General Mills Plans Further U.S. Ad Spending Cuts

After Some Weakness Last Year, Marketer Is Focusing on Areas Where It Believes It Can Win

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Section of Cheerios Box
Section of Cheerios Box Credit: General Mills
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General Mills Inc. is trimming its U.S. marketing spending again this year, yet plans to spend more where it believes it has the most potential, including cereal.

Meanwhile, the company admitted it has work to do in its U.S. yogurt business, where it expects sales to fall again this year after a disappointing showing in fiscal 2016 despite increased media spending.

Overall, the company's U.S. consumer and trade spending will be down "a little bit" this fiscal year, incoming President and Chief Operating Officer Jeff Harmening said during a conference call Wednesday.

General Mills' U.S. advertising spending declined 13.4% to $709.2 million in 2015, according to the Ad Age Datacenter. Media spending declined on a number of brands last year, including Betty Crocker, Cheerios, Nature Valley and Progresso. However, media spending on Yoplait increased by 8.9% to $179.6 million, Ad Age data shows.

"As we look at our U.S. portfolio, you know, what I would tell you is that our advertising spend in aggregate will be down a little bit, but I will also say we focused our advertising spending and it will actually grow on the areas we think have the highest returns and the highest possibilities for growth," Mr. Harmening said in response to an analyst's question on advertising spending. "So if you think about cereal, for example, or bars, or natural and organic. And so we really placed our bets on the areas where we think we have the best opportunity for growth. So even if advertising is down a little bit, we believe that we refocused the spending that we do have in areas that are going to work harder for us."

Through a spokeswoman, General Mills declined to discuss any future plans related to its agency partnerships.

The company's U.S. media spending on cereal is set to increase by mid-single digits this year and it plans to reduce yogurt marketing spending and redirect some of those cuts into trade promotions, Chairman and CEO Ken Powell said on the call.

In U.S. yogurt, marketing and innovation efforts "underperformed our expectations," Mr. Powell said on the call.

Yoplait Plenti
Yoplait Plenti Credit: Yoplait

Sales in the company's U.S. retail yogurt business fell 7% to $1.3 billion in fiscal 2016. The maker of Yoplait and other products has been trying to find the right balance in its portfolio after being late to respond to the rise of Greek yogurt brands, most notably Chobani. Last year, General Mills named Wieden & Kennedy the lead agency on Yoplait and began advertising Yoplait Plenti, a Greek yogurt with additional ingredients such as oats, in a campaign from Saatchi & Saatchi.

Mr. Powell said General Mills believes in the long-term growth opportunity in U.S. yogurt and would shift its portfolio toward the faster-growing segments including Greek, organic and kids' products. Its plans include a full-calorie version of its Greek 100 whips, sizing additions in Annie's organic, converting Liberte to a premium organic line and kids' yogurt plans it will discuss at its July 13 investor day.

In cereal, plans include making two more varieties of Cheerios gluten free, after seeing the previously converted Cheerios increase sales in the latter half of 2016. It also plans to remove artificial colors and flavors from another five cereals and is introducing three new Annie's cereals and promoting its newest cereal brand, Tiny Toast.

The comments come as General Mills continues to work on its cost cutting efforts. In its latest plans announced Wednesday, executives laid out plans to focus its investments over the next two years on some of its well-known lines, while cutting back on others.

The Minneapolis-based marketer said that for the next two years it will focus its investments in areas where it believes it has the strongest profitable growth potential. Within U.S. retail those include cereal, snack bars, natural and organic products, Totino's hot snacks, Old El Paso Mexican products and yogurt, though yogurt sales are expected to decline again this year.

Along with the growth areas in U.S. retail, General Mills said it also plans to focus on its international business and certain parts of its convenience stores and foodservice portfolio, namely cereal, yogurt, snacks, frozen meals, biscuits, and baking mixes. In all, the various growth businesses make up about 75% of General Mills' sales and operating profit.

As for the "foundation" businesses, as the company is calling lines including Pillsbury refrigerated dough, Betty Crocker baking mixes and Progresso soup, plans may include dropping certain items from the lineup.

General Mills expects the growth businesses to, well, show sales growth this year, while sales in the foundation businesses are expected to decline at a mid-single digit clip. In all, General Mills is hoping for total sales in its current fiscal 2017 to be flat to down 2%, after stripping out any impact from items such as foreign currency translation, acquisitions and divestitures.

The company's fiscal fourth-quarter profit came in ahead of Wall Street's expectations, helped in part by a tax rate analysts said was lower than anticipated. Shares of General Mills were up 2.3% to $67.24 in afternoon trading.

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