General Mills wants more from the core

by Eric Schroeder
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General Mills is focused on providing healthier options; the company plans to make nearly 90% of its Cheerios cereals gluten-free and has already reduced the sugar in its Yoplait Original yogurt by 25%.

LONDON — Executives at General Mills, Inc. are optimistic about the long-term outlook for the Minneapolis-based company. In a May 19 presentation at the Barclays Americas Select Conference in London, Ken Powell, chairman and chief executive officer of General Mills, said he expects the company’s long-term growth model to feature low-single-digit growth in net sales, mid-single-digit growth in segment operating income and high-single-digit growth in earnings per share. He identified four business strategies he sees as being keys to delivering on that model.

First, Mr. Powell said General Mills will drive more from the core of its business by renovating and innovating on its established brands and categories.

“Today’s consumers want more natural foods with simple ingredients, fresh foods,” he said. “They are avoiding things like gluten, simple carbohydrates and artificial ingredients. They are looking for more protein, more fiber, more whole grain, more organic products. And consumers everywhere are snacking more than ever, and all of these changes create great opportunity for General Mills. We will capitalize on these opportunities by leveraging our core business platform.”

In the ready-to-eat cereal category, Mr. Powell said General Mills continues to work to evolve with consumer preferences. The company is posting strong growth for its granola cereals, which are on trend with consumer interest in less processed foods, he said.

“Retail sales for granola cereals have increased by 26% calendar year to date,” he said. “Our protein cereal varieties are also enjoying excellent growth with calendar year-to-date retail sales up 80%.”

General Mills' protein cereal varieties has experienced excellent growth.

The company also is embarking on a broad investment plan designed to renovate products, including a strong push to make the Cheerios franchise gluten-free.

“We are taking almost 90% of the Cheerios franchise gluten-free, this equates to 11% of the total cereal category,” Mr. Powell explained. “It is important to note that this is a processing change, not a reformulation. Oats are the primary ingredient in Cheerios and they are naturally gluten-free. But trace amounts of wheat, barley and rye find their way into the oat supply chain in the field or during shipping.

“One of our engineers developed a mechanism for sifting out those other grains leaving us with pure oats. So consumers will be able to enjoy the same great tasting Cheerios that they love with the added benefit of knowing that they are gluten-free. Nearly 30% of US consumers express an interest in gluten-free foods, so we think that this change will be a big deal. We know some consumers have turned away from the cereal aisle to seek gluten-free options for breakfast, and we think that having the largest franchise in the category gluten-free gives them a good reason to return to the category.”

In addition to cereal, General Mills also has big plans in store for yogurt. In an example of how General Mills intends to reshape its portfolio, Mr. Powell said the company believes China is the next platform for growth for the company’s Yoplait brand.

General Mills is weeks away from launching its Yoplait yogurt in China.

“According to Euromonitor, yogurt is a $10 billion category in China with sales growing at a double-digit pace,” he said. “Chinese consumers like the health benefits of yogurt and they like the variety. Drinkable yogurt is the largest category segment today, but spoonable varieties are the fastest growing.

“We are just weeks away from launching Yoplait in China. We recently received final government approvals, and we are ready to start shipping next month. We are launching with three platforms, two spoonable lines and one drinkable line with 12 flavor varieties in all. We will cultivate the Yoplait brand with Chinese consumers by emphasizing a superior quality and taste experience, and we will leverage sampling to drive trial. We are focusing our initial launch in Shanghai. and we will follow our Wanchai Ferry growth model, test and learn in our initial launch city before expanding geographically.

“We are excited about the prospects for growth across our global yogurt business. We like our position in key developed markets, and we see plenty of room for future growth as category consumption continues to develop in emerging yogurt markets, including the U.S.”

Two other business strategies General Mills will utilize include leveraging its holistic margin management discipline to fuel growth and evolving the organization to become faster and more agile.

“We identify non-value added costs in our manufacturing processes and other activities across the company, we reduce or eliminate these costs and use the savings to offset higher input prices,” said Don Mulligan, executive vice-president and chief financial officer. “We also reinvest savings in advertising, R.&D. and other activities that drive sales growth.”
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