General Mills champions its gluten-free Cheerios - but will the launch help its cereal business?

By Hal Conick

- Last updated on GMT

Will gluten-free Cheerios be a boon for General Mills' cereal business?
Will gluten-free Cheerios be a boon for General Mills' cereal business?

Related tags General mills Wheat

It’s been a rough couple of years for the cereal market, but General Mills said it is outpacing net sales expectations for Q1 2016 thanks in large part to products like gluten-free Cheerios.

The company’s net sales were down 1% to $4.21bn, which it blames on the foreign currency exchange rate declining 5 percentage points. However, the company said gluten-free Cheerios and other promotions has helped it outpace Nielsen measured sales for Q1. Total segment operating profit is expected to grow at a low single digit rate over the next year.

Jared Koerten, senior food analyst with Euromonitor International, told BakeryandSnacks that although General Mills has seen some initial success with gluten-free cereal products, he believes that market is starting to slow from its heavenward-ascent.

“I think it might be a little too extreme in terms of saying it will turn around the industry,”​ he said, adding that on-the-go snacks and breakfast bars are still taking a lot of cereal’s growth potential.

The gluten-free effect

Shawn O'Grady, senior vice president and president of General Mills’ sales and channel development, said on an earnings call with investors that 90% of the company’s Cheerios franchise is “going gluten-free.” ​This has helped it create a marketing plan for point of purchase to attract new customers to the cereal aisle.

“This quarter we’ll place 35,000 full pallets on display across all retailers,”​ O’Grady said. “To put that in to context our back-to-school merchandising event, the largest annual event across our entire cereal range is about this size. That means gluten-free Cheerios will be one of the largest merchandising event in our cereal business' history.”

In addition to this, O’Grady said the company will have point-of-sale materials and use digital tie-ins to help attract new customers. He said retailers are already “incredibly excited” ​about the potential this can bring to the cereal aisle.

An innovation or a simple change?

“What’s really interesting is that Cheerios, by nature, is oat-based,”​ Koerten said. “Gluten shouldn’t be an issue. I think what [General Mills] did, they couldn’t guarantee oats coming into the factory weren’t shipped alongside wheat products. So they just created some kind of filter to get that out.

"It’s really interesting … you see that now all over the food space. Products that are, by nature, gluten free and just slapping it across the product. It’s one of those buzzwords consumers want to see.”

While Koerten agrees that these moves toward the expansion of gluten-free cereal will likely bring some attention and press to General Mills, he questions the longevity of popularity for gluten-free cereal.

“This might be sort of a short term injection, something that lasts for a couple quarters,”​ he said. "It may get General Mills back in the spotlight and draw interest to its products; maybe some consumes will try it of the first time … We’ll have to wait and see whether it’s a passing fad or whether it will be able to turn things around.

“I’m a little more in the first camp. I don’t see this as a long-term solution to the challenges cereal is facing.”

Banking on cereal and granola’s success

Kendall Powell, General Mills chairman and CEO of General Mills, noted the company has seen increases in yogurt and snacks; and is especially encouraged by how cereal is doing. These US retail products are the primary way the company will try to grow in 2016.

“We believe product renovation and innovation are two keys to restoring the cereal category to growth and we’ve been doing our part with many of our recent launches,”​ he said.

“Our five varieties of gluten-free Cheerios have been flowing on to store shelves over the past month and we just began advertising this news a few weeks ago. While it’s still early days we’ve received a very positive consumer response.”

Powell added that Natural Valley Protein Granola and Cascadian Farm cereals are also doing well with the company, as consumers have an increased interest in granola. The company will bring more granola and muesli products into the cereal aisle in 2015 and 2016, including Baked Oats Bites and new varieties of Oat Clusters.  

Products like this are more likely saviors of the industry if there will be one, Koerten said.

“That’s a little bit more an on-the-go type product,”​ Koerten said. “It’s a little more versatile. Consumers can use it in a cup of yogurt on the go; they add it in for added protein. It’s easy to take along as a snack throughout the day … It’s been the growth area in cereal or the last few years.

"It has more of a natural position. It’s less processed with fewer ingredients and is seen as more natural than other processed cereal.”

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1 comment

President & CEO

Posted by Larry McManis,

No. Gluten free will not cover a 1% decline in revenue ($421M), at least not soon; especially once you take into account a high level of cannibalization. Much more work to do...

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