Its Yoplait brand has foundered—only one problem for the food giant. Can a new CEO calm the waters?

By John Kell
May 22, 2017

The company’s Yoplait yogurt brand has foundered, falling behind Chobani—that’s only one problem for the packaged food giant. Can a new CEO calm the waters?

These are boom times in the yogurt business. If you have any doubt, check out the dairy section of your local supermarket. For starters, chances are yogurts occupy a much bigger portion of it than they used to. You’re likely to see an abundance of brands claiming heritage from Greece, from Australia, from Bulgaria—even from Iceland. You prefer yours without cow’s milk? No problem. There are offerings based on sheep’s milk or the juice of a coconut. You can choose an ascetic unsweetened Greek yogurt that makes you grimace at its sourness, opt for a drinkable style—or pick a dessert-like option that lets you mix in “­cinnamon-glazed cake pieces,” to cite one example. The days when there were only a handful of brands, each with strawberry, blueberry, or raspberry preserves at the bottom, are far behind us.

Last year, nine of the top 10 yogurt brands enjoyed rising sales. Which one managed to sink even as a rising tide lifted all the other boats? Yoplait. Its sales have plunged 23% over the past year, according to market researcher IRI, after a 7% drop the prior year. Yoplait has fallen so much that its crown as the top U.S. yogurt brand was snatched by upstart Greek-style brand Chobani. (Danone, which owns a stable of varied brands, ranks No. 1 when their sales are combined.) Indeed, Yoplait’s shipwreck was so epic that its effect overwhelmed the combined sales increases for all other yogurt companies last year and caused the category in the U.S. to decline by 2%.

This is distressing news, to put it mildly, for General Mills gis , which owns a controlling stake in Yoplait. It’s not enough that the Minneapolis-based packaged foods giant—whose brands include everything from Cheerios and Wheaties to Hamburger Helper, from Pillsbury to Old El Paso and Häagen-Dazs—has to contend with consumers’ declining appetite for premade items that come in a wrapper or a box. It’s struggling even in the category where others are growing.

At 18% of company revenues, Yoplait is big enough­—particularly, when combined with weakness in the soups business at General Mills and the sale of its Green Giant unit—for its troubles to affect General Mills’ results. Revenue for the company has tumbled from $17.9 billion in 2014 to $15.7 billion over the past 12 reported months. The fact that the company’s cereal business has been largely flat qualifies as a victory by comparison.

Elected Jeffrey L. Harmening Chief Executive Officer of the company, effective June 1, 2017.
Courtesy of General Mills General Mills

The job of spooning out a new strategy for yogurt—and much more—falls to Jeff Harmening. A 23-year-veteran of General Mills who manages to be seen as both tenacious and well liked, he is slated to become the company’s new CEO this month. Harmening, 50, who was the company’s heir apparent and is taking over in what appears to be an orderly transition, spearheaded its successful acquisition of the Annie’s Homegrown brand (best known for its macaroni and cheese), pushed for the sale of Green Giant, and is viewed as an advocate for organic and fresher food. He’s clearly aware of the many challenges facing General Mills.

Solving them is a different matter. The company acknowledges it tarried when Chobani established a beachhead for Greek-style yogurt. “It’s no secret we were late,” says Joe Moidl, senior director of innovation for global dairy at General Mills. It has been trying to catch up, but the moves have been ineffectual so far. General Mills is once again promising action in the form of new products. But the company’s past decade doesn’t offer a lot of reasons to expect a yogurt breakthrough.

Meanwhile, a specter looms. It might be viewed as the Death Star for Big Food: Brazilian private equity firm 3G Capital. It has already acquired Kraft and Heinz and made an aborted bid for Unilever. General Mills, like some of its rivals, has been in a race to “3G itself” before somebody else does. The company has laid off 10% of its employees over the past few years and improved its profit margins by several percentage points. It even adopted zero-based budgeting, a signature 3G practice.

But implementing the 3G playbook seemed to distract the company from the steps it needed to take to increase its yogurt sales. That leaves General Mills in a paradoxical position: The very moves it made to fend off the likes of 3G may make it more vulnerable to such an acquisition.

Only three consumer packaged goods companies generate more revenue than General Mills in the U.S.: PepsiCo pep , Kraft Heinz khc , and Nestlé. Like those stalwarts, it has a long and intermittently glorious history. General Mills traces its roots to the year after the Civil War ended, when Cadwallader Washburn built a mill on the Upper Mississippi River in Minneapolis. His company’s biggest hit would be Gold Medal flour, which remains the top seller in the category today. A few generations after Washburn’s death, his operation combined with others during the Roaring Twenties to form General Mills.

In the decades that followed, the company introduced numerous staples that Americans still eat today, including Wheaties, Cheerios, and Bisquick. Its outside PR team invented Betty Crocker, a persona who dispensed recipes (which just happened to call for flour) and who once polled behind only Eleanor Roosevelt as the most famous woman in America. It wasn’t until later that Betty Crocker would become a brand of cake mix.

Like more than one venerable titan, General Mills went through an awkward conglomerate phase: It once owned Play-Doh, started the Olive Garden restaurant chain, and even operated an aeronautical lab that produced the first deep-sea submarine to explore the Titanic.

But by the mid-1990s, General Mills had exited those offshoots and become solely a food company again. It committed further to the industry in 2000 when it paid $10.5 billion for Pillsbury—which built its first mill across the Mississippi from the original Washburn operation just a few years after its rival in the 1870s—to rely less on the slowly ebbing cereal business.

Chart shows yogurt industry market share
Nicolas Rapp

Before yogurt became an affliction for General Mills, it was a boon. In 1977 it started selling Yoplait, a French brand, under license. (Decades later, General Mills acquired 51% of the company.) Unlike the typical U.S. yogurts at the time, which were unflavored, with sweet jam at the bottom of the container, Yoplait sold a blended product.

General Mills pitched it to Americans as “­Yoplait—it is French for yogurt,” as one ’80s ad put it. (The name was actually coined when French dairy cooperatives Yola and Coplait merged years earlier.) No matter. Baby boomers gorged, and the brand helped propel yogurt sales from $600 million a year well into the billions.

Yoplait’s marketing followed eating trends, particularly as diet products proliferated, and General Mills unveiled a steady stream of brand extensions. The brand began targeting women, with one ad touting a custard style as “fat-free and guilt-free.” By the turn of the century, Yoplait scored a major hit when it launched Go-Gurt, yogurt in squeezable tubes for kids. By this point, Yoplait had toppled the Dannon brand and become the market leader.

A pattern had established itself: Yogurt seemed to be redefined every five or 10 years, and General Mills was either ahead of the curve or close enough behind it to catch up. “It is a category of constant reinvention of itself,” says David Clark, president of General Mills’ U.S. yogurt business. But, he adds, “it has a very short life cycle.”

Despite that knowledge, General Mills was caught unprepared when Chobani arrived.

A decade ago, Greek-style yogurt made up just 1% of sales in the U.S. Hamdi Ulukaya changed that. At age 22 he emigrated from Turkey, where he grew up on a sheep farm, to upstate New York. Ulukaya eventually spotted an advertisement for a shuttered Kraft Foods plant that was selling for $700,000 and, in 2005, took out a small-business loan to acquire it. Two years later, the first Chobani yogurt appeared on a store shelf in New York State.

Within less than a decade, the young immigrant would shake up a group of multinational giants. Chobani revolutionized how yogurt is made and marketed in America. Greek yogurt is richer and thicker—it seems more artisanal, less processed—than smooth blended styles. Chobani and its ilk claim more health benefits than regular yogurt: high levels of calcium, vitamin D, and protein—and less sugar.

Chobani came on the scene just as consumers were beginning to revolt against the principles that had made packaged goods companies hugely successful. Shoppers began rejecting artificial sweeteners and anything that looked like a chemical formulation. Instead they craved ingredients they could recognize. After decades of fleeing fat at all costs, they began embracing products with whole fat. “Healthy” was no longer a synonym for “diet.” Within a matter of years “diet” or “light” would evoke a compromise on taste or ingredients that consumers no longer wanted to make.

It only helped that Chobani was a tiny startup with a compelling backstory rather than a multinational corporation. Chobani tasted—and sounded—fresh, and most of all, authentic. Retailers loved the upstart, too, because Greek yogurt commands higher prices than the rest of the industry.

Suddenly Yoplait and other legacy brands found themselves on the defensive. “Consumers are increasingly seeking products that match their personal definition of real food,” General Mills’ then-CEO Ken Powell acknowledged in a presentation last summer. “It can come to life in foods that have more protein or fiber or whole grain.”

Images courtesy of General Mills

In its cereal business, General Mills was able to embrace changing eating patterns with reformulations. In 2008 the company debuted a gluten-free version of Rice Chex and then expanded to Cheerios and Lucky Charms in 2015. Artificial flavors and colors were removed from many products, an initiative backed by Harmening, the incoming CEO. “Cheerios is a brand that is a great example of how General Mills has kept pace, if not ahead, of how the consumer is thinking,” says Credit Suisse analyst Rob Moskow.

Those renovations worked. Sales of Cheerios increased in 2016, Euromonitor data shows.

But similar moves simply didn’t resonate in yogurt. General Mills removed high-fructose corn syrup from Yoplait in 2012, reduced sugar by 25% in 2015, and replaced aspartame with sucralose in Yoplait Light. And by the time it made those changes, Chobani and others had made inroads.

For its part, Danone handled the newbie’s rise by responding faster than Yoplait and by embracing an all-things-to-all-people strategy. “We have the widest portfolio in the market,” says Sergio Fuster, chief of the yogurt business for what is now known as DanoneWave. In addition to its original Dannon brand and Dannon Light & Fit line (which avoided the dreaded “diet” label), Danone bought Stonyfield, an organic brand, and launched Activia, which emphasizes purportedly healthy probiotics. And it created a Greek-style line called Oikos.

A cynic might say that all it takes is a little bit of clever labeling—a global food conglomerate slapping a Greek-looking name on a new brand—to fool consumers. And there’s at least a dollop of truth in that. Either way, Oikos has succeeded. It was a brand previously held under the Stonyfield trademark but repurposed to be the company’s Greek offering. Danone gave it a big push at the right moment, making it the first yogurt to advertise during the Super Bowl. It hired celebrities, including Full House star John Stamos and NFL quarterback Cam Newton, to appear in ads.

Yoplait tried to parry with its own new brand, Yoplait Greek, at the beginning of 2010. But it didn’t look much like traditional Greek-style yogurt, and there was no catchy ethnic name to conjure authenticity. Yoplait Greek flopped.

Two years later, with Yoplait’s sales sliding 5% amid a surging yogurt market, General Mills tried again, adding a second entry called Greek 100. This version was a bigger success: First-year sales surpassed $140 million, the biggest launch in ­Yoplait history. That was worth dancing a Zorba-style sirtaki over—until those sales soon began to sag.

“It’s still very early days for the U.S. Greek yogurt segment, and we fully expect to earn our fair share of this segment over time,” vowed General Mills executive Becky O’Grady during the company’s investor day presentation in 2012.

Two years later, General Mills tried a different tack. It began claiming that blind taste tests proved that customers preferred Yoplait Greek to Chobani. Yoplait even opened a pop-up “taste off” space in New York’s SoHo, just 300 feet away from Chobani’s first yogurt café. It was the kind of slingshot you’d imagine an upstart David aiming at a corporate Goliath, rather than vice versa.

Alas, the stone missed its target. “They never figured out how to bring a compelling offer to the market,” says Greg Kuczynski, a consumer equity research analyst at Janus Capital. “You’ve already got strong offerings from Chobani and Dannon. They never broke through the noise.”

Last September, General Mills made yet another move, this one out of the Danone playbook: It launched two new yogurt brands, both organic, in an attempt to broaden its appeal. The Annie’s line is targeted at children; the Liberté brand is aimed at grownups. Neither has registered significant sales.

Today, Greek styles make up 50% of U.S. yogurt sales. Chobani is easily No. 1 in that grouping, followed by Fage and Oikos. Yoplait’s Greek 100 ranks fourth. Chobani thinks overall yogurt sales could double to $16 billion within five years. “This category is in its infancy,” says its CMO, Peter McGuinness. Just one of every three Americans ate a Greek yogurt in the past year. His company, which hasn’t been immune to the occasional stumble, including a significant recall, still has plenty of room for growth.

That point extends to the industry overall. U.S. per capita yogurt consumption was 14.7 pounds in 2015, the most recent year for which data is available. That’s a big jump from 6.1 pounds in 1995—but far below the 70-pound average for nations like France and Spain.

Drinkable yogurt—an area in which Yoplait is particularly weak—has been the hottest area of late. It registered a 14% increase, to reach $766 million in sales last year, while spoonable yogurt dribbled down by 3.4%. A liquid product called Drink Chobani became a hit last year, the only new yogurt to make research firm IRI’s annual new-product pacesetters list. Meanwhile, Chobani is also finding success with its Flip products, which combine yogurt with an attached pouch of sugary, crunchy extras like honey-covered nuts that you can “flip” into the yogurt. It has grown to become a $350 million business.

So what’s the plan for General Mills? Harmening, whose promotion to CEO was announced in early May, has been mum so far. The company declined to make him available for an interview.

Needless to say, he’ll face the same profit pressures as his predecessor, at least one of which analysts view as contributing to Yoplait’s yogurt problems. In General Mills’ quest for improved profit margins to placate 3G or a potential activist investor, it has clamped down on discounting. That has had the intended effect of boosting margins, but only made it harder to move its yogurt.

Chart shows General Mills stock performance
Nicolas Rapp

General Mills has continued to launch new yogurt products, like Yoplait Greek Whips and the Greek-style yogurt snack cups Yoplait Dippers. None of these twists have been strong enough to offset the tumbling sales for the company’s light products. One retailer calls Yoplait’s latest products “not a total swing and a miss.”

Meanwhile, the company has been trying to build anticipation for a bigger launch this summer. It touted the news on an earnings call but declined to provide details. Here’s what Harmening had to say about it at an industry conference a few months before he was named CEO: “We’re seeing consumers expanding out from Greek to more simple, better-tasting yogurts that feel more crafted and artisanal. We call this emerging segment ‘simply better,’ and this summer we’re launching an innovative new line in this segment that leverages our French heritage and global expertise to bring an entirely new yogurt taste and texture to the U.S. market.”

Harmening’s comments certainly demonstrate his ability to deploy positive-sounding CEO rhetoric. He ticked off almost every buzzword in the food business today. But it’s well nigh impossible to discern what the product he’s describing will actually be like. In theory, it could be a game changer. But what it largely sounds like is a bunch of Big Food scientists, experts, and executives sitting in a room and trying to conceive the next big thing.

Another option might be to make an acquisition. Alas, General Mills may be missing out on attractive asset, which is reportedly about to be scooped up by another company. To gain antitrust approval of its recently completed deal to merge with WhiteWave, which makes Silk soy milk and other products, Danone agreed in March to sell organic Stonyfield yogurt. With an estimated $334 million in annual sales, Stonyfield could reduce the burden on Yoplait and help General Mills compete more aggressively in the fast-growing organic category. The company was rumored to be interested, but on May 17, the Wall Street Journal reported that Mexico’s Grupo Lala had emerged as the lead bidder and that talks were at an advanced stage.

General Mills needs to act. Its shares have slumped by 9% over the past year, even as the S&P 500 chugged up by 15%. A low stock price, of course, is one thing that can make a company vulnerable to a takeover.

That presents Harmening and his team with a quandary: Does the company focus on cutting costs, boosting margins, and otherwise playing defense to keep 3G at bay? Or does it invest in a Greek counteroffensive and consider cutting some prices to win back market share? By the time General Mills figures it all out, as even Harmening obliquely acknowledged, it’s likely the market will have moved on to a new yogurt trend.

A version of this article appears in the June 1, 2017 issue of Fortune.

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