General Mills’ decision to limit discounting of its ‘light’ yogurt assortments has cut deep into sales. The maker of Cheerios breakfast cereal saw yogurt sales sink for the seventh straight quarter, a hefty price to pay for the attempt to boost margins.
Fewer Discounts Mean Weaker Sales
In recent months, the Minneapolis-based firm no longer offered discounts for its tremendously popular Progresso soups and Pillsbury dough. In the meantime, rivals cut prices aggressively to lure in more customers.
The company’s Chief Operating Officer Jeff Harmening told investors that the “price gap” with its rivals hurt sales the most. Harmening acknowledged that General Mills could have been more competitive than it has been.
This quarter, however, the company slashed discounting at a slower rate than in previous quarters. Its rivals, which include Amazon, Wal-Mart Stores, and Target Corp, are caught in a price war that has led to cheaper products.
The Price War to Continue this Year
Analysts estimate this year to be a ‘tug-of-war’ between retailing giants and food producers. There is also added pressure on retailers to make more discounts. In the third quarter, which ended last month, General Mills’ net sales slipped 5.2% to $3.79 billion. The company explained that there was a weak demand for baking products and yogurt. Analysts had estimated sales would sink to $3.82 billion.
The demand for General Mills’ prepackaged foods also sank as consumers are now shifting their focus to fresh produce and products they perceive as healthier. The company’s organic sales fell 4% over the last year.
The company’s net income also fell, to $357 million from 361.7 million; a year earlier a share was 59 cents and now it is worth 61 cents.
The company’s executives now plan to revive sells by rolling out tastier snack bars and cereals. They also said Tuesday, the company is working on a new yogurt line which should hit the shelves this summer.
The company’s profits dipped 1% while net sales slipped 5%. Analysts had estimated a 4.6% decline in sales for the last quarter. General Mills announced that it will roll out new lines of cereals this spring such as
Nature Valley bars, Very Berry Cheerios, and Cocoa Puff.
Image Source: Flickr