General Mills' snack strategy falls short

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Less than a year after its $94 million gamble to become a force in salty snacks, General Mills has not succeeded in keeping PepsiCo's Frito-Lay executives up at night.

The centerpiece of the snack platform outlined last fall (AA, Sept. 10, 2001), a new line of air-puffed crispy corn chips dubbed Wahoos!, has flopped, registering less than $20 million in sales, and even the most General Mills-loyal retailers are poised to pull the product from their shelves. Other products in its snack line, including Bugles and Chex Mix, have declined in sales despite new packaging and increased marketing outlays.

Its $94 million push was to include $48 million in media spending and the rest on other marketing initiatives, including trade spending and packaging. General Mills spent $36 million in measured media in 2001 for its salty-snack brands and $10 million for the first three months of the year, according to Taylor Nelson Sofres' CMR. Sales of Wahoos! totaled only $19 million for the 52 weeks ended May 19, Bugles dropped 5.1% to $36 million, Chex Mix dropped 4.6% to $117 million and Gardettos fell 2.4% to $24.6 million, according to Information Resources Inc.

`pulling it off'

A Midwest retail executive said Wahoos! is "not doing anything near what we thought it would" and said he had begun to discontinue some sizes of the product. An East Coast retail executive said that, while "we owed it to General Mills to carry it a full year ... it's not too long before we're pulling it off the shelves."

The failure comes amid extensive growth plans from the venerable marketer, whose missteps surrounding the digestion of recently acquired Pillsbury have put it on unfamiliar ground dealing with sagging sales volume. During a presentation last week announcing a fourth-quarter earnings plunge of 61%, CEO Steve Sanger outlined fiscal 2003 plans that include the launch of more than 80 products in the first half of the year.

In addition, he said the year will boast "very strong marketing" funded in part by the expected $350 million in savings gained from synergies with Pillsbury. General Mills also hopes to leverage the scale of its newly enlarged product portfolio with marketing partnerships, including a new deal with DreamWorks. (See sidebar.)

The snack upset, though, is a reminder that the well-regarded innovator faces a tough battle against newly marketing-focused competitors and new skepticism from Wall Street.

disappointed

Its Betty Crocker Complete Meals slated for the fall that include Progresso meat and vegetables follow on the success of ConAgra Foods' meat-included meal entries, Homestyle Bakes, which have taken from sales of General Mills' long-time leading line of Betty Crocker Helper dinner kits. And a new line of Nature Valley Chewy Granola & Yogurt bars trail the launch earlier this year of Nutri-Grain Yogurt Bars from Kellogg Co., which has likewise been scoring wins against General Mills in cereal.

Analysts formerly supportive of almost any General Mills initiative are now more wary. Banc of America Securities analyst Bill Leach said, "Nothing seems new ... it's still a little bit of a show-me situation."

A General Mills spokeswoman admitted the company has been "disappointed about how Wahoos! has performed," but said the company has no plans to discontinue the product. In terms of its overall snack portfolio, she said the company is satisfied with sales of its other salty snacks, but did stress that General Mills is "even more excited about things going on in Nature Valley and in fruit snacks," where a new Sunkist-branded line has just been launched.

The spokeswoman was unclear on whether the company would continue to advertise Wahoos!, which through March received $12 million in support from Interpublic Group of Cos.' Campbell Mithun, Minneapolis. But one East Coast retail executive said "no amount of marketing could help since there is nothing unique, different or interesting about it."

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