General Mills planning to boost US cereal sales through new products like Cheerios Ancient Grains

General Mills planning to boost US cereal sales through new products like Cheerios Ancient Grains

General Mills has reported market share growth across its three "priority" categories in the US - cereal, yoghurt and snacks - but sluggish sector sales trends and continuing under-performance from struggling areas of its portfolio continue to hit the group's US retail business. 

Second-quarter sales fell 1%, excluding currency, the group revealed yesterday (17 December). US retail sales slid 4% as volumes in General Mills' domestic market remained in decline, sinking 3%. Bernstein analyst Alexia Howard described the performance as "weak". She observed: "Top-line growth remains lacklustre in categories including dessert mixes and frozen vegetables."

During a conference call with analysts Jeff Harmening, EVP US retail, conceded General Mills needs to step up its game in the US. "We know that our first-half US retail performance was not where it needed to be. It is true that the slowdown in overall US food and beverage industry sales is a challenge, but it is up to us to take actions to improve our own performance," he said. 

However, Harmening also highlighted a number of bright spots. The company has grown market share across its "top three priorities" - cereal, yoghurt and healthy snacking. 

While cereal sales declined 3% in the first six months of the year, Harmening stressed the General Mills cereal brands grew market share in a down environment. "Our retail sales continued to outpace the category. We have grown cereal market share in six of the last seven years and their share is up again through the first two quarters of this year. That said, retail consumer sales for our cereals and measured and non-measured channels combined were down 3% through the first half and we are not satisfied with that."

General Mills is working to return its cereal business to growth through a focus on innovation around key consumer trends. The company is launching products consumers perceive as "minimally processed", that offer added protein and are "indulgent".

"We know there is still work to do on cereal. We continue to believe what the category needs is bigger, better, fresher ideas coupled with solid execution. We branded manufacturers need to bring renovation, innovation and advertising investment targeted to areas of consumer interest to grow sales for our business and the overall category," Harmening said. 

Elsewhere, yoghurt and snack sales increased. Harmening said sales of yoghurt were up 5% in the year-to-date and the company has seen a 0.5 point market share growth. On snacks he said: "Results so far have been excellent. We have delivered 5% retail sales growth and extended our share leadership in the grain snacks category thanks to great tasting innovation like Fiber One streusel and Nature Valley protein bars."

Again, Harmening highlighted General Mills' innovation efforts as it works to drive consumer interest in its centre-store brands. In this way, the company hopes to boost the prospects of its categories while avoiding a race to the bottom on price and promotion. As part of this drive, General Mills is tweaking its merchandising, Harmening revealed. 

"We are working to improve trade performance going forward and in the second quarter we were able to increase our average unit prices by reducing some inefficient merchandising spending. We expect to see continued improvement on our merchandising effectiveness as we move through the rest of the year."

Morningstar analyst Erin Lash saw this approach as positive for General Mills' outlook. "Promotional spending has been running rampant as the industry has attempted to prop up centre-of-store sales, although we've never viewed this spending as a wise strategic move for the longer term. As such, General Mills' admission that volume sold on promotion was off 1%-2% in the quarter is favourable and supports its commentary that innovation (with a focus on catering to consumers' desire for convenience and health and wellness offerings) is what will ultimately drive profitable category sales longer term," she wrote in an investor note. 

Indeed, General Mills CEO Ken Powell stressed: "As we look across our portfolio we see so many examples of innovation-driven growth. Our issue, our concern is not that we can't innovate. Our focus is on delivering more innovation because to us that is clearly the way forward."

While innovation has enabled General Mills to lift its performance in some key areas, other categories in its US retail business continue to flag. Notably, the company said revenue from its meal brands - the likes of Old El Paso - and baking products such as Pillsbury continued to drop. General Mills announced a swathe of innovation that it is rolling out in the back half of the year earlier this week, including Totino's pizza rolls and Old El Paso Restaurante soft shell taco kits. However, it remains to be seen whether these innovations will lift sales in these categories.