General Mills makes big snack push

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General Mills is wagering $94 million it can become a major player in the fast-growing salty snack aisle dominated by PepsiCo's Frito-Lay.

Beginning next month, General Mills will launch an air-puffed crispy corn chip line called Wahoos' with $60 million in marketing. General Mills will put an additional $34 million in marketing support toward newly packaged Chex Mix, Bugles and Gardettos snack mix brands to win shelf space against the leading national player and its regional counterparts.

The extensive marketing effort for the snack brands includes $48 million in advertising from Interpublic Group of Cos.' Campbell Mithun, Minneapolis, within that a 52-week TV buy for the new Wahoos' brand, according to General Mills' sales materials. The company will also introduce a kid-targeted variety pack of its Wahoos', Chex Mix and Bugles snacks called Lunch Munchers.

But even as General Mills plots its extensive media blitz, innovates with new products and repackages its bags to mirror Frito-Lay's in both size and price, some retailers fear that the company's lack of direct-store salespeople could hamper its growth in the snack aisle. General Mills relies on retailers to stock merchandise sent to their warehouses, while Frito-Lay employs its own delivery trucks to stock shelves at each store.

"With Frito and other regional snack players' sales guys in the store three or four times a week, I think General Mills is a little naive not at least paying part-timers to come in and manage their snack brands," said one Midwest retail executive. "It's very competitive in the snack aisle, and they'll find out real fast that they need intensive labor to keep [their snacks] in stock and to gain shelf presence," he said.

General Mills did not return calls for comment at press time.

Wall Street is less skeptical. "Going up against Frito's [direct store delivery] is a handicap for everyone out there," said Credit Suisse First Boston analyst Dave Nelson. But he cited the lower costs of General Mills' warehouse delivery system and praised the marketer's snack strategy as a good way to "leverage its grain-based technology and R&D expertise."

BULLISH ABOUT THE MOVE

Banc of America Securities analyst Bill Leach also was bullish about the move. "While no one has made money going head to head with Frito, General Mills has developed unique, differentiated products that circumvent Frito's [offerings.] If you look at Mills' record, they're generally innovative and they do what they set their mind to do."

Mr. Leach also suggested the snack initiative is another way for General Mills to broaden beyond the stagnant cereal category. With its acquisition of Pillsbury Co., expected to close next month, cereal will make up just 20% of its business, vs. 40% currently.

The snack food category is growing, and evidence shows consumers and retailers are eager for an alternative to Frito, according to Dan Malovany, editor of Snack Food & Wholesale Bakery. He said sales for regional players including Utz and Lance's Cape Cod grew by a double digit percentage last year.

A recent annual report showed General Mills' snack unit volume was up 11% for fiscal 2001, ended May 27, led by double digit percentage gains for Chex Mix and Bugles among others. However, available sales numbers show that Bugles, Chex Mix and Gardettos together totaled a mere $194.6 million in sales for calendar 2000-numbers that pale in comparison with Frito-Lay, which commands almost half of the global snack market's $27 billion in annual sales.

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