Europe braces for breakfast battle

Kellogg's Corn Flakes have been successful in finding theirplace on the breakfast tables of Europeans, but General Mills'Cheerios and Wheaties haven't even been seen on the shelves.

Soon, popular General Mills' brands will be fighting it out withKellogg's abroad thanks to a joint venture between the Minneapoliscereal company and Nestle S.A., the multi-national food concern.

The two companies said Thursday they will form an independentjoint venture called Cereal Partners Worldwide to market ready-to-eatcereals, first in Europe and then in other countries outside of theUnited States and Canada.

The European cereal market still is in its relative infancy,with annual sales of about $1.6 billion, compared with $6.5 billionin the United States. General Mills said the European market isexpected to quadruple in the next 10 years.

Kellogg Co., Battle Creek, Mich., is the leader in Europe, withabout 40 percent of the market. Nestle, the company with whichGeneral Mills is aligning, also is a player, with about 10 percentshare of market in France and Spain and 30 percent in Portugal.

The top executives at General Mills and Nestle, Bruce Atwaterand Helmut Maucher, respectively, said, "Through a strategic alliancethat combines the cereal expertise and technology of General Millswith the local marketing expertise and sales distribution systems ofNestle, we believe we can accomplish collectively that which would bemuch more difficult to accomplish individually - to become a majorcompetitive force in the development of worldwide breakfast cerealmarkets within the next decade."

Charles W. Gaillard, a senior vice president of General Millswho currently is president of its international foods division, willbe the chief executive officer of the new company. Gaillard headedthe Big G cereal division in the United States from 1979 to 1988.

But other appointments, a European location for the company,brands to be sold, and other marketing plans are not yet formulated,according to a company spokesman.

The agreement also carries a long-term agreement, which providesthat neither party will seek control of the other.

General Mills, No. 2 in the U.S. cereal business, has beengaining on perennial leader Kellogg in this country, gaining marketshare at Kellogg's expense. Current figures put General Mills at a25 percent U.S. market share, while Kellogg's is at about 38.5percent, according to analysts.

The oat bran craze benefited General Mills, which had severaloat-based cereals, while Kellogg still had been concentrating on cornand wheat-based products. Both companies are introducing newproducts with psyllium, a grain that is said to havecholesterol-reducing properties.

"This is a good strategic move for General Mills," said BarbaraDirvin, an analyst with William Blair & Co., Chicago. "BecauseKellogg dominates the cereal business in Europe, it would have beentough for General Mills on their own. Nestle is at best mediocre inthe cereal market in Europe. They need the technology General Millshas."

"The agreement will provide long-term rather than a short-termbenefit," said Nomi Ghez, an analyst at Goldman Sachs & Co., NewYork. "General Mills' problem is that it is largely a domesticcompany. To crack the international markets without aninfrastructure would be impossible. So it was hard to see where thecompany could go. The growth opportunities abroad are much moresignificant."

DDB Needham Worldwide, Saatchi & Saatchi Advertising andCampbell-Mithun-Esty, are the three advertising agencies handlingGeneral Mills cereals domestically. General Mills said noadvertising assignments have yet been made for its European ventures.

General Mills stock climbed $1.50 Thursday to $74.62 1/2 ashare. CLEESE TOUTS LOTTO

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