granola business, which used to be the largest

part of the snack bar business. Nature Valley, the lead there, was a high-performing brand, really was the

standard for granola bars. As I talked about some of those consumer trends I saw, what I believe is consumers

were starting to look for more bar options that really provided that meal replacement or satisfied their hunger

more than just that traditional granola. What you saw in the category especially was a growth of protein-type

products. If you think of more performance-type bars, like an RXBar, that would be out there, Pure Protein,

more and more protein bars came to pressure in there as well. Then also wellness, so Time Bar, Clif Bar,

started coming in. What I think you saw was General Mills was losing that big foothold they had on their core

business, as the consumer trends were shifting to more of this satiety-looking meal replacement, health-on-

the-go-type areas. As you look at the bar category, you’re seeing those areas grow pretty significantly. I believe

the last IRI report I saw, the nutrition and intrinsic health has become the largest part of that snack bar

universe, so you’re seeing the consumer trends and what they’re looking for started pressuring in areas that

General Mills, at the time, really didn’t have products to go as deep against. They also had the largest share, so

they had the most to lose as consumers were trying these other brands. I believe that’s what caused them to

struggle being able to post growth across their snacks business.

[00:08:23]

Q: How would you rate General Mills’ performance in taking advantage of elevated at-home consumption in

its US snacking business?

AD: My view would be I think they’re still a little slow to get the innovation out there to address these new

consumer trends we just talked about. In the past year, I’ve seen they’ve launched a Ratio bar, which is a keto

approach. They’ve launched their Nature Valley Packed Sustained Energy bar to go against this energy or

performance. General Mills is bringing out innovation to try to address in those areas, to capture more of it,

but I think that Nature Valley, that core granola business, is just still such a large part of their portfolio. You

have to move so quick to these new areas. I think they have the innovation, they’re building the innovation,

getting out in the marketplace, it’s just taking them probably longer than it should to be able to capture on

some of these consumer trends, especially as the Kinds, the Clifs, the RXBars continue to grow more and more

share from the consumer.

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[00:09:44]

Q: Can you share a near-term outlook for General Mills’ snacking portfolio, highlighting your 12-month

market share growth expectations, given that you think it is moving slightly slower than it should?

AD: All the reports I see out there, industry, they’re saying that snack bar business will grow at a CAGR of 2-

4.5% through 2026. I believe the category will still continue to drive growth and show growth. With that,

General Mills, I think, will capture their share of it. The question is can they outpace that category share?

What’s interesting is, I think, in this, you’re also seeing this indulgent, sweet area. General Mills has had a lot

of success, although it’s a smaller part of their business, with the cereal treat bars. I believe they have a

Cinnamon Toast Crunch, a Lucky Charms, a Golden Grahams cereal treat bar business as well, that has done

really well capturing that indulgent side. The beauty is they do have, I think, really strong brands, especially

Nature Valley. As they’re able to focus on the innovation, to get more out there like their keto bar and their

energy bar, I think they’ll drag a little behind the category, personally, for about a year or two, until they can

accelerate the innovation that will capture more of where the consumer is moving.

[00:11:20]

Q: What headwinds caused by freight capacity might impact near-term margins?

AD: From a freight, obviously there are a lot of capacity issues. The number of drivers are declining, so in the

industry as a whole I think that will continue to be a pressure point. My view is, as I’ve seen General Mills

operate, they’re very intentional in building relationships with their freight carriers, trying to get preferred-

vendor agreements. My belief would be they’re going to get a higher percentage of the capacity out there, or be

able to confirm available trucks that they are going to be able to use vs some other especially smaller CPG

vendors out there. Based as how they would normally approach the market and their contracts, I don’t think

freight will have a significant impact on their costing. Maybe small, but General Mills historically has done a

nice job to their HMM, their holistic margin management programme, to offset inflation or these extra costs

throughout their portfolio, and so I personally don’t see freight having a huge impact on General Mills, on

their bottom line, especially in North America.

[00:12:51]

Q: What longer-term structural impacts might the coronavirus have on General Mills’ snacking category? How

might consumer behaviour have changed? Could you expand on the few trends you mentioned earlier?

AD: What I see post-COVID, and we’re still learning, because COVID is still happening, the biggest trend

you’re seeing is the surge in e-commerce. There have been a lot of articles out there about we’ve accelerated 10

years in eight weeks in the adoption of e-commerce in the space. I think that one is going to stick and

continue. Actually, that plays really well, I think, for the snacking business, especially General Mills.

Historically, snack bars have been a higher index online, especially in ship orders across the board on e-

commerce, so if e-commerce continues to grow as it has, I believe snack bars will benefit from that. I think the

other trend we’re seeing in COVID, which has really benefited the likes of General Mills and other large food

companies, is consumers are shifting back to trusted bands, the A-brands. In this environment, the

uncertainty, safety, all those things, we’ve seen since March this shift of consumers back to big food, back to

these trusted, large brands, which, obviously, Nature Valley would be one of those, so I believe General Mills

could benefit from that, overall.

The interesting one that I think they can benefit from is this, what’s the impact of remote work? As more and

more people are working from home and the question is, will everyone return back to offices, that’s creating

that need at home for those meal replacements, those snack occasions, to fill it, the day. I actually think for the

snack category, this shifting back to, depending on what the remote work environment looks like, and the

number of people who stay, or even a hybrid model, I think that’ll actually benefit the snacking category as

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well for them. Then the last one is the uncertainty of the economy. Whenever we see the economy going down,

go back to 2006-08 with the financial crisis then, firms like General Mills, large CPGs, have done really well

because of the value they’re able to bring. Especially with Nature Valley and where it’s positioned, I think if the

economy doesn’t improve or go up, more consumers are going to trade down or really look at that value play.

Being able to purchase a Nature Valley granola bar, vs a protein bar, is able to deliver against that value, so I

think General Mills should be able to capitalise on that well. I think the underlying question will be can they

still bring enough innovation out to grab onto the consumer trends of the wellness, the performance, health,

meal satiety, meal replacement opportunities? I think that will be the differential, if General Mills can

accelerate and grow share or if they’ll stay where they’re at and maybe perform slightly under the category.

[00:16:24]

Q: You mentioned a health and wellness trend, but consumers are also increasingly seeking indulgence.

Where do think General Mills stands across each of these trends?

AD: That’s a great question. In my view, it’s almost a continuum. You have the indulgent on the far end, and

let’s take health and wellness on the other end of the spectrum. In the middle for this would be traditional

granola bars. I think they’re viewed a little more healthier. They’re not super indulgent, but they play there in

the middle. General Mills has had strength of playing in the middle, which touches on both, but neither to the

extreme. The nice or the indulgent side are those cereal treat bars I talked about earlier. I think, my view,

they’d probably appeal to more kids, a younger audience, just because of the analogue they’re playing against,

like a Rice Krispies treat bar, but across their brands they’ve done a lot with chocolate and peanut butter,

which also skews to more indulgence. They’re able to, even in their Fiber One line, the Nature Valley line, how

they play with more indulgent flavours, which they do pretty well also.

I think the opportunity is on the wellness end, their strongest wellness brands play in that more natural,

organic space, so they’re just naturally smaller, like a Lärabar, a Cascadian Farm, even Annie’s, and so they

have strong offerings, just on a scale vs the rest of their business, it’s pretty small. To me, the biggest

opportunity area is, again, how do you start adding more innovation that captures what consumers are looking

for in that wellness space, so their first entry into keto diets, even how about plant-based proteins, could you

start playing in that more? Then I also believe gut health, so prebiotics, probiotics, we’re seeing more

consumers really interested in that. Can General Mills bring some innovation in that realm to accelerate their

growth? From a spectrum, I believe General Mills has across all of them, which is a great position for them.

The question is can they accelerate or get a larger share, especially in the wellness side of the business, to

capitalise on these consumer trends?

[00:19:21]

Q: Could you expand on consumer demographics of US snacking, separating the health and wellness group

from the indulgence group?

AD: I can try. It’ll be just my opinion. I don’t have deep information on it, so I’ll be brief on it. What you see

across snack bars is it does play across the whole family, so from kids, all the way through adults, and you’re

seeing that played demographically-wise across income levels, household sizes. The beauty, I think, of that

snack bar area is it touches everyone. They just have different interest of where they want to play in it.

Obviously, when school is in session, the school treats like a Rice Krispies treat, or the cereal treat bars from

General Mills, or even the simple Nature Valley hard bars, you see play really well in school treats. The office

environment, Fiber One traditionally would skew more female, as it provides more of a diet wellness lens to it.

Then, as you get to the protein, you’re seeing that more in millennials, equally male and female, but as they’re

trying to find more of this meal replacement overall, you see it play there. Then I think you see, with key health

diets like a keto or a gluten-free, that universe isn’t as big and a different group of people really targeted

against specific health that are going against those.

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[00:21:09]

Q: Who are some of the dominant US snacking industry players that are competing directly with General Mills

for market share?

AD: In the snack bar, it’s interesting. I think the snack bar business is very consolidated. If you think about

Kellogg’s, Pepsi and General Mills, it’s a strong, consolidated lead group, and then you have a lot of new

brands coming in, which are being purchased by some of these larger CPGs, like Kind bar, Clif Bar, RXBar.

Then you have a list of other items like Pamela’s or Nature’s Bakery, Goodnessknows, Nature’s Path, GoMacro,

and so a lot of these emerging or smaller brands have really focused and gone after that health and wellness

space. Really focused on something specific, like a non-GMO, a gluten-free, a probiotic, a keto, or around more

performance, protein is really big. What I see is that the big players and the core brands like the Kellogg’s, the

General Mills and the Quaker of the world, are getting pressed and really pressured, especially from the

protein side of the business. Protein bars, to bring that performance side or even satiety meal replacement,

have put a lot of pressure on the big players. Then the health and wellness, where they’re looking for specific

traits that they’re going after, like a certain diet or a gluten-free, keto, you’re seeing that pressure there as well.

What’s interesting, you have these three big players and then a plethora of other players that are coming in. I

believe it’s become easier and easier for smaller brands to enter the category, because the production

capabilities of the third-party co-packers out there have gotten so strong. They’re able to create really good-

tasting products for smaller brands that are focusing on a single retailer or region and build the business that

way. You’ve seen more and more retailers taking on these regional or smaller emerging brands. That’s putting

pressure against the larger CPG brands in the section.

[00:23:48]

Q: How has the pandemic affected the market share dynamics of smaller players?

AD: That’s a great question. What I’ve seen, my perception, looking at retailers, is because of the supply

issues, especially at the beginning of COVID, retailers are actually trying to reduce the number of SKUs in

their section, to make sure they have the players on there that really provide the supply chain, the inventory

they need to run the business. I actually think, through COVID here, it’s going to end up being harder for some

of these small, emerging brands to get on the shelf, as retailers have tried to, and even manufacturers

somewhat simplify their supply chain by reducing complexity with the number of SKUs they’re either

producing or carrying on the shelf. I believe, coming out of COVID, you’re going to see fewer brands on the

shelf than you did before COVID. I think you’re seeing retailers shift and continue to invest in their own

retailer brands or private label brands to compete in some of these segments, just because of the profit

margins for them, the supply chain control they get and the access they have to these third-party producers

that can make excellent products. I do think, coming out of COVID, it will be harder to enter the category for

smaller brands, because of those pressure points.

[00:25:25]

Q: What do you think is the most significant threat to General Mills’ market share position in US snacking?

AD: My perception is the Kinds and the Clifs of the world, if you go back, the way those two built their

business, they did a lot of guerrilla street marketing, really focused on driving distribution in the stores,

driving displays in the stores, and they brought a differential product. I think they probably took the most

bites out of General Mills’ core share overall. I continue to think Clif and Kind are big competitors.

I think the other side is these protein bars. If you go back five years ago, the high-gram, over-20-gram protein

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bars were traditionally set over in the pharmacy section and a lot of major retailers, about five years ago,

started shifting that, those protein bars, over into the mainstream grain set, which put more pressure against

the traditional granola bars. With this consumer move of, “I want a meal replacement, I want something that

gives me energy, I want something that fulfils me and helps it last,” higher protein is becoming a bigger and

bigger play. I think the pressure General Mills and the Kellogg’s and the Quaker are going to feel is really

coming from this protein, because manufacturers figured out how to make a protein bar that may be under 20

grams of protein, so it’s still pretty high, but really delivers on taste, vs the old-school muscle bars that were

out there, that were low taste, high, high protein. I think you’re seeing that pressure. Right now, RXBar, I

think is a good example of that, Pure Protein. I think there are a lot of protein players that will continue to go

and fight in that area that will really capture that consumer trend of meal replacement and satiety.

[00:27:45]

Q: You mentioned profitability prospects. Are there any areas you think General Mills should improve on to

heighten its operational efficiency?

AD: My view would be I believe General Mills is pretty efficient. I think their supply chains group, led by John

Church, and what they do with this holistic margin management, has proven for over a decade they can really

drive efficiency and offset inflation or higher input costs across the business. I think that’s an area they’ve

done really well and will continue to do really well. I think the pressure overall is going to be the per cent of

promotion they’re going to have to do in-store. As they continue to a have pressure against that core Nature

Valley business, are they going to be forced to run more price promotion in-store, which obviously impacts the

profitability? I think that’s a watch-out area. Then the other is this shift to e-commerce, will retailers require

them to provide the product in different kinds of packaging, different kinds of shipping containers vs what

they do today, which could add complexity to the supply chain or added cost. To me, those would be the

pressure areas that they will see the most.

Then I think the third is, and this is true for all CPG, as retailers continue to consolidate and have more power,

and as many of them are also creating media arms, the ask of investment from the CPG companies is only

going to continue to increase. I think that’s going to drive the biggest pressure against the financial metrics

across the CPGs and especially to the large CPGs, as they continue to have to negotiate and meet some of these

additional requirements or investments retailers are looking for them to make into their new media platforms,

into their e-commerce platforms, or just margin requirements against their products every day. That’s going to

be the largest area that would have impact or bring down the financial performance for General Mills.

[00:30:15]

Q: How would you assess General Mills’ e-commerce capabilities?

AD: From my view, CPG is behind in e-commerce. If you compare food to clothing that’s been out there a long

time, or electronics, I think, as an industry, we’re behind in e-commerce. I do believe General Mills is probably

near the top of food companies. They made some early investments in capabilities, how to help shoppers

online, how to translate how shoppers shop in-store to make it work online, and so I think their capabilities in

partnering with e-commerce retailers are actually really strong. Then, the beauty for General Mills is I think

they compete across 20 different categories. They bring a breadth of products for the retailer, which some will

way over-index online vs others, but they’re able to bring that total portfolio approach to give some scale and

size on the e-commerce business. That plays really well.

I think the challenge will be where does e-commerce continue to grow? Right now, we’re seeing significant

growth in the click-and-collect, the pickup or in-store delivery, which plays really well for General Mills’

portfolio, because most all of that is done by the retailer in the store, with the existing retail packaging. The

question will be if the e-commerce ship business significantly grows, will that require General Mills to make

some differential supply chain investments, because those shipped e-commerce sites will want the packaging

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to be different, the case sizes to be different, which might cause a challenge in the supply chain or add

complexity that will just add cost for General Mills. In the existing e-commerce platform of the click-and-

collect, pickup and delivery from store, I think General Mills has an advantage there. It’s focused to make sure

they’re in those first shopping baskets with those e-commerce orders, because once you’re in there, it’s easier

to stay in and get that repetitive order from shoppers than trying to break in later.

[00:32:48]

Q: Could you give an overview of General Mills’ US cereal brands and its largest brand by sales?

AD: Again, if you reference back to their annual report in 2020, cereal made up 23% of their North American

retail business, so a sizeable business for them. The largest brand that I’ve always seen from a share

perspective has been Honey Nut Cheerios. Obviously, the Cheerios brand as a total franchise, is by far the

largest with all the different flavours, but the individual Honey Nut Cheerios has historically been the number

one cereal brand in the cereal category. If you look at the top 10 cereals, General Mills usually has four in those

top 10 items. Obviously, Honey Nut Cheerios, Cheerios, Cinnamon Toast Crunch, Lucky Charms, those are

usually the top four cereal brands, and then you go into Reese’s Peanut Butter Puffs, Golden Grahams, Trix.

There are adult brands like Fiber One, Oatmeal Toast [sic], Oat Crunch, across the board, and so that mix and

then all the different Cheerios flankers, like Chocolate Cheerios right now. I saw Chocolate Strawberry

Cheerios out there, Frosted, Apple Cinnamon, so that Cheerios franchise as well, with many different brands.

[00:34:30]

Q: How do you think the pandemic has impacted the cereal category? Presumably it benefited from the stay-

at-home guidance. Do you think this will reverse as we enter a post-vaccine world?

AD: I think that is a great question. I do think cereal, as you’ve seen in the category performance, really did

benefit from working from home, people doing school from home, restaurants not being open. It really drove

that in-home consumption for cereal, which I think has been really strong. The interesting thing about cereal

though, it also plays into some of those trends we talked about with snacking, is we’re seeing more and more

cereal consumed as a snack and even in the evening. Of course, some of the brands, like Cinnamon Toast

Crunch, my history was always you saw a large chunk of adults that eat Cinnamon Toast Crunch, but it was

usually in the evening. You saw this shift of not just being a breakfast food, but also a snacking item, and then

also an indulgent dessert at night for a lot of consumers, especially adult millennial consumers. I think you’re

seeing that snacking trend, I was at the grocery store the other day and saw, I think, Kellogg’s just launched

snack packs of all their cereal brands, so they’re little chip-sized bags that are for snacking at a cereal. I think

the cereal category is going to see the benefit of those snacking trends and will benefit again if remote work

becomes hybrid or only half the people go back. I think you’ll see that trend continue to benefit the cereal

category overall. As you had mentioned earlier, wellness vs indulgent, that plays in the cereal category. You

have Fiber One, which is a high wellness, and you have Cinnamon Toast Crunch, which might be more of an

indulgent, even though the level of sugar is pretty low in it.

I think it’s going to play well. I think it’ll be interesting to see what innovation comes against some of those

other wellness areas, so you’ve seen, in this past year, General Mills, and I think Kellogg’s as well, have

launched some keto cereal items to capture that. It’ll be interesting. Even protein, there’s a Cheerios Protein

that’s out there, has a little higher level of protein for that satiety. I actually think the cereal category is going

to hold on probably more than some other categories to the post-COVID, as they’ve picked up these trends,

because, in a lot of ways, people returned to it and it was a good-memory reminder of it. I would argue the

cereal category before COVID, the pressure wasn’t as much of what else was in the store. The pressure was all

the breakfast options outside of the store. The amount of QSR restaurants that were offering breakfast. The

number of breakfast options available to people when they were going to school or going to work had gotten so

high that that impacted cereal as a category more than anything else, I believe, in the store. Depending on how

that shifts back after COVID, I think cereal has a great opportunity to continue to grow, retain those people

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who have started eating it again as they were reminded about it, and then to capitalise on these trends of

snacking and indulgent evening, cereal is playing really well in that space.

[00:38:21]

Q: How can General Mills innovate to align with new consumer behaviours and create stickiness for its new

products as consumers increasingly view cereal as a snack as opposed to just a breakfast food?

AD: To me, the first opportunity on the snacking side is the container, how they deliver that item. Instead of

the box of cereal with the bag open, which my 12-year-olds are more than happy just to put their hand in and

eat it as a snack, are there different packaging options that can deliver against an on-the-go? Think about

maybe a cup that sits in your cupholder in your car that you can eat cereal out of, or the small snack-bag-type

offers. I think that’s one where General Mills can leverage the brands and the product they have, and deliver it

in a vehicle that’s conducive to snacking. To me, that’s the first opportunity.

The second is playing with their flavours. They have so many great brands with great flavours. How can you

play up on some of those to make it more of an indulgent evening-type offer? They could do a lot of marketing

against eating Cinnamon Toast Crunch at night, or you see some of the brands combining, doing a mix, maybe

combining Lucky Charms with Trix, or whatever it might be, that gives a little more of an indulgent night’s

dessert flavour to it in that. Then I also think, could you bring indulgent flavours? For a while, General Mills

had an ice cream flavour out there. I believe that Post has, this year, launched a Dunkin’ Donuts couple of

flavours, so more indulgent. They could really play off a dessert-taste flavour profile and bring some of those

different flavours to really target more of an evening-type snack. I think that’s how they’re going to be able to

capitalise on it overall.

[00:40:38]

Q: How responsive is General Mills to consumer cereal trends? You mentioned it was a little behind in the

snacking market, but do you feel the same about the US cereal market?

AD: I think cereal is a little different. In my perception, part of it is there are only so many formats of cereal

out there. If you think of all the different cereals out there, there’s a flake, there’s a puff piece, there’s a square

to it, or there’s a granola. There are not tons of different carriers for cereal that you can do, so, inherently, the

cereal manufacturers have this core capability that’s very profitable for them. Where they’re able to start

playing is what do they add into the cereal, like bar bits or chocolate or nuts, or whatever that might be, dried

fruit, and then what are the flavourings profiles that they can play with? I actually think General Mills moves

very quick in cereal on some of those trends. A lot of that, too, comes from their retail partners. As retailers see

certain areas, certain trends across their store, they’ll bring those to a General Mills and a Kellogg’s and

challenge them to come up with those new items. I actually think on cereal, they can move pretty quick.

I think that the challenge for General Mills is when you get out of the cereal box. That will be the challenge,

because if you think of their supply chain, they’ve built a really, really efficient supply chain that can put cereal

in boxes and so they’re really profitable, they’re really efficient, their whole supply chain knows exactly how to

do bags of cereal and put it in a box. If you ask it to start making cups or small pouches, or whatever the next

container, that’s when you add some complexity into the system, which might also impact profitability, and so

will a General Mills be willing to trade off their normal profitability on a box of cereal vs the profitability

margin on a cup of cereal for snacking? Are they willing to make that kind of trade-off, knowing it will be

lower? I think that might be the internal challenge they have to decide to make some investments in areas that

aren’t the traditional box of cereal.

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[00:43:17]

Q: Do you think the health and wellness trends have been impacting General Mills’ traditional manufacturing

capabilities such that it can reformulate products to make them healthier? Can you discuss health and

wellness innovation in the cereal industry?

AD: Those are great questions. I think a couple of things. One, I think General Mills has the talent of people,

the scientific capabilities, the manufacturing capabilities to adjust and adapt and create new items, new

flavours, all that. I don’t think there’s any real limit for General Mills in that area. I believe that is a strength of

theirs. In that wellness question, it’s defining what that wellness is and putting it in cereal, I don’t think they’ll

have any issue doing.

I think, fundamentally, the challenge cereal has gets to your, what is innovation? It goes back to my original

belief that there are only so many, right now, forms of cereal out there. You can only do so much with a round

puff piece or a flake. Is there some new format that will actually drive a differential innovation, because it’s a

different eating experience, it delivers something different on health and wellness that they can’t do in the

existing carriers of cereal? I think, to me, that’s the biggest challenge and has been the biggest challenge for

cereal for the longest time, because as you’ve looked, the cereal innovation has been less about a new form and

has been a lot around flavours, additives into the cereal and then sizes of boxes. That’s driven a lot of the

growth and innovation in cereal. The challenge is, to truly bring a differential innovation, what is a different

form that delivers in what you’d still consider cereal? I think that will be the challenge, but adding protein,

making keto, making gluten-free, they’ve proven they can do that, so I think they can deliver against that

wellness. It’s that, what is the true innovation and what’s even the disruptor for the category that will flip

cereal on its head? I think that’s the area, for all the cereal manufacturers, is the biggest challenge of what that

could look like and what the new form might actually be that consumers would still consider cereal and be able

to deliver on all the benefits of cereal, and the convenience of it, in a way they accept, to drive differential

innovation.

[00:46:27]

Q: You mentioned the retail distribution channel. Which distribution channels do you think CPG companies

are generally prioritising, perhaps supermarkets, convenience stores or e-commerce? Can you expand on your

thoughts on the cost implications for packaging?

AD: I think cereal traditionally, or cereal will continue to focus on traditional channels of shopping, simply

because it’s usually purchased in that stock-up trip that people are making. Cereal is not high on the impulse

buy, in my view. It’s more of a stock-up. If someone from the family is going shopping and they know they

need some breakfast this week, they’re going to get one or two or three boxes of cereal, and so, because of that,

grocery stores, conventional grocery, a mass, like Walmart and Target, club, like Costco and Sam’s Club, and

even you’re seeing growth in dollar and discount, like a Dollar General, those are where people are doing their

version of a stock-up trip. That’s where you’ll see it play out. You see cereal in convenience stores. The rate of

sale isn’t that great, because people grab that more of a, “Oh, my gosh, I forgot I needed cereal.” Most people

in a convenience store aren’t looking for their grocery shop, so I would think convenience will always be lower

on it as well. On the e-commerce, it’s benefiting from this pickup, click-and-collect, delivery from store,

because people are using e-commerce to do their stock-up trips. Cereal will be in that cart for them online

more and more.

I think the cereal manufacturers will continue to focus on those traditional grocery retailers, the mass

merchants and their e-commerce, so the Kroger.coms and the Walmart.coms of the world. They’re going to

continue to focus there, because consumers are shifting their stock-up trip from in-store to online, and that’s

where cereal performs really well. They’ll continue to invest and focus in those channels.

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[00:48:57]

Q: Why do you think General Mills has been able to command a generous price premium over other cereal

brands?

AD: I believe it’s a couple of things. One, if you look at most of cereal, it’s Kellogg’s, General Mills, Post and

Malt-O-Meal. They make up the majority of the cereal business. Part of it is the type of cereals. If you think

about frosted flakes or cornflakes, the price per ounce on those items and what they are is inherently going to

be lower than a Cinnamon Toast Crunch-type item. Inherently, the General Mills product, and what it’s

delivered on, is usually a little more premium and so they’ve been able to deliver that as well.

The other piece though, I would say, is I think you also have to look, in cereal, at the promotional activity. In

my experience, cereal has been 60%, almost 70% sold on promotion, so there’s usually an incentive or a price

discount across cereal. When you look at those promotions, they’re pretty consistent across all three players.

There are some key price points retailers run, a USD 1.98-, a two-for-USD 4-, a two-for-USD 5-type offer, and

all three manufacturers play in those tiers. From a promoted pressure-standpoint pricing, I believe General

Mills has been able to play pretty well against that to be competitive in the category. Their premium is more

driven on by the product and the weight in it, and maybe a slightly higher everyday price, but they’re investing

in that promotional plan about the same. I think they’ll continue with that pressure overall, which will allow

them to be competitive.

[00:51:14]

Q: What are your thoughts on General Mills’ ability to maintain its market share and price premium as

consumers become more price-sensitive due to the tough economic conditions?

AD: My belief is if you look back, again, to 2006-08, our last economic crisis, cereal did really well in that,

because, from a per-serving perspective, cereal is still really inexpensive. The number of servings people can

get out of a box and adding milk into the bowl of cereal, it’s still a pretty inexpensive meal for families to

deliver. When the economy has historically suffered or been down, where people shift to that value profile,

cereal has done really well, and General Mills brands have done really well in that performance. I think if the

economy continues to stay down or declines more, people’s focus on that shift, I think, the core portfolio of

General Mills cereal will continue to really take advantage of that and probably will outperform some other

categories in the store, just because the value perception by consumers, especially with on-promotion, is really

strong.

The other key thing you find when the economy is bad is the shopper, whoever the family shopper is, man or

woman, if they’re going to spend USD 3 on something, they want it on something that they know, when it’s in

the pantry, their family is going to eat. When the economy is down, they’re less likely to take a risk on

something they don’t know, but they’re very confident in, “I can bring this box of Honey Nut Cheerios home

and my whole family will eat it.” They don’t have to worry about they’ve spent USD 3 and a box just sits there,

and now they’re coming out with a new meal solution, spending more money. I think that confidence in the

brand, and the confidence in a lot of those General Mills brands, goes across the whole family, both adults love

and kids love it, that actually shoppers lean into these big cereal brands, because of the confidence. They know

if they spend the money on it and put it in their cupboard, their family will eat it. When the economy is bad,

that is a huge role shoppers are looking for, is making sure their family will eat what they’re spending their

money on.

[00:54:00]

Q: Could you expand on the US snack and cereal competitive landscape? You have emphasised brand strength

and how people often revert to the familiar, but are there any looming potential threats that you think should

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be of concern, perhaps private label?

AD: I think it was an IRI report I saw, the cereal category is about USD 8.5bn in sales and Kellogg’s, Post and

General Mills and Pepsi, so Quaker, make up USD 7.3bn of that USD 8.5bn. Those four players really

dominate the cereal category. From a risk factor, I think it’s hard for emerging and small brands to break in.

That’s a little insulation those four big players have. I think the biggest risk for cereal is really driven by the

retailer. The first is, you mentioned private label or retailer brands. Retailers have the same pressure from

analysts and their stockholders that the CPG firms have, of delivering more profitability. Traditionally, private

label retailer brands bring them a higher level of profitability and they can control it a little more than just the

big branded players coming in, so you’re seeing, across retailers, more and more of that coming into play,

which puts pressure against the General Mills of the world, in cereal. I actually think that’s probably the

biggest challenge they have.

The second is cereal, because of the box, it’s actually a high cube of space that it takes up. You think about

most cereal aisles in a grocery store, probably the smallest is maybe 40-feet long and the longest is 70-, 80-feet

long. That’s a lot of space in a grocery store. If you think of the number of cereal SKUs in that section

compared to a four-foot section of soup, you can get a lot more SKUs of soup in that four-foot section than you

ever will in a cereal set. I think, depending on how the cereal category performs, if it’s not able to deliver

growth and growth for that retailer, the retailer is going to continue to evaluate, “Do I need to shrink that

section size to bring other categories in that can drive that additional growth?” The cereal players will face

losing some SKU rationalisation as the pressure for the shelf comes in, just because of the high-cube nature, it

takes up so much space compared to other categories. I think the manufacturers have to continue to drive that

innovation, the engagement with the consumers, talking about the value of it, the taste of it, and the wellness

benefits of cereal so consumers continue to choose it. We’ve seen, historically, when the category is declining

and not showing growth, the sections continue to shrink, because retailers will give that space to other

categories where they can fit more SKUs on the shelf and drive incremental dollars in profit vs what the cereal

category is driving.

[00:57:39]

Q: What best- and worst-case scenarios do you expect for General Mills over the next six months?

AD: Especially over the next six months, I think they’ll continue to perform well. I think the benefits they’re

getting from COVID for the next six months, for sure, I think are going to continue. Consumers are still saying

their number one concern is their personal safety and can they get out? They’re worried about getting sick. I

think more eat-at-home occasions are going to continue for the next six months, which obviously is going to

really benefit General Mills in that, and General Mills has performed really well on the supply chain side in

providing to retailers, so retailers continue to lean into their products on-shelf and in promotions, because

they know General Mills can provide it and supply it. I really believe, fundamentally, that General Mills will

continue to ride this COVID wave, overall.

I do think in that, one thing as Jeff Harmening came in as CEO, he’s really been looking at the portfolio and

trying to adapt and adjust to the consumer trends. The acquisition of Annie’s organic, the acquisition of Epic

meat, he’s really tried to, how do you capture some of this wellness, the natural organic space where

consumers are going, and bring that into the portfolio? Then I also believe Jon Nudi, who leads North America

retail, when I worked with him on our snacks business, his focus is, “How do we drive that innovation and get

a higher level of innovation out there?” I’m confident he is speeding up the innovation pipeline at General

Mills to really capture and be on top of these consumer trends, and not miss them. I believe you’re going to see

General Mills continue to accelerate their innovation to get those new products in the market, to take

advantage of the trends overall.

Then finally, I would just say I think historically, and will continue, General Mills is known for their execution,

so any concerns on, can they execute against this strategy? I think if they pick a strategy and they’re focused

against it, their execution will be best in the industry. The watch-out is going to be are they focused on the

right strategies? Do they tick the right new consumer trends to go against? Where do they place their big bets

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and does that big bet pay off? They’re watching early trends now, deciding which ones are going to be big. To

me, I think that’s the piece that will be the biggest challenge, not just for General Mills, but for any. Where do

you end up placing those big bets to be able to capitalise on these consumer trends to help drive your

business?

[01:00:44]

NH: I think that about wraps it up. We will now end the Interview. Let me close by saying thank you for your

input, and thank you, clients, for joining Third Bridge Forum’s Interview today. If you’d like to speak to Adam

in a private call or meeting, please let your relationship manager know. Have a good one. Thanks, Adam.

AD: Great, thank you.

Transcription ends at 01:00:58 of the recorded material

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