General Mills’ sales drop as discounts slow

GENERAL Mills reported its seventh straight decline in quarterly sales yesterday as the maker of Cheerios breakfast cereal limited discounting in a bid to boost margins, amid stiff pricing competition.

The company has been offering fewer discounts on products such as Progresso soups and Pillsbury dough to cut costs, while rivals have been slashing prices to compete for retailers’ shelves.

The price gap with its competitors was one of General Mills’ biggest challenges so far this year, chief operating officer Jeff Harmening said on a post-earnings call.

“We haven’t had the promotion mix right and we haven’t been as competitive in pricing as we could have been,” he said.

General Mills said it was cutting back on discounting in the current quarter, but at a slower rate than previously.

Retailers including Wal-Mart Stores, Amazon.com and Target are embroiled in a price war that has made it crucial for them to stock cheaper products. “[This year] does seem to be developing into a tug-of-war between the retailers and food manufacturers, where pressure is mounting on retailers to become sharper on price points,” Bernstein analyst Alexia Howard said.

The company’s net sales fell 5.2% to $3.79-billion (R48-billion) in the third quarter which ended on February 26, hurt by weak demand for its yogurt and baking products.

Sales fell short of analysts’ average estimate of $3.82-billion (R48.4-billion), according to Thomson Reuters I/B/E/S. General Mills has also faced lacklustre demand for processed foods as consumer tastes shift toward fresh foods and items seen as healthier.

It stood by its forecast for organic sales to fall about 4% in the year ending May.

Net income attributable to General Mills fell to $357.8-million (R4.53-billion) from $361.7million (R4.58-billion) a year earlier.

Minneapolis-based General Mills’ shares were down 1% at $59.99 (R760.49) in morning trading. They had fallen about 2% this year.