General Mills is a large food company with a big problem.
It’s a food-processing powerhouse at a time when more and more consumers are shunning processed food in favor of fresh and local.
It’s a flour-milling legend whose cake mixes and crescent rolls dominated their era, but now whose grain-based items fade as consumers turn against simple carbs and gluten.
It’s a taste-maker that turned yogurt into a U.S. mainstay and created kid favorites like Lucky Charms and Fruit Roll-Ups, but loaded them with sugar and artificial colors. Now, people seek healthier options.
So today, after finding itself on the wrong side of some powerful consumer trends, Golden Valley-based General Mills is scrambling to rework its pantry and rechart its future.
“Around the world, we see and understand that food preferences are changing,” CEO Ken Powell told analysts last month. “People want natural foods with simpler ingredients. They are avoiding things like gluten, simple carbohydrates, artificial ingredients. They want more protein, more fiber, more whole grain, more natural and organic products.”
People didn’t used to get those things from General Mills, maker of Hamburger Helper, Totino’s Pizza and Honey Nut Cheerios. But they will going forward, Powell promised, as the company tries to woo new generations of health-minded consumers — while it fights to keep profits strong.
“If you look at those big traditional grocery companies, they’re all dealing with the same thing,” said Mike Boland, director of the Food Industry Center at the University of Minnesota. “Kellogg’s, General Mills, Heinz, Campbell Soup, Kraft, anybody’s who’s producing foods prepared at home, they’re all talking about how to get back on the right side of things.”
A new wrinkle surfaced Wednesday, when Kraft Foods and H.J. Heinz announced a multibillion dollar merger. The deal fueled Wall Street chatter about a possible new round of food-company marriages.
It also was a reminder that if old-line foodmakers don’t retool themselves for the future, somebody else may do it for them. PriceWaterhouse Coopers (now PwC) recently noted that mergers are “likely to become increasingly important, not just in growing food companies but in streamlining and focusing them.”
It’s a difficult road. In the past six months, General Mills has announced a series of factory closings, budget cuts and mass layoffs, including an undisclosed number at its Golden Valley headquarters.
Plus it continues to rework classic recipes, adding whole grain, removing sugar or ditching artificial ingredients — without hurting taste. The latest: Yoplait original yogurt, which is getting a 30 percent cut in sugar along with more protein.
GOING NATURAL
For General Mills, its new direction was clear in September, when it paid $820 million for natural and organic foodmaker Annie’s, based in Berkeley, Calif.
From a balance-sheet viewpoint, the deal seemed logical: Annie’s was a popular brand in the growing natural-and-organic space. General Mills loved its growth potential.
But the deal also brought yelps of protest from organic devotees, alarmed that the Annie’s bunny rabbit motif had fallen into the hands of the corporation that made Trix, Go-Gurt and Cocoa Puffs.
“I understand where it’s coming from,” said Julie Grossman, assistant professor of sustainable and organic food systems at the University of Minnesota. “There are a lot of people who are supporters of independent businesses, smaller-scale businesses, and they want to see those smaller-scale businesses be successful on their own.”
But Grossman also sees some pluses in these types of deals. They expand the organic market and bring organic food to a wider audience. Whether they also spread the values of organic — sustainability, environmental impact, healthfulness — remains unclear, she said.
Yet, some cultural change is already underway at 149-year-old General Mills, and it’s coming from companies like Annie’s.
Last week, Powell gave analysts the expected update on plans for its Annie’s acquisition. He emphasized that Annie’s would keep its organic-centric culture, with General Mills providing the muscle to push into “many new categories,” beginning with organic soup.
But then came a surprise — that General Mills is thinking small.
Powell spoke excitedly about how General Mills had intensely studied small food companies to embrace their techniques.
“Really over the last half-dozen years, we have been looking very closely at the entrepreneurs that we compete with, the smaller companies that we compete with, and … (how they) bring their products to market. And we’ve learned a lot from doing that.”
One finding: Consumer-insights staff should scrap those “big and broad-scale tests that we used to do,” Powell said, in favor of direct interaction with consumers in their homes.
“The result is you go fast, you make decisions rapidly, you’re very connected to the consumer, and so you’re on target more often,” Powell said.
IS HEALTHIER COSTLIER?
General Mills likes to talk about how it made its products healthier. Over the past decade, it has cut salt levels an average of 20 percent and sugar by 17 percent in its Big G cereals, while making most of its cereals whole-grain.
It isn’t as quick to mention why the improvement was needed — a long legacy of highly sugared, artificially colored, heavily advertised fare aimed at kids. Or the mountains of brownies, cake mixes, cookie doughs and indulgent desserts it peddled.
The rise of obesity and serious health conditions like diabetes has increased pressure on all food companies from consumers, government and health advocates.
Powell noted that General Mills is now targeting its famous cereal lineup for “a broad investment plan designed to renovate our Big G portfolio for today’s consumers.” The recent designation of Cheerios as gluten-free, he said, “is the first step in this plan.”
As Powell talked with analysts last week, one asked about the likelihood that making healthier products was a winning strategy. After all, using better ingredients costs more money.
Powell cited the story of Yoplait, its once-dominant yogurt that a few years ago was suddenly overtaken by Greek-style competitors.
It took a while, but General Mills eventually remade Yoplait — removing all high-fructose corn syrup, artificial colors and dairy products from cows treated with artificial growth hormones. Then it added more protein, cut calories and reduced sugar. Plus it rolled out new Greek-style offerings that consumers liked.
And it worked, Powell said. With Yoplait, “We see very striking growth.”
Tom Webb can be reached at 651-228-5428. Follow him at twitter.com/TomWebbMN.
