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By Erin Lash, CFA | 11-08-2010 02:14 PM

General Mills: Emerging-Markets Consumers Remain Bullish

General Mills CFO Don Mulligan sees opportunities among increasingly aspirational consumers in developing markets.

Erin Swanson: Hi, my name is Erin Swanson and I am a Consumer Products Analyst here at Morningstar. Today we have the pleasure of speaking to Don Mulligan, Executive Vice President and Chief Financial Officer at General Mills, to give us some insights into emerging consumer trends as well as what's kind of going on in the environment in general. Thank you for being here, Don.

Don Mulligan: My pleasure, Erin.

Swanson: Last year when I talked to Ken, the CEO, we talked about SKU rationalization from retailers and the fact that consumers were eating more meals at home. And while consumers continue to be strained, promotional spending has ticked out and so consumer product compaines are having to work harder to prompt consumers to spend on their products. Is the level of promotional spending that you've been implementing has that been driving volumes higher? And beyond promotions what do you do to motivate a consumer who is maintaining a tight grip on her purse strings?

Mulligan: Yeah, well, it is a certainly a great question in today's environment. I like to think we always work hard for the consumer, but maybe particularly hard over the last few years as all industries have. I think you have to put it in context a little bit. Our industry went through a spike in inflation in 2007, 2008 as a consequence we all have significant productivity initiatives underway. There was some pricing that went into the marketplace.

We then had a bit of a respite from that in 2010, actually had deflation in our fiscal 2010 that ended earlier this year. And we were not alone, that was pretty industry wide. So as a result you saw some people pushing that back into price. As we look forward in the longer term but even in our current fiscal year, our expectations will continue to see 4% and 5% inflation in that mid-single digit range. And there's a lot of factors, emerging market growth, biofuel policy, maybe some investment dollars moving into the soft commodities, but we think that's here to stay. And that may spike in a given year.

But because of that we believe and we're starting to see this year some moderation in the promotion. We expect in the back half of our fiscal year that we will see a little bit of price coming through and we think that's going to be true in the years to come.And again, not a lot. When we think about our long-term sales growth, low-single digits, the bulk is going to be volume and mix with a little bit of price.

Because we think about how again do we work hard for the consumer is first of all we want to offer the products that they are looking for and that's around taste and convenience and health. We also want to make sure we're doing it at the right price. And the food industry for the long-term has priced well behind inflation. I expect that to continue. The amount of real income spent on food is down dramatically today from what it would have been 10, 20, 30 years ago. That trend will continue. From our standpoint what we look at is we want to drive productivity. We want to drive our mix management before we have to think about pulling the price lever or the promotion lever and that has worked very well for us. We continue to expect it to.

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