General Mills Pleased With Organic Cereal Performance, Eyes Natural Channel
Published: Wednesday, December 01, 1999
A massive direct-mail sampling campaign to consumers, a substantial advertising campaign, and product and processing certification by reputable Oregon Tilth appeared to bring a whole new level of recognition, acceptance and distribution to organics. It also brought speculation about how well a company with annual sales of about $6.8 billion would fare in the much smaller, yet complex, world of organic production.
Nine months later the question is, have Sunrise sales been high enough to sustain the interest of the No. 2 player in the mainstream cold cereal market?
Though General Mills won’t confirm industry speculation that Sunrise sales are about $4 million per month and garnering as much as 80% of organic cereal sales in mass-market stores, Laura Flanagan, Sunrise marketing manager, says the company is pleased with Sunrise’s performance and remains committed to the product and the organic industry.
Outsiders say a new product needs to sell about $70 million per year to survive in a company the size of General Mills. At their current estimated pace Sunrise sales would garner about $48 million in 1999.
“It [the mainstream foods industry] is a different market than we’re used to in the natural products industry. If one single SKU would do $5 million or $10 million a year, we’d be extremely happy with that,” says Arran Stephens, founder of Nature’s Path, an organic cereal maker based in Delta, BC. “But it’s light years away from breakeven for a large company.”
That may be one reason why General Mills, with boundless mass-market shelf space, is interested in selling Sunrise in natural foods supermarkets. “We would very much like to see Sunrise distributed to the natural channel and are actively looking for solutions that will help us get there,” Flanagan says. “It’s not a traditional channel for General Mills, but we are trying to establish relationships with the distribution channel in that area.”
United Natural Foods’ (UNFI) Director of Marketing John Raiche confirmed that the natural products distributorship was approached by General Mills. “Based on our information, General Mills had no plan for addressing the needs of this industry,” Raiche says. “They did not have a good understanding of the industry’s structure, had not made preparations to support unique aspects of our industry, and their pricing would have put them at a severe competitive disadvantage.”
Flanagan says the target price point for a 12.5-oz. box of Sunrise is $3.39; Natural Business priced it at $3.99 in mainstream supermarkets in the Denver region.
Specifically, Raiche says, General Mills did not have knowledge about the role of the distributor, including providing retailers with marketing support and programs, the cost structure of distributor and retailer markups in the natural channel, and the role of brokers. “From my perspective, they have not done a significant amount of research to have a successful introduction in this industry,”
he adds.
UNFI also was concerned that General Mills waited until after its supermarket introduction to approach natural distributors. “It seemed like somewhat of an afterthought,” Raiche says.
Stephens says the introduction of a mass-market organic cereal has had no impact on his company’s sales, which are primarily to natural markets but with some presence in the mainstream. “Our sales have increased about 60% in the last two and a half to three months,” Stephens says. “We sell in both markets—we’re not as aggressive in the mainstream market because we want to take care of our traditional business first, but we can see there’s huge potential for growth there.”
Nor has there been any adverse impact on the supply of organic grains, Stephens says. Flanagan also says that General Mills has not had, and did not anticipate having, any sourcing difficulties.
The mass-market cold cereal category has displayed modest volume growth overall in recent months, according to a category trends report by Eric R. Katzman of Merrill Lynch Capital Markets, but stocks have performed well in comparison to the food group as a whole. General Mills’ volumes increased 3%, but dollar sales grew 6% during August and September. General Mills’ dollar market share for cereal grew to 32% in 1Q99. A company press release says that Sunrise contributed to General Mills’ unit volume and share results.
UNFI’s Raiche says that organic cereal continues to sell well in the natural channel. “Organic in general is good, and certainly in our cereal segment most of our top sellers are organic.” And, he adds, Sunrise won’t be the last product from a major mainstream company that will face the challenges of entering the natural market, as large companies continue to make natural acquisitions and show interest in the market.