MINNEAPOLIS — Lack of product innovation from branded manufacturers, a dearth of product news behind established brands and lackluster consumer-directed advertising support have contributed to category unit volume declines over the past several years in the ready-to-eat cereal segment, but General Mills, Inc. still sees strong growth opportunities for its U.S. cereal business.
“In Big G, we are taking specific steps to drive growth for our cereal business in fiscal ‘14 and beyond,” said Jim Murphy, president of Big G cereals, during a Sept. 18 conference call with analysts to discuss first-quarter financial results. “Our plans include core brand renovation that is relevant to consumers. We’re launching a strong slate of differential new product innovation. And we’re investing to develop innovative marketing ideas that bring increased consumer excitement to cereal.
“It’s really a simple formula, but it works. Where we are bringing relevant product news and innovation to market, we are seeing the sales growth.”
Established brands making mark
Mr. Murphy mentioned the company’s Chex and Cheerios brands as examples of where General Mills is delivering on its strategy.
“There is perhaps no better example of the power of product news and renovation than on our Chex business,” he said. “In 2010, we repositioned this brand as gluten-free. Retail sales have increased at a double-digit rate since. And Chex grew another 7% in the first quarter, including contributions from a new vanilla variety.”
As for Cheerios, one out of every eight boxes of cereal sold in the United States is a variety of Cheerios, he said. General Mills is supporting Honey Nut Cheerios with increased levels of advertising, including a new campaign with the rapper, Nelly, called “Must be the Honey.”
“Early response to this ad has been just fantastic, with over 10,000 mentions on social media in just the first week,” he said. “First-quarter retail sales of our Honey Nut Cheerios franchise increased 4%.”
Mr. Murphy also indicated that General Mills is “pulling levers” on some brands that the company hasn’t supported as much in recent years, including Wheaties and its Monster cereals. With Wheaties, General Mills has partnered with Blippar to bring football star Adrian Peterson to life.
“Just download the Blippar app, point your smartphone at the Wheaties box, and see what happens,” he said.
Meanwhile, initial shipments of Monster cereals are ahead of last year’s pace in part because of the reintroduction of Yummy Mummy and Frute Brute, two varieties that have been off store shelves for more than 20 years, Mr. Murphy said.
“We see a lot of upside for supporting brands like Wheaties and Total and the like,” he said. “And we’re doing it with different marketing vehicles. So, it’s not the standard TV plan. You’re going to see a lot more in the social space, as an example. So, yes, that is upside for us. We have a lot of brands that are between 0.5 of a share point and 1 point that we can continue to increase the spending behind good marketing ideas.”
Innovation, new benefits on agenda
Even while trumpeting the importance of building up its established brands, Mr. Murphy said plans for 2014 include new product innovation as well.
“Honey Nut Cheerios Medley Crunch continues to be the single biggest launch in the category this calendar year,” he said. “Our new Hershey’s Cookies ‘n Creme cereal is off to a great start. It’s turning in the top one-third of the total category, and outperforming other new items in the chocolate segment. This great taste comes with solid health credentials, too, including 100% whole gain and no trans fats.”
Mr. Murphy also stressed the importance of bringing new benefits to the category to drive growth.
“Our Nature Valley Protein Granola delivers 10 grams of protein per serving,” he said. “That’s more than twice the cereal category average. With two varieties — oats and honey, and oats and dark chocolate — this product tastes terrific. After only three months in market, it’s already among the top-turning granola items.”
The Nature Valley product, along with General Mills’ Cascadian Farms brand, fit into a segment of the cereal category that Mr. Murphy referred to as the “nature space.”
“It’s still small relatively and it’s still relatively less productive than the mainstream,” he said of the nature space. “But, nonetheless, we think we have two terrific brands to capitalize on that trend in Cascadian Farms on the organic side and now Nature Valley, which I think is going to be a really strong brand in the cereal category.”
No weak spots in category
Looking at the demographics of the cereal category, Mr. Murphy said mainstream families who are after taste, branded value and fun are the strongest consumers right now. Lucky Charms and Honey Nut Cheerios are two brands that are filling that need.
“We don’t see a weak spot across the demographics,” he said. “In fact, Hispanics consume more cereal than anybody, and that’s a growth drive for us in the future. So, demographically, cereal has a lot of tail winds, actually, going for it.”
Summing up the state of the cereal category, Mr. Murphy was steadfast in his belief that brighter times are ahead.
“In my 21 years at General Mills, I’ve seen growth in the cereal category written off a couple different times,” he said. “And I’ll just bring up a couple examples. The first one is when bagels became a phenomenon in the U.S., and everyone was going to move to bagels and no one was going to eat cereal any more. And then, lo and behold, we innovated on cereal and brought some new taste varieties and new textures into the category, and the category rebounded.“The second time was when Atkins diet craze came along. And, again, everyone was going to move away from carbohydrates at that point. And then we brought whole grain news to the category, we brought fiber news to the category. We tend to be able to innovate our way out of this. … I don’t see anything different about this time period than I saw the first two time periods around. But it’s incumbent upon the branded manufacturers to bring the news and adapt in this highly adaptable category.”