General Mills will thrive despite gluten-free recall: Packaged Facts report

08-Oct-2015 - Last updated on 09-Oct-2015 at 10:16 GMT

The gluten-free Cheerios marketing effort may be too strong for a recall to affect, Packaged Facts said.

Despite a recent recall of nearly 2m boxes of gluten-free Cheerios, Packaged Facts reports that General Mills is poised to see a huge return from their investment in the gluten-free cereal market.

The company launched five varieties of Cheerios as gluten-free: Apple Cinnamon, Honey Nut, Frosted, Original and Multi Grain. This week, Jim Murphy, senior vice president and president of the Cereal division at General Mills, wrote on the company’s website that it was “embarrassed and truly sorry” to recall the boxes of cereal due to an allergen contamination.

David Sprinkle, research director for Packaged Facts and author of the recent Gluten-Free Foods in the US, 5th Edition report, said the company’s large marketing effort for the gluten-free cereal will help spark its popularity despite the recall.

“Cheerios’ move into the gluten-free category was perhaps inevitable considering the brand’s popularity, coupled with the allure of the growing gluten-free cereal segment,” Sprinkle said.

“Even excluding sales of General Mills' Chex, we estimate that sales of gluten-free cereal increased 18% between 2013 and 2014 to reach $38 million last year.”

A huge growth in a down market

The cereal market has been in the decline for the last few years, but there has been plenty of promise in the gluten-free market.

General Mills’ senior vice president Shawn O’Grady said on a recent investors earnings call that the marketing rollout for gluten-free Cheerios was on par with the company’s back-to-school merchandizing efforts.

“That means gluten-free Cheerios will be one of the largest merchandising event in our cereal business' history,” he said on the call.

This will be very helpful for keeping sales moving of the new Cheerios gluten-free rollout, Sprinkle said. Even though there were 1.8m boxes of Original and Honey Nut Cheerios recalled, as well as 125 complaints to the US Food and Drug Administration, gluten-free Cheerios will likely continue to see great sales.

“The recall was unfortunate and will ultimately prove to be a learning experience for General Mills,” Sprinkle said. “But General Mills has already made considerable inroads in the gluten-free market and will undoubtedly continue to thrive and find success providing consumers with gluten-free alternatives to the brands they know and love.”

Gluten-free success is nothing new for the company, as Packaged Facts said General Mills was the first mainstream company to push out gluten-free cereal in the form of Chex.

A huge rise in the next four years

By 2019, Packaged Facts predicts that key categories of the gluten-free market, including salty snacks, crackers, cereal and pasta, will balloon from its current $1bn status across key categories to $2.5bn.

Year-over-year growth for the five years leading to 2014 has been 34%, the report said.