General Mills' Leading Role in This Greek Drama

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Source: SXC.hu.

Although General Mills first-quarter earnings report failed to impress the market -- profits fell, and revenues rose only 8%, mainly on acquisitions -- there's one segment that's proving a smooth opportunity: Greek yogurt.

Sales nearly doubled in the quarter, eclipsing overall segment growth by nearly 2 to 1. The cereal maker's Yoplait brand enjoyed its biggest product introduction in 20 years as sales of its low-cal Yoplait Greek 100 hit $150 million in its first year. (Admittedly, this is growth from a very small number: Yogurt sales actually fell 5% year over year in fiscal 2013, failing to meet even the minimum growth targets General Mills set.) Management anticipated sales breaching $100 million in their first year; they handily outstripped those expectations, and newly introduced Greek yogurt products were still selling well at the time.

General Mills had to basically start from scratch after it was discovered using thickening agents instead of traditional straining methods to produce its Greek yogurt. As some questioned whether its product qualified as Greek yogurt -- or yogurt at all -- it threw in the towel and started over. It's a testament to the popularity of its Yoplait brand that General Mills was able to recover so fast, but its recovery is also due, in part, to troubles competing Greek yogurt maker Chobani faced. Chobani was shamed into recalling its yogurt because of mold that sickened some of its consumers, and was forced to change the recipe of its Blueberry Power Flip flavor after the Air Force raised concerns that hemp seed, one of its ingredients, could trigger false positives in drug tests.


It's all Greek to me
The U.S. Greek yogurt market is big and getting bigger. Overall yogurt sales total some $7.6 billion, with Greek yogurt accounting for about half -- not bad for a food product that barely existed in the U.S. just a few years ago. Chobani alone anticipates $1 billion in sales this year, putting General Mills' modest achievements in perspective.

Groupe Danone , the world's biggest yogurt maker and owner of the Dannon brand, was, like many entrenched yogurt-makers, left scrambling to catch up to Chobani's innovation. As impressive as Yoplait's growth has been, Danone's Oikos brand has been even more so, surging 165% over the past year through May. It's the clear No. 2 brand of Greek yogurt behind Chobani, with a 29% share to its rival's 39%. Furthermore, Chobani's decline is hidden in those numbers -- a year ago it owned half the market, while Danone had less than 20%. Analysts estimate Chobani has lost market share for 18 consecutive four-week periods.

Danone's likely to steal a greater share of the market after a branded Greek yogurt it's developing with Starbucks hits store shelves in 2015 under the coffee shop's Evolution Fresh brand, spelling increased pressure on General Mills.

The Yoplait brand has been doing well for itself, but it's up against some of the biggest guns in the industry, who are themselves under pressure to sell more. With cereal sales still weak and bigger, better financed rivals eating up the growing Greek yogurt market, I find the cereal maker a soggy investment at the moment.

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The article General Mills' Leading Role in This Greek Drama originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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