General Mills Eyes Organic, Natural Food Growth

Execs Outline Ambitious Plans for Brand Lineup, Including Annie's, Larabar

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The future of General Mills could depend as much on Larabar and Annie's as Cheerios and Betty Crocker, according to growth plans the company outlined on Tuesday.

The global food giant wants to grow its $600 million natural and organic food business to $1 billion by 2020, executives told investment analysts. The ambitious plan is a reflection of the reality that smaller, healthier food brands once considered niche are quickly going mainstream. The consumer shift has caused headaches for big food companies that for decades have relied on selling mass-marketed, heavily processed foods.

Earnings growth for big companies "looks increasingly hard to come by," with consumers "shifting into healthier eating patterns," Sanford C. Bernstein stated in a recent report.

On Tuesday, General Mills sought to convince analysts that the company is well positioned to handle the change.

"Today's consumers want more natural foods, with simple ingredients," CEO Ken Powell said during a presentation at the Consumer Analyst Group of New York annual meeting in Boca Raton, Fla. "They are avoiding things like gluten, simple carbohydrates, artificial ingredients," he added, while looking for more fiber, protein and whole grain. "All of these changes create tremendous opportunity for General Mills," said Mr. Powell. "Our history is about innovating to meet consumer needs."

The company boosted its natural and organic portfolio late last year with the acquisition of Annie's, whose line of pastas, snacks and other products tallied $204 million in sales for its most recent fiscal year. General Mills' other natural and organic brands include Cascadian Farm, Muir Glen, Larabar and Food Should Taste Good, which together accounted for $330 million in sales for the fiscal year ending last May.

To be sure, General Mills remains heavily weighted toward its larger, traditional brands. The company's $600 million organic and natural business accounts for a fraction of the $17.9 billion in total net sales the company reported for its 2014 fiscal year.

Still, any movement toward smaller brands could have implications for advertising. That is because organic and natural foods tend to be backed with less expensive campaigns that often rely on digital support, not flashy TV ads.

General Mills has been careful to keep Annie's existing ad strategy that does not include mass TV advertising, Jeff Harmening, the company's exec VP for U.S. retail, told reporters on Tuesday. "We don't see changing their marketing model," he said.

"The marketing for a lot of natural and organic products is … around the product itself: what is the product, what does it contain, where does it come [from], what does it stand for." In a "digital format you can really have a conversation with consumers, which is a really important marketing vehicle," he said.

General Mills also has kept Annie's headquarters in Berkeley, Calif, rather than moving the brand to its Minneapolis corporate campus. But the company is seeking to link its growing natural and organic portfolio via a "natural and organic center of excellence " within its central marketing function that will report to Chief Marketing Officer Ann Simonds. "This will help our natural and organic brands stay connected, share best practices and leverage marketing capabilities most efficiently," Mr. Harmening said on an earnings call late last year.

General Mills is also taking steps to improve the health image of its larger brands. The company on Tuesday announced it would reduce the sugar in its original Yoplait yogurt by 25%, while reducing calories per cup from 170 to 150. By using more milk in the recipe, the brand will boost protein from 5 grams to 6 grams.

The company last week announced that five varieties of Cheerios would go gluten-free by this summer, including original and honey nut. The change comes as General Mills and other marketers deal with sluggish cereal demand.

If recent history is an indication, General Mills will use advertising to tout the Cheerios news, just as it did five years ago when it made its Chex brand gluten-free. As a result, Chex reversed a sales decline and has been growing double digits, executives said Tuesday.

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