Powering Up Innovation at General Mills

Photography by Vito Palmisano
High-fiber cereal and lactose-free yogurt might not be glamorous, but consumers are clamoring for them.

General Mills understands that and is in a strong position to capitalize on shoppers' current buying habits with a flurry of new products and a renewed commitment to marketing support. One out of four U.S. grocery shopping trips includes at least one General Mills product, the company says. General Mills has a strong presence in about 100,000 stores in the United States, where the typical supermarket stocks about 550 of its items, and it has been expanding internationally.

"We've had great, strong continuity of playing our game and very effective execution around new products," chairman and chief executive officer Ken Powell told Retail Leader in an exclusive interview.

Powell, a Harvard graduate who started with the company after earning a master's degree in business administration from Stanford University in 1979, has personally had a hand in the company's brand building and international expansion during the past three decades. He first worked in marketing for General Mills' cereal brands, then spent time with Betty Crocker and Yoplait USA before serving as chief executive of Cereal Partners Worldwide, the company's joint venture with Nestle, from 1999 to 2004. Powell returned to Minneapolis to become chief operating officer when Steve Sanger was chairman and chief executive, before taking Sanger's place in 2007. That year, the company's annual sales were $12.3 billion. In fiscal 2011, the company reported net sales of $14.9 billion, including $10.2 billion in U.S. retail sales of brands such as Cheerios, Betty Crocker, Pillsbury, Green Giant, Yoplait, Nature Valley and Old El Paso. International sales contributed $2.9 billion in 2011, and bakery and foodservice brought in $1.8 billion.

CHANGE AGENT

Powell's vision for the company includes continued innovation in the form of new product development, cost containment and market expansion. He regards changes in the marketplace as an opportunity to better serve consumers through innovative products. Increasingly that means meeting their needs for convenient, healthy snacks and foods.

While General Mills historically has achieved steady sales growth and has outperformed the market, it recently lowered its guidance on full-year adjusted earnings to a range of $2.53 to $2.55 per share from its previous estimates of $2.59 to $2.61 per share due to softer-than-expected sales volumes in January and December. The company had cut back on in-store merchandising and new products, but has reversed that strategy. Now Powell is optimistic that the company's results will pick up as it rolls out new products with ample marketing support. "We're innovating across our portfolio and building our brands," Powell reassured analysts at the annual Consumer Analysts Group of New York conference in February. The company's goal for 2015 is $18 billion in net sales, which it plans to accomplish through customer growth, international expansion and innovation and brand building.

"We're a little behind in Greek [yogurt], but really if you're looking at it properly, you would say the [yogurt] category has never been more dynamic."

Analysts in general like the company. "With a wide variety of food products, General Mills goes beyond the breakfast table in its effort to capture the appetites of its customers," noted Dan Caplinger of The Motley Fool in a Feb. 28 write-up. Caplinger gave the company's stock a score of 8 out of 10 points as an investment vehicle for retirement, noting that General Mills is likely to continue providing good returns with low risk.

Besides organic growth, General Mills has been successful adding sales and market share through acquisitions. For example, its ready-to-eat soup business now commands a 38 percent share of the market, up from 25 percent when the company acquired the business with its Pillsbury merger in 2001.

To keep up with consumers' growing appetite for healthy snacks, the company recently acquired Food Should Taste Good, which makes natural tortilla chips in flavors such as sweet potato, lime, jalapeno, chocolate and olive.

FOCUS ON FIBER

General Mills also has been a leader in research and development, coming up with a proprietary technology to increase the palatability of whole grains. "We've made fiber more palatable. As a result, we've been able to offer products like Fiber One in a variety of forms. You get it in flakes, shreds and clusters," says Powell, noting that Fiber One has been the fastest-growing product in the company's portfolio. "People really want more fiber in their diet."

But Cheerios, Lucky Charms and Cinnamon Toast Crunch cereals also list whole grain as their predominant ingredient. In fact, the company recently announced that more than 50 of its cereals have been reformulated to put whole grain at the top of the ingredient list. A white check on the cereal box tells consumers the products contain more whole grain than any other ingredient.

Besides the reformulations, General Mills is launching 50 new products in the first half of 2012, such as Dulce de Leche Cheerios and peanut butter-flavored Multi Grain Cheerios, as well as lactose-free Yoplait yogurt. While new product sales represented 3 percent of total sales in fiscal 2011, the company expects to push that to 5 percent this fiscal year. Its dollar share of the U.S. cereal market climbed to 32.2 percent through Jan. 28, 2012, from 31.3 percent in fiscal 2011, according to Nielsen data. Continued innovation in Nature Valley and Fiber One cereal bars has pushed dollar share of the grain snacks market to 35 percent in the latest 12 months, up from 31 percent in fiscal 2011. "Fiber One Bars is... an example of the right health innovation being great for the consumer and driving growth for our customers," Powell says.

"Frankly, if we have an idea that we think is good and someone should be looking at it and we're not making headway, we can take it to someone at another level. I can raise it CEO to CEO."

While brand innovation is one of Powell's top-line strategies, the company also takes seriously its partnership with retailers, sharing data and insights to help grow sales. "Because we're in all 50 states in 25 categories, we're in a lot of aisles. We can not only go in and help them optimize turns, [we can] help them help the whole aisle work better," says Powell. General Mills presents custom solutions for retailers of all sizes based on its research with 50,000 shoppers. The strategy often means reallocating shelf space to faster-moving categories and developing new formulations to fit consumers' health-consciousness.

The company relies on its relationships with retailers to help it champion ideas of mutual benefit. "Frankly, if we have an idea that we think is good and someone should be looking at it and we're not making headway, we can take it to someone at another level. I can raise it CEO to CEO. We're going to try to work that relationship across the retailer," says Powell.

The company works with independents as well as big-box retailers to test products and prove new concepts, Powell says. "We have the resources in place to really apply broadly across all the different segments of retailers. That's gained us traction," he says.

While General Mills was late to the Greek yogurt category, it is catching up. Sales of its Yoplait Greek yogurt have increased 46 percent year-to-date. "I'm very confident we will penetrate and grow that segment," Powell says. "We're a little behind in Greek, but really if you're looking at it properly, you would say the category has never been more dynamic." Its Yoplait brand controls about 40 percent of the U.S. yogurt market, and the company acquired Yoplait International on June 1, 2011.

General Mills still caters to brand-conscious shoppers as one of the largest advertisers in the industry. It shelled out about $844 million in worldwide media spending in fiscal 2011 despite the tough economy, and it has pledged to increase spending in fiscal 2012 commensurate with sales growth. As the number of hours consumers spend watching television declines and the use of computers, smart phones and tablets increases, the company has added to its Internet marketing efforts.

GOING GLOBAL

When Powell took over as chief executive in 2007, he promised a focus on international expansion and innovation, and he has been true to his word. International products are a strong suit for General Mills, representing more than $4 billion in sales, or 25 percent of the company's total net sales with the addition of the Yoplait International acquisition, Chris O'Leary, head of international, said in a second-quarter conference call to analysts on Dec. 20, 2011. That compares with international sales totaling $300 million in 2001 with most coming from Canada that year, O'Leary said. In the first half of 2012, international sales climbed 43 percent including Yoplait.

"The good news is globalization is here. Emerging markets are growing rapidly," Powell says. When people in China or Brazil gain higher income, they improve their diet, he adds. Yet the United States will remain General Mills' focus. "We see the U.S. as a very favorable place to be," he says. "Really, we look more like a developing country than a developed country. We have population growth here. We have high income and all kinds of changes, which for us spell opportunity."