The Homa Files

Excerpt from the Ad Age “Cereal Business Gives Boost to General Mills” by Emily Bryson York September 17, 2008  

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General Mills reported better-than-expected first-quarter earnings this morning. The company cited particularly strong growth in its cereal business, and said increased marketing investment helped keep its brands top-of-mind… “People are eating more meals at home, and cereal is a quick and healthy option,” Big G President Jeff Harmening said during the call…

The company continued to credit increased consumer marketing spending with much of this success. Ad spending was up 17% in its first fiscal quarter…on top of an 11% increase during the same period last year…

Competitors Kraft and Kellogg have dutifully hiked spending as well, but there has been wide speculation as to when the food industry will begin to show signs of share loss to private labels, or lower ad spending…

Instead of fighting what was expected to be a shift by consumers to lower-priced private-label brands, General Mills CEO Ken Powell said his company is benefiting from consumers seemingly eating out less often and taking more meals at home. (The move away from restaurants appears to have had a positive effect on grocery in general. Kroger reported a 3% increase in second-quarter profit yesterday, citing particular growth in its private-label business.) He said cereal is in a good spot for the current economy, because each serving only costs about 50¢, including milk. 

Edit by SAC

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While General Mills earnings may have been better-than-expected, net income dropped 3.6% in the first quarter as it was hit hard by rising commodity prices.  According to a Wall Street Journal article, the cost sugar, oil and other commodities is expected to continue to rise through the rest of the year.  General Mills and other companies were hit particularly hard when efforts to protect against price surges ended up backfiring, particularly with the price of corn and soybeans.  For more information: http://online.wsj.com/article/SB122165181380247655.html

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Full article:
http://adage.com/article?article_id=131057

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