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Continued: For General Mills, a year of ups and downs

  • Article by: MIKE HUGHLETT , Star Tribune
  • Last update: February 16, 2013 - 10:37 PM

Did General Mills misjudge Greek as just a fad? Powell said no. “We were monitoring it. … Greek was running along at a relatively small level within the overall yogurt category, and I think what happened is it reached a tipping point, and then it really took off in a way that we didn’t expect.”

Powell doesn’t see Greek as a lost cause. “We want our fair share, which would certainly be 20 percent, and we’re almost halfway there.” The company’s initial production capacity constraints for Greek yogurt were solved last summer, and its new “Greek 100,” a lower-calorie offering, has done well, Powell said, adding that “It will be a winner for us.”

Gaining ground in Greek is a big challenge, though stock analysts aren’t counting out General Mills. “They have the Yoplait brand, which is a very powerful and recognized brand,” said Jack Russo, an analyst with Edward Jones.

Challenges in cereal

Another challenge, albeit a more short-term one, is revving up cereal sales. Cereal is the company’s largest U.S. business, providing $2.4 billion in revenue last year, and General Mills and Kellogg dominate the market. But General Mills’ cereal sales for the first half of fiscal 2013 are down 2 percent over a year ago.

The company’s innovation in cereal “is failing to drive growth,” according to a report by Goldman Sachs analyst Jason English, who put a “sell” rating on General Mills’ stock last month, a rarity.

“We see a risk of product discontinuation ahead ... or at a minimum, continued ineffectiveness of net innovation,” English wrote.

He singled out Cheerios, General Mills’ largest cereal franchise. The emphasis on extending the brand — Chocolate Cheerios, Peanut Butter Cheerios, etc. — may be running out of steam, he wrote.

Powell said General Mills’ lagging cereal sales stem from ramped-up promotions in the category. “Several competitors increased [promotion], and ours was a little bit lower than it needed to be. We have to adjust.”

He dismissed the notion of an innovation slowdown. Cheerios line extensions have been an “incredible success,” he said. A new one — Honey Nut Medley Crunch — hit store shelves recently, along with a new iteration of Fiber One cereal and Peanut Butter Toast Crunch, a spinoff of Cinnamon Toast Crunch.

Success in snacks

New product offerings and brands have been critical to General Mills’ success in its snacks business, which had $1.6 billion in U.S. sales last year, and has grown at an annual average of over 8 percent since 2007. For the first half of fiscal 2013, sales were up 10 percent year-over-year.

The company brought its Fiber One brand to snacks in 2007, and it’s now the market leader for nutritional snacks, according to SymphonyIRI Group, which tracks sales in traditional grocery stores. General Mills said Fiber One bars racked up more than $300 million in sales during fiscal 2012.

The Nature Valley brand, which comes in ever-evolving varieties and flavors, leads the U.S. granola bar market with more than $700 million in sales last year. “The snack division is doing fantastic,” said Mairs and Power’s Johnson. “They are gaining share significantly within snacks and their products really skew toward health and wellness.”

Major acquisitions

In 2012, General Mills moved further into snacks — and more importantly, fast-growing international markets — by acquiring Yoki Alimentos SA for almost $1 billion. The deal for the ­Brazilian foodmaker was General Mills’ second big international acquisition within a year. In 2011, it paid $1.2 billion for a controlling stake in France’s Yoplait SA, the global yogurt powerhouse that had long licensed the Yoplait brand to General Mills in the United States.

More than 30 percent of General Mills’ sales come from international operations. Expanding in dynamic markets like Brazil and China is critical to overall sales growth, including through acquisitions. “We are interested in getting scale in a few other places,” Powell said, pointing to India.

“We’ve got a business there now built around Pillsbury flour products, and we just acquired a very small company called Parampara [which makes spice and sauce mixes]. We like that business and we can grow it. But we’d like to be bigger in India, which is a huge market and is going to be so important.”

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    Over last 14 months General Mills has not only lagged the S&P 500 index but it has also lagged peers in the S&P 500 packaged foods index.

    Name total return (from 12/30/2011 to 2/15/2013)

    General Mills Inc. 10.7%

    S&P 500 Packaged Foods Idx 19.6

    S&P 500 Index 24.0

    Source: Bloomberg

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