NEW YORK ( TheStreet) -- Packaged-food giant General Mills (GIS - Get Report) is banking that lower prices on pantry staples such as Hamburger Helper, Progresso soups and baking mixes could help boost sales amid continued weakness in the cereal aisle.
"These are very specific initiatives that address a couple of product categories, such as baking and Hamburger Helper," said General Mills chairman and CEO Ken Powell in an interview with TheStreet regarding changes to prices for several common household food items. Powell explained that "these were product categories where we just weren't competitive in this year, in terms of the promotional activity we brought, and the level of discounts we offered to the consumer."
According to Powell, General Mills will adjust its prices within select categories in its baking division, which includes names Pillsbury, Bisquick and Betty Crocker, as well as soups under the Progresso label, "very tactically." As a result, consumers will soon see "more attractive prices," says Powell.
Great news for penny-pinching consumers, but potentially also General Mills, which could regain lost market share as a result. Sales for General Mills' U.S. retail segment declined 1% to $10.5 billion in its latest fiscal year ended May 31, reflecting lower volume. In the fourth quarter, things were a bit brighter, as sales for the U.S. retail segment rose 5% to $2.5 billion, while operating profits gained 13% to $565 million.
But General Mills isn't just going to be lowering prices to reconnect with consumers.
The company's bread-and-butter cereal business is undergoing a major transformation to cater to the public's growing demands for less processed foods. Recently, the company announced that it will cut artificial flavors and colors from 90% of its cereals by the end of the 2016, and eliminate them altogether by 2017. Trix, Cocoa Puffs and Reese's Puffs will be the first to hit store shelves free of artificial ingredients by this winter.
In addition, Lucky Charms will be gluten free later this year, joining Cheerios. And to further address interest in healthier foods, General Mills will launch a muesli cereal under its Nature Valley brand.
There are already signs that the company's challenged cereal business is starting to turn around. According to General Mills, the rate of sales decline in its cereal business was 1.5% in the fourth quarter compared to a 3% drop for its entire fiscal year.
The company noted its "cereal prices have been quite stable," it's gaining distributions in big-box retailers such as Wal-Mart (WMT) and has no plans to lower cereal prices to coincide with its cuts on baking goods and soups.
If General Mills' cereal business continues to slowly turn the corner, and consumers respond to lower prices in other product areas, it would contribute nicely to already solid sales for the company's Yoplait yogurt and Nature Valley snack bars. Yoplait sales increased 7% on the year as the company marketed a host of new flavors and a 25% reduction in sugar.
Wall Street sunk its teeth into the slate of new initiatives shared by execs on Wednesday, sending shares of General Mills higher by about 1% in midday trading. General Mills reported net sales of $4.3 billion, falling short of consensus forecasts for $4.53 billion. Adjusted earnings came in at 75 cents a share, 4 cents higher than Wall Street expectations.
Sales of kid's yogurt, where Greek yogurt maker Chobani has made a big push, also returned to growth. This year, the company will introduce eight new kinds of Yoplait flavors, including one with oats, flaxseed and pumpkin seeds. In snacks, the Nature Valley brand will see several new simple nut bars unveiled, and two cheesecake flavors for the Fiber One business.
Excluding the effects of currency, mostly the stronger dollar, General Mills' sales and operating profits rose 6% and 13%, respectively, in the fourth quarter.