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General Mills (NYSE:GIS) with around $3 billion yogurt sales in the year 2013, continues its hunt for further innovation in yogurt business. It is increasing its reach in health food segment along with greek yogurt, by introducing blended Yoplait Greek with more flavors. Although it hasn't disclosed the pricing and distribution strategies yet, I expect the blended Yoplait Greek yogurt will also be successful in the U.S.

Apart from this, General Mills launched Go-Gurt protein yogurt for children in September and nutrient rich yogurt. Following the success of Greek 100 and increasing demand of Greek yogurt, General Mills has decided to launch new products in health food segment. Greek yogurt sales grew around 100% year over year for the company in the first quarter of 2014. Looking at the sales of Yoplait Greek 100 of $150 million in the span of one year which accounts for around 12.7% to the total revenue from U.S retail segment, I expect the sales of yogurt to increase furthermore in the year 2014.

Expansion in China, improving top line

In the third quarter, the international market contributed 30% to General Mills total revenue. General Mills is expanding its reach in China, backed by country's increasing population of middle and upper-class societies. As of September, around 150 million people are classified as middle class and by 2020 China will have around 200 million middle class residents.

General Mills' growth in China is driven by major brands such as Haagen-Dazs, Wanchai Ferry frozen convenience meals, Bugles, and Trix. Among these brands, Haagen-Dazs is one of the key growth factors. The Chinese consumers prefer a different dining experience, and a luxurious diet with ice-cream. Haagen-Dazs opened stand-alone cafes instead of entering through supermarket stores in China. Around 80% of the revenue from Haagen-Dazs comes from its ice-cream parlor shops rather than from supermarkets. To increase its presence in China, and to match the increasing demand of ice-cream, General Mills is opening 70 more cafes in 13 Chinese cities in 2014. The company may have around 250 cafes in China by the end of 2013, including newly opened 68 new cafes this year. It expects revenue from China to reach around $900 million by 2015.

Competition

General Mills has around 24.7% market share in the yogurt market followed by Danone (OTCQX:DANOY), which has 27.9% market share. Recently, Danone entered into partnership with Starbucks' (NASDAQ:SBUX) Evolution Fresh brand, which is expected to launch in 2014. The product will be available in Starbucks stores by 2014 and in grocery stores by 2015. With the increasing consumption of yogurt in U.S. households, this deal will be a milestone for Danone and Starbucks. Starbucks has more than 10,000 stores in the U.S., and every week around 70 million customers visit Starbucks' stores. By selling products its in Starbucks, Danone will have direct access to the huge Starbucks customer base. With the increasing demand for yogurt in the U.S. market, I think the deal with Starbucks can help Danone increase revenue from the yogurt business.

Conclusion

From a long-term investment view, I believe General Mills is well positioned for growth.

The yogurt business is expected to grow at the rate of 3% in 2014, reaching $4.2 billion, and this growth is expected to continue for the next five years. Even if General Mills maintains its current market share of 24.7% in 2014, I believe it will have ample space to grow from its current product line. Another motivating factor here for investors is its constant dividend payout over the last 115 years. General Mills has a trailing annual dividend yield of 2.80% and a forward dividend yield of around 3%.

Source: General Mills: Moving Ahead With Continuous Innovation In China