General Mills and McDonald’s Partner to Create Healthier Happy Meals

Is yoghurt really what children (or parents) are looking for in a McDonald’s Happy Meal? That is what General Mills and McDonald’s Corp are banking on as the pair prepare to launch Yoplait Go-Gurt as a side option in Happy Meals and Mighty Kids Meals. The benefits seem straightforward for both parties. McDonald’s gets to improve its public image by adding more ‘healthy’ options and General Mills gets to sell its yoghurt brand via an additional 14,000 locations across the US. The potential rewards are huge, particularly for General Mills, but why has it turned to the notoriously fickle foodservice channel and are there any downside risks?

Yoplait Losing Share in Its Key US Market

Despite the US being Yoplait’s biggest market, its sales continue on a downward trajectory which began in 2011, with the brand also losing its leading position to Chobani in 2013. The launch of children’s low-fat yoghurt with added vitamin D and calcium is a good strategic move for the company as it takes advantage of the latest on-the-go snacking trend while also positioning the product as a good source of bone health for children.

While the US is already its largest market, there is far more potential for growth by exposing the brand to a wider audience, namely customers of over 14,000 McDonald’s outlets in the US. To illustrate, according to Euromonitor International’s consumer foodservice data, each day over 17 million transactions (ie receipts) take place across all McDonald’s outlets in the US. If we take an average of 1.6 people per receipt, that means Go-Gurt has the potential to be exposed to over 28 million people per day, the equivalent of 325 people per second.

Potential Brand Exposure in Yoplait’s Core Markets

Source: Euromonitor International

Opportunities Beyond the US

While this partnership offers opportunities to General Mills in terms of boosting sales in the US, yoghurt sales in the country are actually slowing, with the category forecast a CAGR of 1.9% over 2013-2018 compared to the 5% CAGR seen over 2008-2013. Therefore, General Mills should also pursue growth opportunities beyond the US, for example in China, which is expected to generate the highest additional yoghurt sales globally over the next five years (US$6 billion compared to the second largest contributor, Brazil, with US$3 billion). A move into China could be a good one for General Mills as Yoplait is not yet present there. The expansion of General Mills’ existing partnership with McDonald’s China Development Co Ltd could work well as it positions itself in the mid-priced segment and most McDonald’s outlets are located in busy commercial centres. Go-Gurt is positioned as a value-added product, rich in vitamin D and calcium for the somewhat more affluent Chinese family that is willing to pay extra for a product that is perceived as healthy for children. Building brand awareness through foodservice will create opportunities for sales through retail.

Moreover, when looking at Yoplait’s existing core markets, such as France and Canada, a product offering through McDonald’s could counteract the fact that yoghurt sales are slowing, as in the US market. In France, where Yoplait currently holds the leading position, the yoghurt category is anticipated a CAGR decline of 2% over 2013-2018. In Canada, Yoplait ranks second behind Activia in a yoghurt category which is also predicted to slow to a CAGR of 1% over 2013-2018 from a 5% CAGR over 2008-2013. In both markets, McDonald’s enjoys widespread distribution thanks to more than 1,200 outlets, which in turn equates to significant potential exposure.

Either way, by capitalising on Yoplait’s brand equity, the partnership with McDonald’s in the US could bring huge potential rewards in terms of developing a stronger position for General Mills. In turn, it could revitalise sales in existing core markets where yoghurt sales are slowing or open the way for entry into untapped markets such as China.

That said, associating a ‘healthy’ low-fat yoghurt brand with the world’s leading fast food player could have negative consequences for the ‘health’ reputation General Mills has built up over the years. One may ask if a children’s/family food company really wants to be associated with fast food. Will General Mills’ reputation be maintained or will it suffer?