Cereal Cutters

General Mills has come up with a “fat-trimming system called holistic margin management that’s starting to pay off in a big way,” reports Mina Kimes in Fortune (11/10/08). Looking for ways to cut costs is nothing new at Mills, “but the rise in inflation a few years ago spurred it to seek a more effective companywide productivity solution.” The key was to get everyone within the company to scrutinize costs. That concept was applied for the first time to Hamburger Helper, of which there were 50 versions at the time, “with 25 pastas ranging from wagon wheels to spirals.

Mills looked into the costs of having so many varieties, researched “how much consumers liked them, and then eliminated half of them. They excised unimportant spice and cheese pouches. They shrank the size of the box while keeping the serving size the same. The upshot: Hamburger Helper now costs 10 perent less to make.” Other victories included getting rid of “multicolored Yoplait lids.” That saved $2 million a year. Mills has also eliminated box sizes that don’t fit neatly onto trucks, and saved some $12 million annually by consolidating purchasing of “oils, flour and sugar.”

Among the more visible cost-cuts was the elimination of some of the many different pretzel shapes in its Chex Mix. “Was it cute that the pretzels in our Hot ‘n Spicy Chex Mix spelled H-O-T?” asks Ian Friendly, head of U.S. retail for Mills. “Sure, it was cute, but we had 14 different pretzel shapes. By getting rid of some of them, we save $1 million a year.” Mills takes care to note that innovation still rules at Mills. But as CEO Ken Powell explains, “First you have to protect your margins.” The net of these cuts is that General Mills last year “posted a 13 percent gain in profits on a 10 percent increase in sales,” giving it “fatter margins than Kraft and ConAgra,” according to analysts. ~ Tim Manners, editor