General Mills has insisted it has the right strategy in place to improve the performance of its brands in the US market, where sales have come under pressure in key categories such as cereal and yoghurt.
In line with much of the US food industry, the Old El Paso and Green Giant maker has felt the impact of the depressed macroeconomic environment in the country. The US company has also seen its market share decline in some categories.
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In a bid to tackle these issues, General Mills has stepped up its investment in product development. The company launched more than 200 products in the first six months of fiscal 2014 and the group recently unveiled an additional 50 lines due to hit the shelves in the back half of the financial year.
Product innovation has focused on key areas of demand – such as adding protein to products or developing gluten-free variants – General Mills CEO Ken Powell emphasised at the Consumer Analyst Group of New York conference today (18 February).
In order to support these launches – and its existing product stable – the company has also stepped up its marketing spend, Powell revealed. Since 2008, General Mills has increased its marketing budget by almost 50%, he said. “Supporting product innovation with high level of advertising” has therefore been the central thrust of General Mills’ US strategy.
“We support our US food business with strong levels of advertising,” he argued. “We are the fourth-biggest US food and beverage company and the second-largest US food and beverage advertisers,” Powell added citing Nielsen data.
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By GlobalDataHowever, while General Mills is increasing its brand investment, it would seem the tactic has – to date – failed to translate into top-line growth in the US.
A decline in domestic sales at a time of rising ingredients costs was one of the chief reasons why General Mills missed Wall Street profit expectations in its most recent quarterly update, filed at the end of last year. During its second quarter, General Mills booked a 1% drop in US retail sales.
The company said its first-half performance meant full-year earnings would come in at the low-end of its US$2.87 to $2.90 forecast range, guidance the company reiterated this morning.
In particular, General Mills has struggled to improve sales trends in the yoghurt and cereal categories – but for very different reasons.
The US yoghurt sector is growing at a higher rate than the US grocery average. According to Packaged Facts, a research firm, the US retail market for yoghurt stood at $7.3bn in 2012, up 6.6% over the previous year. This growth has been driven by the surge in Greek yoghurt sales – a sub-category that General Mills was slow to capitalise on and has struggled to catch up in against market leaders Chobani and Danone.
General Mills has adjusted its Greek yoghurt proposition, offered under the Yoplait brand, by adding flavours and altering the recipe. “We believe the taste of our products is now a competitive advantage,” Powell stressed.
While he conceded the turnaround of the group’s yoghurt business has been slower than management would have liked, Powell emphasised General Mills has been able to reverse declining share trends. “Our share has moved up to 10% in the latest period.”
In contrast, however, the US cereal category is in decline. The sector faces growing competition from alternative breakfast products and dropping consumption from time-poor consumers seeking convenience.
However, Powell rejected the suggestion cereal has lost its resonance with consumers. “Cereal is one of the top ten foods in the US and the number one choice for breakfast… [the] slowdown in sales isn’t a consumer issue… it is down to lack of product news from branded competitors.”
General Mills is not the only cereal company struggling in the US. Key competitor Kellogg has seen sales decline in the market and the company announced late November it will step up investment in the country in a bid to improve the fundamentals of its core cereal business.
Likewise, General Mills has increased its efforts around “relevant new product innovation” and “news from established products”. This has resulted in market share gains and, Powell claimed, increased activity throughout the sector will rejuvenate the category.
“We’ve been growing our… dollar share. We are confident that this same strategy played out on a broader industry scale will renew category growth.”
Other areas of the General Mills portfolio have faced less troubled waters. In convenient meals, Powell said Old El Paso was generating top-line growth with sales up 3% this fiscal year.
The chief executive was particularly bullish on the outlook for General Mills’ snacks offering, with grain snacks such as Fiber One bars and Nature’s Valley appealing to consumers seeking better for you alternatives.
The company has looked to accelerate its expansion in the snacking aisle in the US through acquisitions such as its move to buy the Food Should Taste Good brand in 2012. Powell said “tuck in” acquisitions would be an important part of General Mills’ growth strategy “around the world” and did not rule out further M&A activity in the US.
“You have seen us make acquisitions in the US – particularly in that snacking space,” he said. “We are very clear, where we see the growth and we will continue to pursue those opportunities.”
General Mills also aims to increase its exposure to faster-growing areas of the US grocery sector, such as natural and organic. In this way, the group believes it can generate sales growth “above the industry average” – and help bolster a top line held back by challenges in other categories.
“The US population is growing and we are focused on fastest growing segments,” Powell concluded.
