General Mills Milks its Margins to Stay Lean

Excerpted from Fortune “Cereal Cost Cutters” by Mina Kimes, November 3, 2008

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At General Mills, the maker of Cheerios, cost-cutting is a way of life:

Company execs meet weekly to discuss ways to streamline products. The company’s Holistic Margin Management system has helped them sustain higher margins than their peers…

“Was it cute that the pretzels in our Hot ‘n Spicy Chex Mix spelled H-O-T?” 

 “Sure, it was cute, but we had 14 different pretzel shapes. By getting rid of some of them, we save $1 million a year.” A million bucks may not seem like much for the $13.7-billion-a-year company, but General Mills…makes hundreds of such cost-cutting decisions each year. And those cuts add up:

Last year General Mills  posted a 13% gain in profits…and analysts say that it has fatter margins than Kraft and ConAgra…

CEO Ken Powell attributes the gains to a General Mills-designed fat-trimming system called holistic margin management.

General Mills had worked on improving efficiency for decades, but the rise in inflation a few years ago spurred it to seek a more effective companywide productivity solution…  

Powell’s team first applied the system to struggling Hamburger Helper. At the time the company sold 50 versions of the product, with 25 pastas ranging from wagon wheels to spirals. Executives researched the costs of producing the different options as well as how much consumers liked them, then eliminated half of them. They excised unimportant spice and cheese pouches. They shrank the size of the box while keeping the serving size the same. The upshot: Hamburger Helper now costs 10% less to make.

Margin management soon grew into a structured process at General Mills…Ditching multicolored Yoplait lids…saved $2 million a year.

Factory-floor workers will point out when box sizes are inefficient for putting in trucks. And consumer researchers identify flavors that aren’t selling…

One group recently looked at the oils, flour, and sugar that its baking division uses. The team found a way to consolidate purchases of such items, giving General Mills more buying power. The changes resulted in $12 million in annual savings.

Of course, frugality is just one of many ingredients needed to be successful in consumer foods. Innovation and marketing drive sales, and General Mills’ revenues rose 14% last quarter after it heavily promoted new products such as Fiber One yogurt. But the money for such aggressive initiatives, says Powell, comes from margin management.

First you have to protect your margins,” he says. It figures that the company that makes Wheaties would understand that sometimes the best offense is a strong defense 

Edit by SAC 
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