Annie's yogurt another milestone for natural foods division of General Mills

Annie's is rolling out yogurt nationally this month, a milestone in the brand's new era under General Mills.

The yogurt line aimed at kids is the first fresh dairy offering from Annie's, the natural and organic food maker best known for snacks and mac and cheese. It's also the type of product envisioned by the companies when General Mills bought Annie's in 2014 for $820 million.

Annie's customer surveys have long showed that yogurt could be a hit, but the company didn't have the resources to make the product. Enter Golden Valley-based General Mills, one of the nation's largest yogurt makers with its Yoplait brand.

Indeed, General Mills' size and scope has helped Annie's pump out more new products — about double what the company did the previous year, said Annie's President John Foraker. And he said that Annie's organic and natural standards, which many of its fans felt might be tainted by association with Big Food, haven't changed.

"We haven't been asked to compromise, which is surprising to people," Foraker said in an interview last week.

Foraker, who has run Annie's since 2004, works in Berkeley, Calif., where Annie's remains based.

"The decisionmaking for the brand is really done here in Berkeley," he said.

While Annie's does only about $220 million in annual sales — General Mills altogether has more than $17 billion — it is in the vanguard of the natural and organic food business. And the Annie's deal was by far the biggest and most expensive one for General Mills in that space.

Sales of natural and organic food are growing at high single-digit and low double-digit rates, said Erin Lash, a stock analyst at Morningstar.

Look at dry macaroni-and-cheese mixes. Overall, sales in that roughly $2 billion category were down 1.6 percent for the 52 weeks through Nov. 1, according to IRI, a Chicago-based market research firm that tracks grocery store trends.

Kraft Foods, which dominates the category with a 78 percent share, saw sales shrink 3 percent during that time. But Annie's, the No. 2-branded player in mac and cheese with an 8 percent share, saw sales rise 7 percent for its natural and organic products, according to IRI.

And Annie's snacks — the company is known for bunny-shaped cheese crackers and graham cookies — have higher sales growth rates than the mac-and-cheese business.

Overall, Annie's sales were up about 9 percent in its first year under General Mills' wing.

"We think the growth rate is going to accelerate," Foraker said. "This first year was about integrating systems and getting structures set."

For Annie's, a key post-deal benefit is General Mills's expansive supply chain — and yogurt offers a prime example.

"Once we got hooked up with General Mills, [yogurt] was an obvious place to go," Foraker said. "This is an example of where the leverage of General Mills makes Annie's better."

To develop the new yogurt, Annie's worked closely with General Mills' Yoplait division and the company's research and development labs. The product, which is made from whole milk and fresh fruit, is being manufactured through Yoplait's supply chain, Foraker said.

There are two versions of Annie's yogurt: organic and organic "grass-fed," the latter referring to dairy cows that feed on pasture only.

Grass-fed is priced at a premium: $3.99 for a four-pack, compared to $3.29 for regular organic.

Last year, Annie's created a line of soup, another innovation that dovetailed with General Mills' existing business. Mills owns Progresso, the nation's biggest soup brand outside of Campbell's. Annie's soups include tomato and chicken varieties with bunny-shaped pasta, and are packaged in aseptic boxes, not metal cans.

"The soup launch was the first of these collaborations [with General Mills], so in some ways, it was the clunkiest," Foraker said. "It's a little too early to tell how [soup] has done."

As part of General Mills, Annie's is also able to crack the U.S. K-12 school market, a long-standing goal. Schools are a major customer of General Mills' food services division. Two varieties of Annie's bunny graham crackers made their debut in schools this month.

General Mills seems happy with the Annie's deal so far.

"The way we partner with the Annie's team in Berkeley has gone really well," General Mills CEO Ken Powell said in an interview last month. "They know that [organic] customer, and they know their brand. So we stay out of the way."

Mike Hughlett • 612-673-7003