General Mills says weathers Europe downturn so far

CHICAGO Wed Mar 14, 2012 7:00pm EDT

General Mills cereals are displayed on a kitchen counter in Golden, Colorado December 17, 2009. REUTERS/Rick Wilking

General Mills cereals are displayed on a kitchen counter in Golden, Colorado December 17, 2009.

Credit: Reuters/Rick Wilking

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CHICAGO (Reuters) - General Mills Inc's (GIS.N) mix of foods and its limited exposure to Italy and Greece have helped insulate it from Europe's economic crisis, one of the company's top executives said on Wednesday.

The maker of Cheerios and other cereals has seen some European shoppers buy more items when they are discounted, or trade down to store brands, said Chris O'Leary, executive vice president and chief operating officer of the company's international business.

Like most food companies, General Mills raised prices on many of its products to offset soaring costs for commodities such as grain, and saw sales weaken as a result.

Still, a recent launch of two decadent Haagen-Dazs ice cream flavors shows that new products can win over shoppers even during difficult economic times.

In late 2011, the company introduced Haagen-Dazs Secret Sensations, ice cream surrounding a liquid sauce, either "Chocolat Fondant" or crème brulee.

"Our Haagen-Dazs business remains quite strong in Europe this year despite the economic troubles," O'Leary told the Reuters Food and Agriculture Summit.

General Mills has annual sales of about $15 billion, with about $3 billion coming from international markets.

General Mills is set to report results for its fiscal third quarter, which ended in late February, on March 21. Last month, it lowered expectations for the fiscal year after seeing some weak volume in the U.S. business.

Through the second quarter, the company was doing well globally, even though sales growth slowed in some categories due to price increases taken to offset higher commodity costs.

"It's not like consumers around the world are immune to the laws of economics. When you do price, you force them to consider again the value equation," O'Leary said. "But we are still seeing volume growth around the world (through the second quarter) and that is good."

General Mills saw "particularly strong" results in emerging markets, O'Leary said.

Within Europe, General Mills has a larger presence in the United Kingdom and France than in some other countries.

"While we're present in Italy and Greece, those are much smaller businesses," O'Leary said. "Some of the more troubled parts of Europe, if you will ... aren't a significant part of our business."

General Mills has had a program in place for several years aimed at cutting costs and boosting margins. In the face of weaker sales growth across the packaged foods industry and similar efforts from all rivals, some of those activities become more important.

"It starts with reducing complexity - complexity that isn't valued by consumers," John Church, senior vice president of General Mills' global supply chain, told the summit.

Many of the practices that cut costs also have environmental benefits, such as reducing packaging, relocating factories so products have shorter distances to travel, and powering some facilities with renewable energy. For example, General Mills burns oat hulls, a byproduct of making Cheerios, to power some plants.

He said finding ways to collaborate with both suppliers and retailers to improve technology and the supply chain was "the next frontier for us."

(For summit blog: blogs.reuters.com/summits/ )

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(Reporting by Martinne Geller and Jessica Wohl in Chicago; editing by Matthew Lewis)

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