General Mills Goes Incognito To Sell Cereal That's Organic
KEVIN HELLIKER / Wall Street Journal 7jun02
Four new breakfast cereals are set to hit grocery shelves nationwide this month under a brand called Cascadian Farm. But here's a secret: Their actual maker is General Mills Inc.
For the purveyor of Cheerios to keep its legendary logo off of a cereal box defies all conventional marketing wisdom. But these new cereals aren't aimed at the conventional market. They're organic, and organic-food buyers tend to eschew conglomerates' famous brands.
Catering to the organic market suddenly is the rage of the nation's growth-starved food conglomerates. While sales at their traditional outlets -- supermarkets -- are growing barely more than 1% a year, sales at so-called natural-foods retailers are rising at several times that rate.
At Whole Foods Market Inc., the nation's biggest natural-foods retailer, more-than-20% growth in profit and sales makes it the hottest grocery stock around. Yet, a stroll down the aisles of Whole Foods shows the food giants are getting only a nibble of that growth.
Cascadian Farm's cereals will list their natural qualities on labels, but not their ties to General Mills.
Whole Foods' shelves are stocked not with such mainstream brands as Frito-Lay snacks or Peter Pan peanut butter, but rather by specialty brands such as Little Bear and East Wind. Looking for Coke or Pepsi? The soda sold here is Blue Sky and Hansen's.
As an extra prod to the food makers, conventional grocers such as Kroger Co. and Safeway Inc. are adding natural-foods sections selling the brands found at Whole Foods. Kroger has separate natural-foods concessions inside nearly 1,000 of its 2,418 stores.
No longer are the food giants dismissing as eccentric consumers such as Jacque Blix, 52, a book writer in Seattle. "I try to buy almost everything organic or natural," she says.
This isn't the first time a food or beverage giant has gone incognito to appeal to customers hostile toward big companies. Already on the shelves of Whole Foods is a breakfast cereal called Mother's -- only the fine print discloses it's made by PepsiCo's Quaker Oats unit. In the exclusive, high-end world of craft beers, big conglomerates have tried to pass as funky shoe-string microbrewers to skeptical consumers. Red Dog beer, for instance, whose label identifies the maker as Plank Road Brewery, is really made by No. 2 beer heavyweight Miller Brewing Co., a unit of Philip Morris Cos. Then there are the Blue Moon beers with odd varieties such as Belgian White, labeled as a product of Blue Moon Brewing Co. Its undisclosed parent: No. 3 brewer Adolph Coors Co.
But what's a conventional food company to do? Taking a page from the big movie studios -- which responded to the art-film craze by buying up independent studios -- many big food makers are buying up little brands that dominate the shelves of Whole Foods.
The list of recent acquisitions is lengthy: Coca-Cola Co. last year bought Odwalla Inc., maker of a natural juice. Kraft Foods Inc. in 2000 bought Balance Bar Co. and Boca Burger Inc. Kellogg Co. in 2000 bought Kashi Co., maker of natural cereals. H.J. Heinz Co. in 1999 bought a 19.5% stake in Hain Food Group Inc., and a year later General Mills bought Small Planet Foods Co., owner of the Cascadian Farm brand. Hain and Cascadian make all sorts of natural-foods products.
The big players also are starting to devise their own natural products. Heinz is seeking to sell a Heinz-made organic ketchup at Whole Foods and Wild Oats Markets Inc., the nation's second-largest natural-foods grocer, according to those grocers. Heinz declined to comment.
PepsiCo's Frito-Lay unit is test-marketing several brands of natural and organic versions of existing snacks, including Cheetos, Tostitos and Sun Chips, labeled as being from Frito-Lay. In case the test goes well, Pepsico is talking with Whole Foods and Wild Oats about shelf space. "Given that Whole Foods is the fastest growing among retailers, we'd love to be in there," Frito-Lay spokeswoman Lynn Markley says.
But developing their own products can raise a host of questions for these companies. Will slapping their own label on the product attract or deter die-hard consumers of organic and natural foods? "Our most loyal customer is somewhat leery of established brands," says Dr. Mary Mulry, senior director of product development and standards at Wild Oats.
A bigger challenge might be that food giants lack the expertise to produce good-tasting food that is also organic (grown without synthetic pesticides) or natural (made without preservatives, artificial flavoring or artificial colors). Both Whole Foods and Wild Oats routinely reject products from big and small companies that fail either their taste or purity test.
Furthermore, if a food company modifies a hit product for the natural market, it could pose a marketing dilemma. "If they come out with an organic version, [consumers might ask] what that says about their existing brand," says Dr. Mulry.
Development of the new Cascadian Farm cereals shows how General Mills, a pioneer among food titans turning organic, negotiated some of the potential pitfalls. When it was bought by General Mills, Cascadian Farm was a small maker of organic frozen afruits, vegetables and entrees. It had never produced a breakfast cereal.
General Mills, a close rival to Kellogg to be the nation's largest cereal maker, wanted a larger share of that category in the natural-foods market. Its only attempt under the General Mills logo was an organic cereal called Sunrise. Its taste didn't impress Whole Foods or Wild Oats, which devoted little shelf space to it.
General Mills officials also concluded its reputation meant less to natural-foods customers than a brand known to be organic. "To the organic customer, the heritage of Cascadian Farms has more equity" than the image of General Mills, says Marc Belton, a Mills senior vice president.
So the new cereals make no connection to General Mills, even though one of them -- Honey Nut O's -- is essentially just an organic version of Honey Nut Cheerios. The two products look the same, and their advertised descriptions are nearly identical: "Whole grain oat cereal touched with golden honey and almonds."
Although General Mills dropped its name from cereal boxes, Whole Foods said it plans, with General Mills' approval, to post a sign above the Cascadian Farm cereal that reads, "Cascadian Farm, one of the original producers of organic foods in this country, is now part of the General Mills family."
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