General Mills' Cereal Business Is Alive And Well

By Sam Lewis

Food manufacturer post first gains in over a year

General Mills has been hard at work over the last year developing new product innovations and marketing strategies. This work appears to have paid off as the Golden Valley, MN-based company saw increases in sales of four percent during the first-quarter of fiscal 2014, versus the first quarter a year ago.

Fiscal 2013 was not friendly to the cereal industry, and General Mills was no exception, experiencing a decline of 2 percent in U.S. cereal sales from the year before. The weakness reported across all cereal manufacturers had many analysts questioning cereal’s place against flourishing breakfast options like fast food and bagels. Cereal sales in the U.S. have been dominated by General Mills and Kellogg’s, but these figures have been fading for three years. The president of Big G — General Mills’ cereal line — Jim Murphy, said in a conference call, that despite recent declines in sales, cereal is alive and well.

For the quarter ending August 25, General Mills posted net profit of $468 million, or 70 cents per share. This figure is down 15 percent from a year ago, but after adjustment for one-time items, earnings per share show a rise of 6 percent versus a year prior. Overall sales were also boosted by 8 percent, up to $4.37 billion. These figures slightly exceeded estimates of Wall Street. “It’s a good start, says Ken Powell, CEO of General Mills. “We’re in line with expectations.”

The company gives credit to its booming snacks business, specifically Nature Valley and Fiber One bars, as part of the driving force behind the recent spike in profit. “Our U.S. snacks business is off to a terrific start this year,” Powell says. The snack side of General Mills showed a 10 percent increase in sales over last years’ numbers.

The problem in the cereal industry has been a lack of new ideas (new marketing and new products), not issues of production or company structure. “These are not structural issues. These are issues of innovation and execution. In Big G we are taking specific steps to drive growth in our cereal business in 2014 and beyond,” says Murphy. This year, the company introduced a new twist to an old favorite in Honey Nut Cheerios Medley Crunch which has done very well. Also, General Mills’ co-branded cereal with Hershey, called Cookies ‘N’ Crème, has been a top-selling item.

Despite concerns in annual sales of cereal, across all manufacturers, over the last few years, the industry should not be overly concerned. Cereal has long been a staple of the breakfast table, and will continue to be, even though it is not immune to changes in consumer preferences. It is unlikely that those preferences will ever change so much that kids will stop going “coo-coo for Cocoa Puffs.”