In an earnings conference call with shareholders and analysts last fall, General Mills CEO Ken Powell declared that his company would introduce 300 new products by the end of fiscal 2009, which ends in May.

What would these products look like? Consider Fizzix.

Introduced in the fall of 2007, Fizzix is something you probably never thought the world was breathlessly waiting for: carbonated yogurt. But General Mills needed something like it. A few years back, the company saw that its Yoplait yogurt brand wasn’t selling well among teenagers. It knew from its extensive market research that it needed to make yogurt more “fun.”

But how? The answer came not from the company’s own labs but from Brigham Young University. There, food scientists had developed a way to carbonate thick liquids—like yogurt. General Mills got wind of the technology, visited BYU, and soon had a licensing agreement. Voilà! Fizzix, a fizzy yogurt in a squeeze pack.

Many of the new products that General Mills and its competitors introduce are line extensions, like the seemingly innumerable species of Cheerios in the cereal aisle. Others, like Fizzix, are completely “new,” though even those are connected in many cases to what Powell has called General Mills’ “power brands,” which include Yoplait and Progresso. However they are derived, new products such as Progresso Light soups and Fiber One bars fueled much of General Mills’ revenue growth in 2008. For the year ended May 25, 2008, net sales grew 10 percent, to $13.7 billion. The lower-calorie soup line, introduced in mid-2007, notched more than $100 million in retail sales in its first year.

But just as remarkable is how quickly the company is getting new products to market. Like other large food companies, General Mills used to introduce new products at a slower pace. In the current supermarket world, that’s no longer an option.

What’s New?

Peter Erickson, senior vice president of innovation, technology, and quality, who reports directly to Powell, prefers that the number 300 not get too much attention.

“While we absolutely and in point of fact introduce a lot of new products, our focus in recent years has been less around the quantity of our innovations and more around the quality of our innovation,” Erickson asserts. “In the last several years, we’ve really moved away from counting the number of things that we’re introducing because we don’t think that that’s a real indication of our innovation success.”

Though not meant to be a precise count, “300” does reflect how many more consumer food brands General Mills has after its acquisition of Pillsbury in 2001. It’s also evidence of a new philosophy of product development that General Mills put in place about five years ago.

During 1970s and 1980s, new ideas could take many years to go from General Mills R&D to supermarket shelves. Why be in a hurry to mess with success? The company had famous brands, it was making good money. The demand from consumers and grocers for new items, while always present, wasn’t particularly pressing. Most new products that General Mills introduced were new flavors and other line extensions.

That world hasn’t completely disappeared—General Mills’ long-time cereal brands still make up the largest unit of the company; Cheerios is the bestselling cereal in the United States—but it has shifted from its former axis.

By the early 1990s, General Mills was seeing that it could no longer do things the same old way. The company was starting to be pinched by lower-priced knockoffs of many of its cereals. Under then-CEO Bruce Atwater, it began making a conscious effort to speed up new product development.

The process became more urgent by decade’s end. For one thing, younger consumers aren’t necessarily buying products simply because their parents did. Marketing consultant Steve Diller, the innovation practice director for San Francisco–based Cheskin, which helps companies bring new items to market, notes that “the life cycle of products is such that it’s easy for a classic to become an old standby, and then move into being obsolete from a younger generation’s point of view pretty quickly.”

What’s more, margins in the supermarket business were being sliced ever thinner. Though ownership of the approximately 40,000 grocery stores in the U.S. (a number that doesn’t include the roughly 146,000 convenience stores) has consolidated, those left standing are battling for market share.

“The large retailers have pushed us to go faster,” Erickson says. “And I think that’s been a great incentive for us to study our processes, look for those areas that are slow, and take away those slow spots.”

For a retailer, new items from an established supplier with marketing power can maintain consumer interest in a store’s shelves. For a supplier like General Mills, new offerings are a way to present a distinct identity to the consumer and stand apart from store brands and those of competitors.

“We certainly have lots of great competitors that we battle against in our industry, whether they are nationally branded competitors, whether they’re regionally branded competitors, whether they’re what we call retailer brands,” Erickson says. “We see many of our retailers that are coming into the marketplace with their own innovations under their retail brand, whether that’s a grocery store brand or a Target brand or a Costco brand, those kinds of things.”

Store brands have become a stronger competitor in recent years, particularly with the recession pushing consumers to buy for price rather than brand. Houston-based Plunkett Research reports that 2008 sales of store-label food and consumer products grew 10 percent; growth in sales of branded products was 2.8 percent.

“Speed to market is a very important factor” for new products, says Christopher Growe, who follows General Mills as a managing director with St. Louis–based investment firm Stifel Nicolaus. After an item is introduced, “you can plan on a private label being pretty quickly on your tail to mimic that product.”

Making a Difference

Up against those challenges, “at least five years ago, we were recognizing that we had to go faster,” recalls Heidi Emanuel, General Mills’ vice president and senior innovation officer. But processes for doing so weren’t in place. “We found that we launched a number of relatively big new products that weren’t successful,” she adds. “We had tried to short-cut some systems to create new methods.” In 2004, for instance, General Mills jumped on the lower-carbohydrate surfboard with Total Protein, an Atkins-friendly version of its well-established cereal brand. But low-carb turned out to be a short-lived fad, and when the wave crashed, Total Protein sales crashed with it.

General Mills needed a new approach to product development, but it didn’t want to do away with its old system altogether. As Emanuel says, “While many feel as though structure and process are the enemies of innovation, it can enable innovation also—if you have just the right amount of structure and process.”

The company established three criteria for evaluating the “quality” of a new product: Will it provide “incremental volume”—that is, will it add new business rather than cannibalizing another product line? Is it sustainable—a long-term addition rather than a fad? And, of course, will it be profitable?

Perhaps even more important, the new approach to innovation would take in ideas from wherever they happened to be generated. Getting products to market more quickly required breaking down departmental silos. These days, many General Mills brands no longer conform to a single category. Fiber One’s turf, for instance, includes bars, cereal, pancake mix, even yogurt. Cheerios recently moved beyond the cereal category with a Cheerios-based snack mix.

In order to create differentiated products, Erickson and others in the company pushed General Mills to do something it had long been resistant to: tapping outside expertise.

“In the past, we liked to do a lot of our own internal development,” Erickson notes. There are good reasons for this—having complete control over a technology, for instance. But some in the company believed that innovation was limited by the scope of internal expertise.

“What we’ve seen is that we can go to market faster, we can create new innovation, we can get access to new technologies by looking outside the walls of General Mills as well as we can looking inside the walls,” Erickson says. Indeed, he adds, “we believe that a lot of the innovations that can really revolutionize the food industry will likely happen outside of General Mills.”

Consider Fizzix, for instance. By 2005, the company had identified what Erickson calls a “white space” in its Yoplait brand—namely, teenagers. Thanks to General Mills’ customer studies, “we had some unique insights around teens and consumers that look at ‘play value’ of food,” Erickson says.

What the company didn’t have was a product idea—or more precisely, one that General Mills had developed in house.

In the 1980s, Brigham Young University scientist Lynn Ogden created a way to make yogurt fizzy by mixing in dry ice. Over the years, Ogden and others worked to perfect the formula and began selling it on campus in eight-ounce tubs. BYU approached food companies to see whether any were interested in licensing the technology. None were.

That changed when Erickson started the “X-squad” at General Mills in 2005. The X-squad is a group of employees charged with evaluating outside innovations. Erickson and the X-squad found the BYU technology in a reject file—and discovered a way to fill that white space. “We were able to get access to that [technology] for a very low cost,” he says. General Mills food scientists and marketers took it from there.

The X-squad is one of four squads—internal “catalyst teams” designed to speed up product development through the exploration of new methods and technologies. Others include a technical problem-solving group and the “innovation speed team.” The very first team, created in 2004, was the “I-squad,” which creates new product strategies.

“In the past, each division would do discovery on their own,” says Emanuel, who directs the I-squad. “What we saw was that they were studying the same topics, such as weight management. Now what we try to do is look out ahead a year and find the topics that multiple divisions, sometimes all the divisions, are trying to study so that they can launch new products off of them.”

The I-squad investigates consumer needs and wants using an ethnographic approach, going into homes, looking into refrigerators, and interviewing consumers. Squad members also go shopping with them to see what they look for and how they study labels.

“There are typical ways any corporation works, and you end up seeing the same problems in the same way,” Emanuel notes. “So we can help

look at the problem differently by having them experience it or see it through the consumer’s eyes, or by having an anthropologist or a psychologist study it.” Such an approach gives General Mills what it believes is a deeper understanding of consumer concerns over food safety, body weight, and the nutritional value of the foods they buy.

Global Supermarket

As part of its Pillsbury purchase, General Mills acquired a Pillsbury unit called Wanchai Ferry, a Hong Kong–based maker of dumplings and other foods. Two years ago, General Mills introduced Wanchai Ferry dinner kits to the U.S. market, the first time it had taken a product developed overseas into America. It expects overseas units to generate more new products for the U.S. market.

“The nature of the American people is changing pretty dramatically,” marketing consultant Diller asserts. In his home state of California, “there’s no majority from a racial standpoint. The general market is becoming a new hybrid market,” rather than being distinguished from various “ethnic” segments.

General Mills’ product development and management strategy seems to be working, if its financial performance is any guide. Though in the quarter ending February 22, the company reported a 30 percent drop in profits, much of that downturn was due to commodity costs, a particularly complicated thing to manage in the past couple of years. Still, sales of cereal were up 13 percent in the quarter; sales of the Yoplait brand increased 7 percent. One dark spot: sales to the suffering restaurant industry.

(In March, General Mills anticipated earnings per share for its fiscal 2009, which ends May 29, of $3.87 to $3.89—a 10 to 10.5 percent increase over fiscal 2008.)

These results came despite the fact that spending on food declined 3.7 percent in the fourth quarter of 2008, according to U.S. Department of Commerce research. Sales of processed foods are trending downward, and anecdotal evidence suggests people are cooking more at home.

Still, General Mills plans to keep a robust pipeline of innovation. “While it looks like we’re getting ready to launch something very quickly, some of that foundational work was done many years in advance,” Erickson says. “Because we could foresee the opportunity that was coming. We could see the consumer need that was emerging. And so we were doing a lot of that fundamental work to be able to build the technologies that we could take into the marketplace when the timing was right.”

Soup Across Silos In 2007, General Mills introduced its Progresso Light line of low-calorie soups. It was “a first-to-market category for General Mills,” says General Mills Vice President Peter Erickson. “One could argue: ‘Why didn’t Campbell’s think of that?’” He believes it’s because Campbell Soup doesn’t make yogurt. It didn’t see how strong a product like light yogurt was—which General Mills well understood, from its Yoplait line—so it was “hard for them to see that the segmentation of the soup category” could add a new type of product. (Campbell has since introduced its own lo-cal soup line.) General Mills wants to be “in as many aisles of the supermarket as possible,” Erickson says. Indeed, Brian Todd, president of the Food Institute, a New Jersey–based industry research group, says that one reason food companies bring out new products is because “they’re looking for growth in little niche markets, whether it be organic or functional foods—probiotic yogurts and things of that nature. Maybe it’s not the largest segment of the market, but in many cases, it can be one of the faster-growing segments. And [companies] don’t want to miss out on that growth.” (General Mills’ presence in the organic market is its Small Planet Foods unit, whose brands include Cascadian Farm and Muir Glen.) “If you were to compare General Mills’ size and our diversity to some of our food peer competitors, they are of similar size but have less diversity in terms of their portfolio,” Erickson asserts. “One could argue that we’re at a disadvantage because our competitors can focus more of their effort on fewer categories. “We take the opposite view, which is that we are advantaged—that we have more sources of innovation because we can combine the brands and the technologies and the product technologies and the product categories and the consumer insights from multiple categories together to be able to deliver something to the consumer that’s truly unique.” —G. R.