The food business' pace of innovation is mind-boggling, with a wacky new product or a punched-up version of an old favorite being introduced every week. Given consumers' endless appetite for something different, it's no surprise that when General Mills merged with Pillsbury and slowed down new-product launches as it smoothed out the combined operation, sales suffered. In the fourth quarter (ended May 26), volumes sank 4% and earnings fell 25%.
General Mills has built its reputation on taking ho-hum foods and repackaging them in a way that excites consumers. (Think Go-Gurt, yogurt in a tube that's adorned with eye-catching graphics.) Now that the merger is complete, General Mills CEO Steve Sanger has to prove that the company hasn't lost its knack. With the acquisition of Pillsbury, General Mills can apply its skills to new lines, such as refrigerated dough, Green Giant vegetables, Progresso soups, and Old El Paso Mexican dinner kits.
The 56-year-old Sanger, who began as a brand manager and jump-started sales of Lucky Charms by adding blue diamond-shaped marshmallows, has some lost ground to make up. In the fourth quarter, General Mills introduced a paltry two products -- a more typical number is 23. To help catch up, plans are in the works to introduce 80 products in the first half of fiscal '03.
With some, the innovation will be in a product's quantity. For example, Chex will offer 30% more cereal. Others, like the four-item line of Big Batch ready-to-bake cookies, are all-new. In the yogurt category, General Mills's fastest-growing business, there's Yoplait Nouriche, a vitamin and mineral fortified smoothie that takes the place of a meal. BusinessWeek Correspondent Julie Forster recently spoke to Sanger at General Mills's Minneapolis headquarters. Edited excerpts of their conversation follow: Q: You plan to introduce 40 new products this quarter and 40 next. Will they be completely new lines, or will the majority be brand extensions?A: We focus on building our core established brands and then adding new products to those categories.Q: Can you give an example?A: Yoplait [yogurt] has been our fastest-growing business in recent years. Everyone talks about Go-Gurt [yogurt packaged in a tube] but the thing that has been most fundamental to the growth of Yoplait is the growth in the original-style and light-style six-ounce cups. We drive growth in those by taking out the slower flavors and bringing in exciting new ones.
So you have good growth in those core lines, and then you lay on top Go-Gurt or Yoplait Whips, which are new items, and that just represents extra. Although the [new products] don't make a lot of money in the first year or two, the core line does.Q: Is the trend toward more brand extensions and fewer new-product launches?A: You need both. You need things to keep your core product lines healthy, and line extensions tend to be better profit contributors and keep your core brands growing because you're using all the marketing investment that's already out there to build them.
We believe that from time to time you need to introduce whole new lines as well. Those tend to take longer to pay back your investment, and they have more risk associated with them.Q: What's an example of a recent new-product launch?A: We established Milk n Cereal bars last year. That was a new three-item product line for us that used our existing cereal brand names. There's a Honey Nut Cheerio bar and a Cocoa Puffs bar. That line is now probably in the neighborhood of $50 million.Q: What resonates with consumers today?A: Consumers like new things, but they also like things they understand quickly and that they're familiar with. So if you bring to market Honey Nut Cheerios Milk n Cereal bars, they get the concept of the bar, but they also know what Honey Nut is. Using one of your established trademarks makes it easier for the consumer to quickly grasp it.
In the old days, you could get your message across strictly by advertising on television because there were only three networks, and you could reach everybody. Now it's harder to launch a new brand that requires explanation.Q: Do you need product news every single quarter?A: You need news of some kind. It can be news about product features. We had an improvement on Honey Nut Cheerios in the third quarter that has caused that business to grow very nicely. We increased the fiber content and made it more effective as a cholesterol-reducing cereal. We've got to have a steady drumbeat of that kind of stuff.Q: The merger with Pillsbury was finally consummated in November, after a 16-month regulatory review. When the deal closed, were you surprised at what had happened to some of the Pillsbury brands during that period?A: The long regulatory review had some pluses and minuses. The pluses were that it allowed us to plan and execute the integration. The negative was that the brands were languishing. EDITED BY Edited by Patricia O'Connell