A Broader View of the Restaurant Industry
General Mills’ recent quarterly investor call provides key insights into the grocery market, with important implications for the restaurant industry.
Consumer Backdrop
- A reversion to consumer mobility includes more people traveling for education, healthcare, and hotels/lodging (with movement data through airports not only back to pre-covid levels, but up materially y/y).
- While the economy is not technically in a recession, consumers are seeking to economize. They are not eating less, but they are pivoting to smaller sizes.
- When consumers get squeezed, they tend to eat more at home and this is especially true given that the cost of dining out is 4x the cost of eating at home according to General Mills.
- As consumers get into their indoor routines this fall, General Mills believes that at-home eating will increase.
Restaurant Backdrop
- While overall restaurant traffic has been flat y/y according to General Mills, QSR traffic has increased – this reflects a higher demand for value from restaurant consumers.
- Notably, Sysco (food supplier) also recently discussed investor concern about slowing restaurant traffic as outlined in this post.
Grocery Outlook
- While the frequency of General Mill’s retail merchandising was up mid-single digits during its most recent quarter, it remains -10% pre-covid levels.
- Further, there has been a shift away from pre-covid discounting practices that are now believed to drive dollars out of the category. Current promotions, which typically incorporate higher price points, drive smaller deal lifts but more profits for the entire category.
- Notably, General Mills media spend was up double-digits during the quarter as the company begins to put more marketing behind its merchandising. Going forward media spend should grow in-line with sales as the operating environment continues to stabilize.
- General Mill’s guidance calls for improving sequential volume trends as: the industry returns to a more normal cadence of marketing & merchandising spend; prices continue to moderate; and the company gains traction from stronger distribution, brand building, & innovation.
Capital Markets Commentary
- As outlined below, recent restaurant stock weakness reflects investor concern about slowing industry traffic (a point addressed above) and increasing consumer weakness.
