Four Quarters of 'Marshmallow News,' And Other Reasons General Mills is Hiking Spending

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General Mills Inc. will increase advertising and media spending in its current fiscal year as it tries to limit its sales declines, even though it's not expecting much near-term improvement in the categories in which it plays, the company said Wednesday.

After deep cuts in media spending in fiscal 2017, plans for fiscal 2018 include a double-digit increase in outlays for the Nature Valley snack line, which is rolling out more than 20 new products, more emphasis on Old El Paso, and campaigns in yogurt and cereal.

General Mills managed to impress investors with a better-than-expected profit and sales that fell less than anticipated in its fiscal fourth quarter, which ended in late May. Its shares were trading about 2% higher on Wednesday.

Still, General Mills is likely pleased to put fiscal 2017 in the history books. As Jeff Harmening, who took over as CEO on June 1, put it on Wednesday's investor call, "it's clear some actions did not go according to plan." The company pulled back too far on investments in some categories and its overall execution fell short of its normal standards, he said, later adding that "the vast majority" of the company's challenges "are entirely fixable this year to make us more competitive."

Sales fell in four out of five of the company's North American retail segments in 2017. U.S. snacks squeezed out flat year-over-year sales. U.S. yogurt was its biggest challenge, with sales down 18% in fiscal 2017 and 22% in the fourth quarter.

Overall sales, stripping out factors such as acquisitions, divestitures, and fluctuations in currency exchange rates, fell 4% in fiscal 2017. General Mills forecast calls for those so-called "organic net sales" to fall 1%-2% in fiscal 2018.

Amid the sales slump, General Mills reorganized, cutting hundreds of jobs, and hired new U.S. creative agencies, led by 72andSunny and Redscout, after naming WPP's Mindshare as its U.S. media agency in 2015.

Now Harmening and his team, including incoming Global Chief Marketing Officer Ivan Pollard, need to prove their mix of center-of-the-grocery-store mainstays such as cereal, granola bars and taco shells; a lagging yogurt lineup; and some fast-growing natural and organic brands led by Annie's, can win with consumers.

The company did not specify how much it plans to increase spending on advertising and media in fiscal 2018. Last year, it drastically reduced that expense, with $624 million spent on advertising and media, down from $754 million spent on media fiscal 2016.

In cereal, where its U.S. retail sales fell 3% in fiscal 2017, plans include a new "Good Starts With G" campaign emphasizing wellness cues including whole grain ingredients and gluten-free products. Digital marketing will include precision targeting, with an emphasis on Hispanic families and empty nesters.

Cereal brand ad plans include "four quarters of marshmallow news" on Lucky Charms, which saw 3% U.S. retail sales growth in fiscal 2017. General Mills also plans to promote Reese's Puffs cereal. And it will use TV, digital, coupons and in-store merchandising to promote the expansion of the Toast Crunch portfolio after strawberry and blueberry varieties of Tiny Toast were rebranded under the Toast Crunch label, and it introduced an apple cinnamon variety.

Oui by Yoplait is a new French-style yogurt from General Mills
Oui by Yoplait is a new French-style yogurt from General Mills Credit: General Mills

In yogurt, earlier this week it announced the introduction of Oui by Yoplait, its attempt to introduce a French-style yogurt to the U.S. Meanwhile, competitor Chobani is entering the more traditional category with Chobani Smooth.

Harmening said General Mills would use "appropriate levels" of investment behind its foundation brands, which include brands as Progresso and Pillsbury. "We missed the mark last year on our promotional spending on soup and refrigerated dough," he said.

Still, after rolling back some of the higher prices it tried to use on those products, don't expect drastic price cuts. General Mills isn't looking to win on price in those categories, but rather to "be in the zone" on pricing during key seasons, Harmening said. It is also planning to launch organic Progresso soups and two varieties of refrigerated Pillsbury pizza dough in non-can packaging.

General Mills expects its sales performance to improve as the fiscal year progresses.

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