General Mills’ sales forecast has gone as soggy as a bowl of milk-flooded Cheerios, and the packaged goods giant is hoping a burst of flavor in some mainstay brands will boost demand for its cereals and snacks.
The company reported a larger-than-expected drop in quarterly net sales, down 6% to $4.7 billion, owing to falling demand for dog food and snacks. It also forecast annual profits below expectations. Shares fell as much as 7.8% on Wednesday following the earnings report. In addition to tweaking prices and increasing coupons to lure back shoppers, General Mills plans to invest in promotional activity—including bringing back the Pillsbury Doughboy—and improving the taste of its popular brands.
“In tough economic times, consumers can’t afford to waste, so they’re looking for great-tasting products they know their family will eat,” CEO Jeff Harmening said in an earnings call on Wednesday.
“Pillsbury biscuits will be flakier, Annie’s mac and cheese will be cheesier, and Betty Crocker fudge brownies will be fudgier,” he added.
Consumers, growing more protective of their wallets, have lately turned away from packaged goods, and food conglomerates across the board are struggling with maintaining and growing sales volumes. WK Kellogg saw a 1.9% dip in year-over-year net sales in its first quarter, and Kraft Heinz posted revenue that missed expectations given cooling demand over high prices.
Instead, shoppers have turned to private brands like Walmart’s new Bettergoods line and Costco’s Kirkland Signature in search of affordability and value. Private brand sales have soared 6% this year and now make up over 25% of the market share across food, beverages, home, and beauty, according to consumer behavior platform Circana. This year marked the first time Alpha-Diver consultancy’s Snack50 Report saw all of its top-six snack brands belonging to stores’ own-brand products.
But there’s an added perk to switching to private brands beyond the price tag, according to Zak Stambor, senior analyst of retail and e-commerce at eMarketer. Those more affordable brands still taste good—putting pressure on the brand names to amp up their standards.
“Consumers, over the past few years in the wake of rising prices, have been far more willing to trade down to store brands,” Stambor tells Fortune. “What they’ve found, time and again, is that quite often they’re not sacrificing the quality as they trade down.”
Recipe for success
But boosting the quality of ingredients and tweaking recipes aren’t fail-proof strategies for reeling in bitter customers. Pepsi did away with aspartame, a sweetener associated with a risk of cancer, in its diet sodas in 2015 to appeal to health-conscious customers. But Pepsi fans revolted, with sales of the brand’s diet drinks plummeting 11% in the first quarter the year after the recipe change. The company reverted to its original formula less than a year later.
Even General Mills has experienced road bumps in its own reformulation efforts, though the company has generally benefited from the changes in the long run. In fact, some General Mills products have been reformulated 20 times per year, according to Jon Nudi, group president of North American retail.
After the company got into hot water following a recall of 1.8 million boxes of Cheerios over possible gluten contamination—even though the company has claimed to produce a gluten-free product since 2015—the cereal producer made strides in 2016 to ensure Cheerios would be gluten-free. The manufacturing change to sift the product’s oats ushered in an uptick of sales. In 2022, the company contended with supply-chain issues caused by Russia’s invasion of Ukraine, forcing it to get creative in sourcing oils and starches.
“At the beginning of the year, it was really about our distribution centers and logistics bottlenecks,” Nudi said in an earnings call.
Other changes were more visible to consumers. General Mills made the controversial decision in 2016 to remove artificial dyes from its Lucky Charms and Trix cereals in favor of natural dyes made from fruit and vegetable juices, part of a trend within the packaged goods industry to eliminate artificial colors over health concerns. The new “natural” cereals produced exceptional sales—even if their iconic cereals lacked their once-signature neon glow.
“We actually have some data, and I’m happy to report sales are great,” Erika B. Smith, technology director for General Mills, said in a 2016 conference presentation. “They’ve exceeded our expectations. We are thrilled about that. We’ve got some excellent feedback from consumers.”
But despite positive sales data, the muted colors failed to delight consumers, who expressed outrage at the change, prompting General Mills to reintroduce the artificially dyed version of the cereal alongside the healthier alternative the next year. “I genuinely feel bad for the kids that never got to experience the old Trix cereal,” one customer wrote on Twitter.
Credit: Source link
