General Mills' Yogurt Problem

General Mills' Yoplait yogurt brand has foundered, falling behind Chobani—that’s only one problem for the packaged food giant.

Excerpt:

These are boom times in the yogurt business. If you have any doubt, check out the dairy section of your local supermarket. For starters, chances are yogurts occupy a much bigger portion of it than they used to. You’re likely to see an abundance of brands claiming heritage from Greece, from Australia, from Bulgaria—even from Iceland. You prefer yours without cow’s milk? No problem. There are offerings based on sheep’s milk or the juice of a coconut. You can choose an ascetic unsweetened Greek yogurt that makes you grimace at its sourness, opt for a drinkable style—or pick a dessert-like option that lets you mix in “­cinnamon-glazed cake pieces,” to cite one example. The days when there were only a handful of brands, each with strawberry, blueberry, or raspberry preserves at the bottom, are far behind us.

Last year, nine of the top 10 yogurt brands enjoyed rising sales. Which one managed to sink even as a rising tide lifted all the other boats? Yoplait. Its sales have plunged 23% over the past year, according to market researcher IRI, after a 7% drop the prior year. Yoplait has fallen so much that its crown as the top U.S. yogurt brand was snatched by upstart Greek-style brand Chobani. (Danone, which owns a stable of varied brands, ranks No. 1 when their sales are combined.) Indeed, Yoplait’s shipwreck was so epic that its effect overwhelmed the combined sales increases for all other yogurt companies last year and caused the category in the U.S. to decline by 2%.

Comment: GIS is my sleepy stock: No growth but reliable dividend (for now). I wonder why General Mills didn't just buy out Chobani?

Update on 6/3: Does General Mills need to get out of the yogurt business? General Mills sales haven't been growing, and one big reason is slipping sales in the U.S. yogurt business.

Yogurt sales in the last reported quarter for General Mills in the U.S. retail business declined 20 percent, a steeper rate of decline than in the first part of the current fiscal year. This is far worse than the performance of the last full fiscal year, when sales of yogurt in the U.S. slid 7 percent.

The company pointed to a presentation that Harmening gave earlier this year at a Florida investor meeting for some background on its thinking, including its long-term commitment to yogurt. Yogurt is a $78 billion worldwide consumer market that is growing, as one slide in the presentation explained, obviously too attractive a market to quit. In the United States, it plans to both refresh its current products as well as go after premium segments like natural and organic.

The biggest problem here in the United States appears to be what’s printed on the label and not what’s inside. When Greek yogurt sales were surging, introducing Yoplait Greek sounded to many consumers a little like some big food company executive wanted to try to cash in on the Greek yogurt trend. Better to buy a real Greek yogurt, shoppers reasoned, rather than something with Yoplait in the name.

That’s how, in a matter of years, Chobani pulled ahead of Yoplait. It’s an amazing case study, a little like watching a start-up like Tesla overtake Ford in just a few years.

In fairness to General Mills, nothing obvious comes to mind as a quick way to improve the company’s position in the U.S. What the company is trying, including better-tasting products, seems to be a good idea at just about any food company.

On the other hand, a “product renovation” is just the kind of incremental move the consulting firm Bain & Co. discussed in a study of corporate divestitures some years ago, finding that big companies often put off making the tough call on whether to get out or invest a lot more, choosing to tinker instead.

Bain had observed, looking back two decades, that companies really good at knowing when and how to sell a business delivered far better returns to investors than the average company. And the just average companies used a default strategy of buy-and-hold in their portfolio of businesses.XXX The choices for any business unit that starts to go into the tank boil down to only three, according to the Bain analysis. One is to sell, another they called “milk” for cash flow and the other was “transform,” which is how the consultants talked about fundamentally changing the business, usually by committing a lot of additional time and capital.