The problem: Low- and middle-income consumers—particularly those earning under $100,000 a year—are feeling stretched, said General Mills CEO Jeffrey Harmening on the company’s earnings call.

• That pressure has resulted in roughly 86% of meals being consumed at home, unchanged from recent quarters but at the high end of the typical range.
• Management also cited shifts in behavior—from where and when consumers shop to a greater reliance on promotional pricing over everyday prices. The company has additionally seen a pullback in some discretionary segments, such as wet dog food.

The solution: General Mills is adapting to these evolving consumption patterns.

• The company plans to increase new product innovation by about 25% by leaning into consumer trends. Cheerios Protein, for example—launched last December—already holds a 0.9% market share and is on track to be a $100 million business by the end of the fiscal year.
• General Mills also plans to refine its pricing strategy to better compete with private labels and other lower-priced alternatives.

Zooming in: Amid a challenging environment, the strategy appears to be working, as General Mills outpaced analysts’ expectations in FYQ2.

• Net sales reached $4.86 billion, down 7.3% YoY but ahead of the $4.78 billion consensus forecast.
• Organic net sales fell 1%, outperforming expectations of a 2.5% decline.
• Adjusted earnings per share came in at $1.10, down 21% on a constant currency basis but ahead of the expected $1.03.

Our take: It’s a difficult environment for CPG companies, with costs rising at the same time that consumers feel pressed. That dynamic puts the onus on brands to innovate quickly, price strategically, and stay tightly aligned with shifting consumption patterns to defend their market share.