Editor's Plate

Editor's Plate: General Mills Is Navigating Rough Waters

Our 2016 Processor of the Year is making insightful but tough decisions that should ensure it another 150 years of success.

By Dave Fusaro, Editor in Chief

General Mills is the perfect representative of Big Food in all the latter's strengths and its weaknesses. Here is a company celebrating its 150th anniversary this past year yet, I suspect, is less certain about the future than Cadwallader Washburn was in 1866 when he built a flour mill along the banks of the Mississippi River in Minneapolis.

Which is no criticism of Big G. Nearly every big food and beverage company has to be asking itself the same questions as sales shrink, consumer demographics and trends change and distrust of Big Food grows. It was precisely in that spirit that we considered General Mills as our 2016 Processor of the Year. Our usual three-story treatment – the overview story, product development story and manufacturing story – begins here.

General Mills recently reported its first-quarter results (it's on a June 1 fiscal year), which saw sales decline 7 percent to $3.9 billion "due to lower organic net sales, the divestiture of the North American Green Giant business, and the impact of foreign exchange. Organic net sales declined 4 percent, with increases in U.S. natural and organic brands and emerging markets more than offset by declines in Foundation businesses and U.S. Yogurt."

Gross margin, operating profit and net earnings saw similar declines – a bit of a reversal of 2016's full-year report which saw profits increase even in the face of a steep dropoff in sales. Full-year sales have declined in the past two fiscal years; they were $17.9 billion in FY2014, then $17.6 billion in FY15 and $16.6 billion in FY16.

This still is no criticism of General Mills. As we've reported throughout this year, innovative, entrepreneurial, small companies have been chipping away at the sales and market shares of all big food and beverage companies. At the February Consumer Analysts Group of New York meetings, the CEOs and CFOs of Mondelez, Hormel, Kellogg, PepsiCo and Coca-Cola joined General Mills' speakers in announcing or predicting lower sales but marginally higher profits – the latter the result of cost-cutting. But you can't keep that up for long. And all of those firms made acquisitions in the previous year.

Our February cover story saw the same story in more companies (add Kraft and Heinz separately, Unilever, Maple Leaf and MolsonCoors to that list) while the likes of Enjoy Life Foods, Califia Farms, Renfro Foods, Stemmler Foods, Sonoma Foods and others are growing like little weeds. And you know how weeds can get out of hand quickly.

As we went to press on Dec. 5, General Mills unveiled a global reorganization "that will support growth and drive greater efficiency by streamlining the company's leadership, maximizing global scale, and increasing operational agility." Included in that is the loss of 400-600 jobs worldwide.

Like all of Big Food, General Mills is at a crossroads. But it’s making decisions that hopefully will transform it, keeping it a food & beverage leader of the middle-21st century. The 2014 purchase of Annie’s Homegrown for $820 million was audacious but perhaps necessary. Big G is now the country’s fourth-largest organic/natural foods company. Cereals are being reformulated with less sugar and no synthetic flavors and colors.

Gluten-free versions of many products are being developed. 301 Inc. is a venture capital arm that is looking for and investing in the kinds of startup companies that have been nipping at General Mills’ heels.

It’s not easy, parts of it aren’t pretty and the result of it all is no sure thing. But General Mills is making the tough choices that indeed make it a Processor of the Year.