Good morning, everybody. My name is Alexia Howard, and I cover the U.S. Food Sector for Bernstein. It's my great pleasure to welcome Jeff Harmening, the CEO of General Mills since 2017. Now, as we all know, the U.S. food industry seems to be at something of a crossroads, with high hopes for some improvement in volume trends as the headwinds of 2023 elapsed. General Mills has made a good deal of progress in shaping the portfolio over the past several years in a bid to tap into faster growth markets and make the company more resilient in the face of more frequent disruptive change. Very many thanks for joining us today, Jeff.
Yeah, thanks for having me here.
Great. So you became CEO of General Mills back in 2017, and the industry has certainly seen some pretty tumultuous times since then. What has changed across the sector, in your view, over the last seven years?
First of all, I want to start by saying I, I don't take any credit for causing those tumultuous times. Yeah, I, I didn't pick the 2017. It kind of, it kind of picked me. You know, if, if I think back on where we were then, you know, it's been an interesting time for the whole, for the whole sector. And in 2017, recall, we were just coming out of what I would call the, the 3G era, which is which is really focused on, on cost cutting and limited brand building and, and really trying to optimize short-term profitability. And we're just coming out of that, kind of getting back to the middle of the boat, which is what I would call it, saying: Look, we got to get back to growth, but we need to do it profitably.
We were kind of in the midst of doing that. We had just bought Blue Buffalo. And then, you know, then we were hit by a pandemic, you know, and following that, supply chain disruptions, and following that, inflation, which we hadn't seen in my 30-year career. And so, you know, I guess there are two questions. What did we learn from all that? And then, you know, what do we see coming up? You know, the first thing I would say we learned is just the importance of continuing to invest in our business. And, you know, we saw that coming out of the prior era.
We certainly reinvested during the pandemic and everything that followed, both in terms of our capabilities, our digital and technology capabilities, but also our brand building, which is up 40% over the last few years. So one of the things we learned is that through a period like we've just seen, you need to keep investing in your brands. And it may seem like a throwaway line, but for us, it's critically important. You know, as a result, we now have $9 billion brands at General Mills. You know, the other thing, though, we didn't predict the pandemic. We didn't predict the depth of the supply chain disruptions, and inflation certainly wasn't transitory.
So, you know, as we think about that period, we also know that our ability to predict exactly what's going to happen is relatively limited, but we can choose to how we're going to adapt to that. As an organization, we became a lot more adaptable, a lot more change-oriented. As a result, our supply chain held up well during the last few years, and our pricing held up well over the last few years. So as we look ahead, I mean, the consumer is in kind of a tough place. You look at the geopolitical environment, you look at the pace of change in technology. We're in an interesting period where some things are settling out, like inflation, but there are other things that are disruptors.
And so as we look ahead, one of the things that gives us confidence, in addition to the strength of our, our business right now and our balance sheet, in addition to our income statement, is just our ability to change and our ability to not predict exactly what's going to happen, but adjust to the environment around us.
Makes sense. The elephant in the room seems to be all about volume recovery at the moment. We seem to be at a pretty pivotal moment for the sector. Investors have been waiting with bated breath for an improvement in volume trends as we lap the cutback in SNAP spending in March of last year. Yet so far, we haven't really seen any discernible improvement in trends. Is there something more structural going on, or could things improve as we lap the step-up in cooking from scratch last summer?
Yeah, so as we think about the environment, yeah, I know investors have been waiting with bated breath and, you know, maybe more than a few members of management teams as well. You know, what I would say is that, broadly speaking, you know, the way that the environment has evolved the last six months has been, you know, kind of the way we thought it would evolve. And would we wish it to evolve faster in terms of volumes improving? Well, of course, but, you know, we never really expected a step change from any one event in volumes recovering. And so as we look at the categories we compete in, the first half of last year, our category volumes were down about 3%.
If you look at the last three months, our category volumes are down about 1%. And while it's not back to growth, it certainly is, you know, a pretty significant improvement from where we were. You know, the same could be said of our own business, which was down. The volumes were down 7% in the back half. We got a little bit more competitive. Our volumes are down about 4% over the last three months. And so, so the business is going in the right direction, but at not a step change pace. And, you know, the question is, you know, why is that? And I would say is we, we've lapped SNAP benefits, we have lapped, you know, pricing from a year ago.
You know, effective at the end of this month, we've lapped a significant increase in private label and, and small brands getting on shelf more regularly. And, you know, I think the thing to go is really the change in consumer. And the first I would say is the change in mindset. It takes consumers a while to adjust to pricing. And that's true not only in food, that's true almost of almost any category. And it's probably an 8, 12-18-month process before consumers really land on, okay, what is the true price of this good gonna be? And I think it's particularly difficult for consumers now because they've seen we've seen 30% increase in core cost inflation over the past 3 years.
And so, you know, combine the, you know, consumer perception, but consumers are stressed financially right now. You see, you know, see the rise in credit card debts and so forth. And so I think that's why we haven't seen a step change, and that's why I don't think we're gonna see a step change. And in volumes, either for our categories or for our business. But, you know, I would expect that we would see a gradual improvement over time, both as the consumers get used to pricing and as they feel economically more sound.
Makes sense. If anyone has any questions in the audience, feel free to submit them into the Pigeonhole link. I'm more than happy to work those into our conversation here. Now, looking forward, I know you're not gonna provide guidance for 2025, but could you talk a little bit about the building blocks, or more broadly, how you're thinking about the approach for next year?
Yeah. So you're right, I can't provide guidance, but I'll try to provide some insights into how we're thinking about next year. But the first thing I would say, you know, it kind of starts with, you know, how our current fiscal year ended, which I think we just ended on Sunday.
Right.
So, I mean, it just ended, you know, a couple of days ago. And, you know, I would say the, the first thing, you know, our, you know, our inventory levels with our, with our retail customers are in good shape. I mean, we didn't see or we don't, we don't expect to see a, a rebound or in inventory levels. We saw inventories down a year ago this time. You know, we think our, you know, think our volume for the fourth quarter, particularly for North America retail, should be pretty consistent with what is seen in Nielsen data. And, and while that may not be encouraging for the fourth quarter, what, what some people may think, as we look at the year ahead, you know, our, our inventories are in a good place with our retail customers.
So as we think about the building blocks to next year, you know, with regard to volumes, as I said, I think we'll see a steady improvement in volumes over the course of the year in a pricing environment that's gonna be challenging, also in an inflation environment that's not gonna be particularly high either, I don't think. And so, you know, that'll put a little bit of pressure on our long-term sales algorithm. So I, you know, I would love to say that we're gonna get back to our long-term sales algorithm of, you know, 2%-3% top line growth next year, but given the gradual improvement I would see in volumes, I think that's gonna be a little bit, a little bit tough to come by.
Our goal will be to be competitive within our categories, and I think we can achieve that this coming year, as we have, by the way, the last four years. We've, you know, we've grown in 50% of our categories, our market shares. When you look at our profitability, you know what? I'm encouraged by a couple of things. Our gross margins are back in line to where they were pre-pandemic, which is better than many of our peers. And as I look at our productivity, our productivity has been really strong. I mean, it's been really good this year. We're at 5%, HMM savings. As we've said, at the end of the third quarter, we'll be at 4%+ next year. We have a very good line of sight to what it'll be next year.
We'll give more specific guidance in four weeks, but our productivity efforts are very good. We expect inflation not to be so high. And so as we think about the cost side of our business, we are in good shape, particularly at the gross margin level. You know what that means is we have you know some options to how we go about this next year. And it's very clear to us that we need to reinvest back into our business for growth. We plan to do that and maintaining gross margins at the same time, but reinvesting back, particularly in consumer spending, to reestablish and revitalize our brand growth. That's the number one objective coming into next year.
So to the extent that we feel like our gross margin is gonna be in a good place, you know, our plan would be to reinvest that back into growth and to drive growth of our biggest, most profitable brands. The other thing, you know, I'll highlight for you is that, and we've talked about it, but, you know, we didn't hit our targets for this year. We didn't grow the way that we wanted to grow after doing so for the prior 4 years. And so we have to reset, if you will, our incentive, which is about a 2-point drag to profitability. It doesn't happen at the gross margin, it happens on the SG&A line.
As we head into next year, we have to face that drag, but we think it's so important that we reinvest in our top line growth, that we'll continue to do that even though we have a drag on our SG&A.
Makes sense. A question has come in from the audience here: Have you considered dialing back some of the price moves, and if not, why not?
You know, one of the things that it's a very fair question. One of the—we look at these. We look at our pricing as well as our consumer spending and our investments category by category. So there's not one answer, and we compete in 25 categories here in the U.S., let alone what we do in China and Brazil and France and U.K. So there's not one answer. I wish it were as simple as giving you one answer. There are certain places. And what I would also say is our strategic revenue management is now an always-on capability. You know, we run millions of models a month, talking about looking at our pricing.
Our pricing has gotten quite a bit better over time. I mean, significantly better over time. Having said that, no one is perfect. We're not perfect. Models aren't perfect. And so, you know, we look at specific categories, at specific brands, at specific package sizes to see where we need to do work. And so we're very surgical in how we look at where our pricing is. And, you know, I'll give you one example we did recently with Blue Buffalo on our wet pet food business. We found out that the value proposition wasn't right for consumers, and they were telling us this. And so we introduced a lot of multi-packs, first of all, and then we got under a certain price threshold with our wet pet food.
You know, it's a very profitable business for us, and we saw a significant uptake in volumes. But that was one area where we saw that we got out of line, one very specific area, and it was on dog, mostly. And so as we look ahead, there won't be one answer where we say, "Okay, we're gonna adjust prices here or there." We'll look category by category, size by size to see, you know, what makes the most sense. But the most important thing we can do, really, is keep investing behind our brands, because consumers in this environment, they really don't want to be throwing away food that they've gone to purchase. And so they're looking for brands they trust and something that they know their family will eat.
So the most important job we have to do as we think about price and value is on the value side, which is what are the benefits we're bringing to consumers?
Maybe let's delve into some specific business lines here. It seems as though the pet food business is beginning to show some signs of improvement after a rough time over the past year or so. What are you seeing in terms of consumer behavior that might be driving this, or are there other factors that are working here?
You know, it's a fair observation. I think, you know, this is a case, sometimes I say two things can be true at once. This is a case where three things can be true at once. The first is that it has been a rough year. You're, you are right. The second is we are improving, and actually have made some really nice improvements. And the third is that we still have improvements yet to make. And so, you know, I'll give you evidence about the value of consumer, which I talked about earlier, and the value of, you know, making sure we market, is that with Life Protection Formula, we've seen really good growth in Life Protection Formula, which is our biggest business in Blue Buffalo.
And I think we've seen 8% growth or something over the last couple of quarters, and back to market share growth on Life Protection Formula, and all we did was change the marketing. We changed the advertising, we made the advertising better. And I say that's all we do, but that's hard to do. And again, it goes to show the strength of the Blue Buffalo brand when we get it right. That's not the only area we've seen improvement. We've seen improvement in our wet pet food, and I just talked a little bit about that, pricing and with some multi-packs and things like that. We've also seen improvement in our Taste of the Wild cat food business. We've started to market that. We changed the marketing on that.
We started to see improvements in that, in that business. The big one for us still to improve is our Wilderness business. And you'll see new marketing coming out for that this summer, as well as an increased focus at some of our retailers, where Wilderness is a big player, some pack size changes and then things like that. Again, going back to the value equation. You know, what I feel great about on Blue Buffalo is that, every time over the last year, we diagnose what a challenge is, and then we put the steps in place to change the trajectory of the business. And now we need to do the same thing on Wilderness. But it's still, in some ways, it's a tough category.
The toughest part of the category, really, in value-seeking behavior, is in treating. And it's not to say there haven't been trade-offs in other areas, but treating is still the one where we see the biggest challenge with value. Look, I think consumers are still going to be value conscious over the next year. I'm not sure that's going to change dramatically, but I'm pretty sure that we're going to change our game, and we're better, as you say, but there is still room to grow.
Let's move on to cereal. Now that the WK Kellogg Company has been spun off from Kellanova, it also seems that private label has gained a bit of share over the past several months after being out of the picture for so long. What do you see in terms of the changing dynamics competitively in cereal?
Yeah, the cereal category is obviously a very important one for us, a very profitable one for us, and one we pay a lot of attention to. The first thing I would say, starting out, before I get into WK Kellogg and the competitive situation in front of us, is that we've competed very well in cereal over the last four or five years. You know, gaining quite a bit of share, and doing a really nice job with new product innovation. We have four of the five best products. I think we can still do even better work on our core in cereal, and so we'll continue to market that and continue to dial up our marketing on our core cereal business. With regard to the competition, we haven't really seen anything out of the ordinary.
You know, I would stick to WK Kellogg , they can speak to it better than I can, but I would say, you know, their promotional levels are kind of... They've grown, but they're back to where they were before. I mean, they had a lot of supply chain disruptions, which are well documented, and they've talked about. And you know, to the extent that they kind of get back on their game here in the U.S., along with us and with Post, actually, I think it'll be beneficial for the entire cereal category, and that's what I'm seeing. So there's nothing really out of the ordinary, I would say, with regard to WK Kellogg . With regard to private label, you know, I would start from the perspective that private label in cereal is only about 7% market share.
In food and beverage, in general, market share of private label is about 20%, and cereal is about 7%, so it's not a big player. And while it has grown, it is true it has grown in the last year, it's only back to what it was pre-pandemic. And so they say they had their supply chain issues would be an understatement. And so, so it's really kind of back to where it was. And the most important thing for us to do in cereal is keep playing our game. We've got, we've got great brands like Cheerios and Cinnamon Toast Crunch and Lucky Charms. We've had good innovation. I feel good that we're going to step up our marketing game, and so as long as we keep playing our game in cereal, we will be more than fine.
Let's move on to international markets. Could this be a bigger future focus for growth? And if so, how do you do that while maintaining company-wide margins and returns on investment?
Yeah, we, you know, we're encouraged by what we're seeing in parts of our international portfolio, and I would say that it is going to be a vector for growth for us as a company. And, you know, if I take a step back on, you know, what have we done with our international markets, the, you know, the first thing we've done, we, you know, we divested our Yoplait business in Europe, which is big, but was also slow-growing and lower margin. We divested our dough business in Europe, same. And that allowed us, that's allowed us to put our focus back on our core global brands, both within the markets they compete in, but as well as distributor markets.
And, you know, when I look at our business outside the U.S., there's a chance for us to not only grow faster, but also increase our margins as we do it, and that's our goal, to do both of those things. We've seen good evidence of this in Europe and Australia so far, and I think it talks about the value of what a divestiture can do. Our European and Australian businesses really have grown nicely. And yes, we divested Yoplait, but there was a lot of time, money, and attention put to that. And when we refocused that time, money, and attention back on our big global brands, you know, we saw growth. We saw the growth on Häagen-Dazs, we saw growth on Nature Valley, where now Nature Valley is the number one bar in France.
We've seen it on Old El Paso, and so we like what we have seen there. Our challenge more recently on international has been with regard to Brazil. We saw there was a lot of commodity inflation in Brazil, and we had to price for that, which was very challenging for the Brazilian consumer. In the short run, we've seen some challenges in China as the Chinese consumer has come under a little bit of pressure, and we lapped lockdowns from a year ago in our Wan Chai Ferry business. But I will tell you our, you know, I feel very confident in our business in China. We have a good Häagen-Dazs business. We have a good Wan Chai Ferry dumpling business. We just really launched Blue Buffalo into China, which is the second largest market, food market in the world.
And so I feel really good about our prospects in China. So long and the short, in international, what you will see us doing is focusing on our big global brands, which now includes pet, including Edgard & Cooper in Europe. And with that, driving accelerated growth, which will certainly be above the company average and margins at the same time, because those big global brands are margin-accretive to our business.
Can you talk about what you're seeing in Europe versus the emerging markets? You've already spoken to China specifically.
Yeah, so I'd say, you know, in Europe, we're seeing nice growth out of our European business, and I attribute it mostly to the focus of our teams on our big global brands. As I said, it's Häagen-Dazs, it's Nature Valley, and Old El Paso. And those are three great brands. We're seeing good growth from them. We've also seen, you know, our administrative costs go down, particularly as we've gotten more distributor markets, even outside of Europe. So we're more focused in Europe, has led to better results, you know, new product innovation.
And then even outside of Europe and China and Brazil, we've moved to distributor markets, so fewer feet on the ground, if you will, from General Mills people, which has improved our cost structure, but also, it has given us access to more talent. And so we're excited about the prospects of our distributor business, which is largely based on Häagen-Dazs.
Okay. Can we move on to competitive dynamics here? More broadly, because I know we've touched on that in a couple of the categories. Have there been any changes to the competitive dynamics in the U.S. since the pandemic began? Smaller brands, for example, were more hard hit with during the supply chain issues a couple of years ago. It sounds as though they've come back. What else are you seeing in terms of the competitive environment?
Yeah, so it's really been dynamic. But you know what-- let me start with, you know, one of the things we've seen is people eating food at home more. And you touched on that in your very first question, talking about lapping, you know, making stuff at home from, you know, from last summer. We've seen people eat food at home more since the pandemic began to now, and I think that speaks to availability, but also that eating at home is four times less expensive than eating out. And so when consumers get strapped economically, one of the first things they do is eat food at home more than they do away from home. But within our categories, you know, we've seen very rational behavior.
I mean, part of that, there are supply disruptions, and so it's hard to act irrationally when you're just trying to get product to market. But even now, as supply disruptions have dissipated, and I can't really point to a category where we see somebody doing, you know, a competitor do something like, "Why are they doing that?" I mean, promotional frequencies are about what they were before the pandemic. The depth of promotion, in terms of percentages, is about where it was. The absolute price points are higher because all price points are higher, but the depth of promotion, you know, is about what we-- what it was. Private label, although it's grown in the last year, and much has been written about that, their levels are about what they were before the pandemic.
And so, you know, we've had a lot of ups and downs over the last four years, but we're kind of back to where we started. And I think what that means, as we look ahead, is that there's going to be a premium put on the basics of block and attack, like as it has been for most of my career, which is: Who's got the best brands? Who has the best marketing? Who is executing the best, both in-store and online, and with regard to consumer marketing? So I think we're entering a period where that is gonna be a differentiator, and that's a period that General Mills has historically accelerated.
Are you sensing that consumers are becoming more concerned about heavily processed foods in the wake of media coverage of the ultra-processed food studies, or is this not really a concern for you?
Yeah, because in the categories we compete in, there's a lot written about nutrition. What I would say is that, in all the categories we compete in, the brands that are doing the best are the ones that taste really good and bring them joy. So, you know, no matter what the category is, if you look at what are the top turning items and what are the things that are growing, it's things that taste. Which is not to say that consumers don't care about nutrition as well, but I don't want that to get lost in the conversation. People like food that tastes... Newsflash, people like food that tastes really good. To the extent that consumers are, you know, more knowledgeable and care more about what's in their food, I think that's a benefit for us.
I mean, we've cared about that for 158 years, and happy to compete in that environment. So to the extent that consumers are... You know, we launched gluten-free in Chex in 2008, when, you know, the first mainstream cereal that was gluten-free, or that in clinical studies that show that Cheerios lowered cholesterol, or, you know, have added protein to yogurt and bars that have fruits and vegetables. That for us, you know, one of the things that General Mills does really well is make food that tastes good, also is good for you. And to the extent that consumers are looking at ingredients more closely, I think that's a benefit for us, and I think that's gonna be an opportunity for us.
Can I add a question that's come in from the audience on this theme? It says: The government is exploring adding warning labels to food packaging, and I feel as though the debate over food labeling has been going on for many, many years. How big of a risk is that to General Mills' business, and how is the company participating in that debate?
Yeah, the... We see labeling schemes, you know, all over the world, and we compete actively all over the world. So competing in an environment where there's some sort of labeling is not new to General Mills. I mean, we do it in Europe right now. We've done it in Latin America. We've done it in many, many places. So the idea that it would have a significant impact on our business one way or the other, I don't think that it will, because we've competed in all-- we've competed with all kinds of regulatory environments. When we get asked our opinion on what we think, we provide our best scientific information.
Because, you know, I think the key to having something constructive when labeling products is make sure it's based on science, just not the politics of the day or, you know, what's convenient, but really, what does the science say about what we should be doing? And, you know, so we've been assisting with that everywhere we compete. And so, I don't see that as a huge risk. I don't see that as a huge opportunity. I think it is what it is. And it's not the first time we've seen that movie. The key is to make sure you're science-based, but also have one. I mean, what would not work is to have different labeling schemes for different states, for example. That would actually... That, that would not work.
I remember going through that with Federal Labeling Bill, I think, sort of-
Well, you don't want to. You know, it's not good for consumers. I mean, it's not good for us, but it's also not good for consumers. You know, if something would be considered to be more healthful in one state than another, how does that work? I mean, you cross state lines, and yeah, you know, it doesn't really work. So you really need one set of, you know, kind of rules. You know, one of the things that helped the organic movement, and General Mills has, you know, the largest natural and organic portfolio of any, you know, CPG company, is that it was the harmonization of organic rules. Because at one point, many years ago, there were kind of one by every state, there were independent people doing it, and that didn't really work. But when that was harmonized, it actually spurred growth in that industry.
Moving on to capabilities. The packaged industry does seem to be undergoing something of a transformation from a safe, stable, industry with high barriers to entry, to something with more technological innovation and disruption. And I think this is something that's happened over the last 20 years or so. How does General Mills position itself to win in this new, more dynamic environment?
Yeah, you know, it's a good question and a fair one. I touched on it a little bit earlier, but let me expand. You know, the General Mills has been around 158 years, not because we failed to change, but because we have. And, you know, that was certainly true over the last 7 years, where we faced pandemics and increased inflation, supply chain disruptions, but also the rise of different technologies. And when you talk about this technology revolution, there's, I mean, without question, we're going through one. I mean, General Mills has increased the number of data scientists we have over the last 4 years by 40-fold. So 40x more data scientists than we did 4 years ago. The number of models we ran 4 years ago was about 2,000 a month.
Now it's several million per month, with the outcome. With about 500 million outcomes per month, which is, I mean, orders of—to say it's order of magnitude would not do a service to how we're using technology. And we're using technology in our supply chain. We're using it upstream to get the best cost for ingredients. We're using it in our manufacturing facilities to make sure the output is as good as it can be. We're using it in logistics and partnering with our retail customers to make it better. We're using it in our marketing. We showed at CAGNY, you know, an example of Nature Valley and how we're able to target more effectively, using it in our marketing.
We're using it, we're using it in R&D to help search for ingredients and do other things within R&D. So we're using it throughout our business. We even have our own internal ChatGPT, which we call Mills, MillsChat. And so you have, when you're in a position like we are, you have to lean into the change, and we have been, and we've shown we're agile. And so for us, I think all the change we see around us with regard to technology is a huge opportunity, but you have to be willing to embrace that and invest in it, and we have. And so I am confident that what comes next, General Mills will emerge a leader, but it's only because we've embraced the change.
Linked to this, this whole digital environment, on the new digital and competitive landscape, do you believe that the barriers to entry have declined across the industry? It's, it's now possible for pretty much anyone to start a brand with social media influences versus ads on TV. It's a very different environment to where we were 20 years ago.
It's a very different environment where we were 20 years ago, and I was, I was doing marketing 20 years ago. Today, today is a great time to be a marketer, particularly if you've got great brands. There's so many tools available to you, but again, you have to be willing to use them, and we, and we are. The other thing, you have to be willing to innovate in a variety of ways. And, you know, we talk about innovation many times, just as in new products, but you can innovate on your core and how you're marketing. I talked about Blue Buffalo and how we return to growth through Life Protection Formula. But you can do, you can, you know, work with influencers. You can do a lot of different things on the marketing side.
But in addition to that, I mean, not all the innovation happens within the four walls of General Mills, and we're very good at it. But because there is a broader ecosystem of innovation happening now, we need to tap into that. We've done that through M&A, but we've also done that through 301 Inc, when we take minority stakes in firms, or we do that through our investment arm, Gold Medal Ventures, where we just bought a small pet supplement company, Fera Pet. And so, the key for us is to make sure that we're not only innovating within our four walls, but we're looking around at innovation that's taking place outside of us and then adding our capabilities to that. And General Mills, I would advocate, probably scales businesses better than anyone else.
That's one of the reasons why we've been able to do so well with things like Blue Buffalo or TNT Crust business or hopefully with Edgard & Cooper, which we just bought, Annie's, which we acquired. So even though there's a lot more innovation in the ecosystem, the key is for our tapping into it, and then our ability, when we see something we really like, to acquire it and scale it effectively.
Let's move on to retailer relationships. How have the retailer relationships evolved between the pre- and post-pandemic eras, given the rise of e-commerce, especially the click-and-collect model, and these improved analytical capabilities that have come up so much in recent years?
Yeah, you know, I thought a lot about this. I suspect they've either become, you know, the relationships have really become a lot better or a lot worse. And in our case, they've become a lot better. And that's because, as you say, the retail landscape is changing, and our retail partners wanna partner with, first of all, companies that can get them supply of product when they need it. And you know, I think the resiliency of a supply chain, the importance of that, has been brought to bear over the last four years.
But also, but also CPG companies that can partner with them on all kinds of digital initiatives, and whether that's linking up logistics supply chains, you know, as we're now able to do, or whether that's taking advantage of their retail marketing, which we're now able to do, or work effectively in e-commerce. I mean, 15% of our business in the U.S. is now done through e-commerce. 85% of that's through stores, by the way. And so, and, and we over-index, we over-index in the categories we compete in, vis-à-vis what we do through normal brick-and-mortar e-commerce sales. And so our relationships with our leading retail customers, I believe, have, have gotten better, but that's because we've leaned into this change, and we've changed with them.
A lot of that has to do with the supply chain, a lot of that has to do with marketing, and the fact that, you know, look, we have, we have in the categories in which we compete, we have leading brands that consumers are looking for.
Can we move on to innovation? So where is General Mills, in terms of innovation, after most of the new product development went away during the pandemic and the supply chain disruption?
Yeah, with regard to innovation, and I'll take that as a new product innovation-
Yeah.
You know, question. So as we look at new products, this is where the two things can be true at the same time. We've been better than our competition in most cases, and we're, we haven't been as good as we have been historically. And so, if you look at cereal, I talked a little bit about, you know, we've got four of the top five innovations. In most of the global categories in which we compete over the last five years, our share of innovation outpaces our share of, our market share. So relatively speaking, you know, we've done well. But if you look at the last, you know, three or four years relative to where we were historically, you'll see it below where we've been before. And part of that is, supply chain related on our part.
Some of it is retailers haven't been wanting to take a chance on new product innovation when they're having... When they're struggling just to get their existing products to market, which I completely understand. And so as we look ahead, I feel good about our innovation capability. You will see our percentage of new product innovation come up this coming year. And again, part of that will be us, and part of that will be retailer acceptance of new products. One of the things I will tell you is that we're focusing more and more on our bigger bets, and it's really not the number of items you launch. You know, I see lots of presentations. "We're gonna launch a billion items next year." That's interesting, but it's not exactly relevant.
I mean, the key is, I think, over the long term, how many of those really stick on the shelf? And you'll see probably something along a 25%-30% increase in the number of big items that we bring to the market this coming year, things that we think that will sustain over time.
We've talked a bit about marketing and promotion. It's come up quite a bit so far, but, are there specific examples of what you can do today that you couldn't do before the pandemic?
Yeah, so you know, we, I touched on this a little bit at the very beginning, but, we're able to, we're able to isolate where we have challenges a lot better today than we were before. Before, it was kind of a broad blanket approach, and whether that was with regard to advertising or promotion levels, you would create an ad, and you run it for six months, and you hope to work, and at the end of it, you'd see if the return was okay. Same would be with promotions. You'd run everything at a single price point, and you'd do that for a while, and you hope that it, you hope that it worked. We're kind of beyond that now. And so with regard to our, our marketing efforts, we can tell in, in weeks, sometimes days, the effectiveness of our marketing campaign.
We do AB testing. We're able to see whether, you know, one particular message is working better than another message, and we can adjust on the fly. So there's not nearly as much guesswork as there was before. There's still a lot of art, there's still a lot of creativity in marketing, but we're able to pivot a lot faster and a lot better. You know, the same would be true of our promotional efforts. So if we take our couponing, for example, we don't have to have the same coupon to everybody at the same time, every day. We can adjust coupon values at certain times of day to certain audiences, and so making the return on those, you know, a lot more effective. The same with our pricing.
Whether it's a certain size of cereal, or whether it's a certain line of yogurt or wet pet food in Blue Buffalo, we're able to adjust pretty specifically what our promotion or our marketing levels look like. But specifically at scale, and that's a lot different than it was. I attribute that to the fact that we have ongoing capabilities and strategic revenue management and measurement, as well as just the increased sophistication of the tools we have at our disposal.
How has or will the emergence of AI technologies affect the industry over the next few years? What are the biggest opportunities and risks?
Well, I think the biggest risk with regard to technology would be that if you decided not to adopt it, that is, that would be, that would be the biggest risk. You know, we've invested quite a bit to be, to be a leader, maybe the leader, in this area, and so the biggest risk is not, is not to adopt the change, but expect it to go away. And so we've adopted AI and machine learning, now generative AI, you know, we're working with that, all, all responsibly. There are still humans involved in the decisions that we make, even if we're running lots and lots of, of models.
And so I think the monitoring consumer behavior and what consumers are doing, so we can serve them better, my hope is certainly that the advent of using technology for us is that we become not only more efficient as a company, but more effective in serving the consumers we look to serve. And that's the promise of what we look to do. And the biggest risk by far is to not adopt the change.
Food tech seems to have bubbled up as an important new concept that could drive pockets of faster growth in what has been a fairly stable industry. Which technologies and emerging ideas are you most excited about, and how does General Mills participate in that?
Yeah, I did touch on this a little bit earlier, too. I mean, you know, we have our own innovation that we look to with regard to food technology, as well as looking to the outside, looking at 301 Inc and Gold Medal Ventures to acquire technology or to partner with others to do that. So we kind of have our head on a swivel when it comes to emerging food technologies, as well as what we do internally. You know, you look at something like Carbe Diem!, something we launched internally, which has a lot more protein, like, something like 55% more protein and more fiber and fewer carbs than what we've been doing before.
And so we launch our own, we, you know, we have our own technology capabilities, and as well as looking on the outside. And the key is to make sure we understand what direction consumers are going in, and to try to go with them. And whether that's demographic change or food preferences, make sure we're going with them and apply the technology that they're interested in.
Let's move on to M&A. Can you talk about the progress that you've made, on your watch at switching up the portfolio in recent years? And what have been the priorities thus far, and what goals do you have going forward?
Yeah. So on M&A, I'm really pleased with, you know, how we've shaped our portfolio. And the first thing I'm pleased about is we've been able to grow our core while we do it. And the fact that we've gained market share in 50% of our categories over the last five years is really important, because you wouldn't be asking me about M&A if we failed to do that. And so our ability, I think, to do M&A while maintaining execution of our core has driven our success. With regard to M&A, we reshaped about 20% of our portfolio, both acquisitions like Blue Buffalo and like the pet treats acquisition from Tyson, as well as Edgard & Cooper.
So a lot in the pet space, but also TNT Crust business, which is part of our food service segment, but also divestitures. And, you know, again, divesting, you know, our yogurt business in Europe, which was big, but also slower growing and lower margin, has unlocked... It not only created growth from that divestiture, but also put our resources back on the things that are most important for us in Europe and Australia, for example. And so, you know, I'm really pleased with what we have done so far, and it's all in service to really get back to a sustainable level of profitability and profitability growth, kind of mid-single profitability growth, driven by 2%-3% growth over the long term in our sales.
So we, you know, we think we're somewhere around 2.5% growth long term. That may not happen this next year, but over the long term, 2.5% sales growth. We'd like to get to 3%, and the, and the magic of 3% really is it creates a sustainable flywheel for mid-single digit profit growth and higher EPS growth. And so we probably have about 50 points of reshaping. We will look at both acquisitions and divestitures. And the acquisitions, you know, you know, I won't get into very specific, but I will say that, you know, they'll probably be either in categories we're currently in or tangential to categories, particularly big global categories we participate in, whether that's pet food or bars or snacking or food service, which is a big business for us.
Looking for things that are creative to growth, but where we have a right to win. But also looking at divestitures, because more is not always better. And to the extent that we have slower growing businesses, where we think that our time and attention we've put to our faster growing businesses, we've seen the benefits of divesting. Even though they're hard, we've seen the benefits of divesting as well. So I think what you can expect from us is just more of the same, in the sense that we'll look to both acquire and divest. And our balance sheet is in good shape, and our net debt to EBITDA ratio is about 3x.
But I will also say with regard to M&A, I mean, we don't have to, and we will only do it if we think we can create shareholder value. We've been very disciplined over the last few years. This last year in particular, you've seen us, you know, repurchase more shares and not do as much M&A. And if you don't find something we think we can create shareholder value through M&A, we're more than happy to keep increasing our dividends and execute on share repurchases, which also creates shareholder value.
Moving on to sustainability. General Mills seems to have emerged as a leader in the regenerative ag space. Can you talk about this program and how your efforts have been focused in particular geographies and crops, and then how do you measure success?
Yeah, so I'm really glad you brought that up. You know, I would say that, you know, our regenerative ag has been a big success. And I think it starts with the fact that Standing for Good is part one of our four strategic pillars. So it's not like we get up and make food in the morning and think about, you know, this kind of activity in the afternoon. It's part and parcel to our whole strategy. And regenerative agriculture is particularly important to us because the climate is changing. We depend on the climate. And particularly, you know, certain row crops like wheat, for example, for flour or oats, which we make Nature Valley.
Regenerative agriculture is a really important step for us because it improves soil health, takes carbon out of the atmosphere, sequesters water better, keeps nutrients better, just makes the whole cycle more resilient. We have a goal of getting to 1 million acres of regenerative agriculture by 2030. We're more than halfway there, and we set this goal only a few years ago, so we've made great progress. There's more progress yet to make. You know, 1 million acres, for context, is roughly a quarter of the acres that we would use for our inputs. It's not an inconsequential level of space. We've done it ourselves. We partner with farmers. We partner with groups who work with farmers.
We partner with our retail customers. You know, I spent a lot of, a lot of time in, in Washington, DC, Washington, DC. I can tell you one thing that the Democrats and Republicans can agree on when I go there is the value of regenerative agriculture. And it is different by location because you need, you are having different crops, different cover crops, different ways of working in different locations. So what you do in Georgia may be different than what you do in the Plains, may be different than what you do in Canada. So far, we have seen really good fruits from our practices, and it will take a while, but it is really important, not only for us, but honestly, the future of agriculture in the United States to adopt some of these practices.
Moving on to the final question here, and a broader one. How do you make the investment case for General Mills? What distinguishes the company as an investment over the next three to five years from other U.S.-centric packaged food names?
Yeah, I think we, we've distinguished ourselves in, in that we've been able to grow our core and do M&A at the same time. And, doing one of those is okay, doing, but doing both of them at the same time is, is quite a trick. And, as I, as I look at us, we've been able to do that. We've been able to pivot faster than many of our peers. If you think the environment ahead of us, ahead of us is going to be really stable, maybe that doesn't matter. If you think that the environment ahead of us is rocky, either because of climate change or geopolitics, or the state of consumer is in flux, or that inflation, we may or may not know what's coming.
If you think that there's an era of volatility ahead of us, I think you should bet on us. And I think you should bet on us, not because just I say so, look what's happened in the last few years. We've been able to weather all the different storms that have come at us better than most, if not all, of our peers. I think there's a period of volatility ahead of us, and it's not the companies that are going to predict when volume is going to come back or predict exactly what's going to happen to the consumer, but adapt to the environment around them, those are the companies that are going to be successful. I think we've proven we can do that, and we've done that through our core, through M&A.
We've done it by investing in technology. We've done it in brand building, so it's not accidental. And we've been all this while, you know, we've been investing in pivoting, and I think you should bet on us because that's what we'll continue to do.
Perfect. In that case, we'll leave it there. Thank you so much for your time, Jeff.
Yeah, thank you.
I really appreciate it.
Thanks for everybody attending today.
We'll do it again. Thank you.