What General Mills can learn from food entrepreneurs

March 18, 2015, 6:06 PM UTC
General Mills Shareholders To Vote On Use Of Genetically Modified Organisms In Its Products
MIAMI, FL - SEPTEMBER 23: In this photo illustration, the General Mills cereal Honey Nut Cheerios is seen on September 23, 2014 in Miami, Florida. During a share holders meeting tomorrow, General Mills investors are being given the opportunity to vote on whether the company should remove genetically modified organisms from its products. (Photo Illustration by Joe Raedle/Getty Images)
Photograph by Joe Raedle — Getty Images

General Mills says it can learn a thing or two from its smallest rivals as it looks to end a prolonged period of sales declines.

Although General Mills (GIS) is one of the U.S.’s largest food makers, the company has now reported six consecutive quarters of sales declines. Results have been hurt by weakness at U.S. retail stores where big brands are struggling to remain relevant as consumers increasingly ditch processed foods in favor of proteins, fruits and vegetables that are deemed healthier. Americans are tinkering with new diet crazes, such as gluten free products, or paleo, and that’s changing how people shop.

The changes are so swift that some companies, in particular Campbell Soup (CPB), have said there is mounting distrust of so-called “Big Food.” Most of the major food companies are posting sales declines unless their results can be (temporarily) boosted by an acquisition of a small peer.

That’s happening at General Mills too. The maker of Cheerios, Lucky Charms and other cereals reported a 1% increase in U.S. retail sales, totaling $2.65 billion for the latest quarter. Results would have been weaker without the contribution of the organic brand Annie’s, which General Mills acquired for $820 million in October. Unlike General Mills, 26-year-old Annie’s was growing strongly, reporting a 20% increase in sales for the last annual results reported by the company when it was still publicly traded.

Small food makers have been closer to consumers, General Mills has admitted. That closeness can be epitomized by Annie’s practice of listing the home phone number of its founder Annie Withey on boxes of macaroni and cheese when it first debuted. Withey, who co-founded her company in 1989, had no budget for advertising and begged shoppers to tell their family and friends about Annie’s (that plea was also written on boxes).

“The entrepreneurs who develop those products are very, very, very close to the ultimate consumer who will buy the product,” General Mills CEO Ken Powell told analysts on Wednesday. He said sometimes the entrepreneur had themselves or family members in mind when they developed their products.

That has led General Mills to tinker with change. The company is putting marketers and consumer research specialists into homes, moving away from broad testing that was done in the past and didn’t connect as closely to consumers. General Mills also hopes to take a new food idea and put it in front of consumers earlier in the research and development process for earlier feedback.
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“We’ve got a very high premium on getting our folks right next to the consumers who are going to buy these new products,” Powell said.

Peter Erickson, a food quality and innovation executive at General Mills, said the food company is trying to speed up how quickly it gets new foods on shelves. In the past, it could take months or years before new items debuted, but General Mills is speeding up the process. A gluten-free granola Chex mix took just 45 days before being introduced to markets.

“Our goal is to be as nimble and agile as small companies we compete with today,” Erickson said.

General Mills spent some time on Wednesday talking about some of its newest initiatives. It has a big launched planned later this year for gluten-free Cheerios. Nearly 30% of U.S. consumers express interest in a gluten-free diet, and thus ditching cereals for other gluten-free options at breakfast. General Mills says 88% of the Cheerios franchise will be gluten-free, a change that it says isn’t a reformulation as oats–the primary ingredient in Cheerios–are naturally gluten free. The company will be removing trace amounts of west, barley and rye that find their way into the oats supply chain in fields or in shipping.