Through The Fly's Eyes: General Mills
from Laurie Pasternack of Theflyonthewall.com
It's Curtains for General Mill's Frozen Waffle Business
In a U.S. regulatory filing yesterday, General Mills (GIS) made several announcements pertaining to its strategy going forward.
The second-largest U.S. cereal maker said it would shutter two factories in Allentown, Pennsylvania and in Trenton, Ontario. This will eliminate 580 jobs. Additionally, the company will stop making cakes at a Chanhassen, Minnesota plant, a move that will eliminate around 125 workers.
Perhaps the announcement that will have the biggest effect on the company and its workers, General Mills said it would exit the Pillsbury frozen-waffle business. Although the company did not specifically comment on this decision, except to say that the "strategy had changed," there are rumors that strong sales of Kellog's (K) Eggo frozen waffles was largely the reason. In recent years, Eggo sales have deeply cut into sales of the Pillsbury waffles. In fact, in recent years, sales for Pillsbury waffles have fallen from $63M to $24M, according to market research firm Information Resources Inc. Kellog, meanwhile, currently holds a 71% market share in frozen waffles.
These restructuring efforts come several months after the company said it would sell its cereal at similar prices, but in smaller boxes. As prices for ingredients rise, this would allow General Mills to charge more-per-ounce for its cereals, which include Total and Cheerios. Analysts worried that this plan, called the "Right Size, Right Plan," will cause consumers to go elsewhere for their breakfast needs, but according to a survey, the initiative is off to a better-than-expected start.
Now that its frozen waffle business will shortly be out of commission, General Mills will have a lot of work to do to save face, although BMO Capital Markets analyst Kenneth Zaslow believes raising cereal prices shouldn't be a big deal for the company because its competitors have done the same thing.
According to the filing with the SEC, these actions are to be completed by March 2009. Spokeswoman Heidi Geller said production of the frozen dough products will be shifted to other General Mills plants. By eliminating nearly 3% of its workforce, General Mills is hoping to counter higher costs that hurt its profit earlier this year. The company is expected to record $13M in charges in Q1 related to the restructuring actions, job cuts and plant closures.
General Mills will report Q1 earnings on September 19th.