Business Strategies / Fibers, Flours, Grains / Processor of the Year

Processor of the Year 2016: General Mills

After navigating 150 years of changes in food trends, Big G is charting a new course for success.

By Dave Fusaro, Editor in Chief

General Mills is one of those storied, solid members of the food and beverage industry, long admired for its vision, steady financial performance and contributions to both the industry and the communities in which it works. 2016 was a particularly special year for the company: It celebrated its 150th anniversary and appointed a new president, probably heir-apparent to the chairman and CEO roles.

It's also a company facing the same cataclysmic changes confronting nearly all Big Food companies: inefficient, aging factories, legacy brands and product lines that are being snubbed by millennials, transparency and the general consumer distrust that goes with being a $17 billion company. But General Mills is answering those challenges in intelligent and innovative ways, ways that may ensure it's around for another 150 years.

General Mills long has been a leader in new product development and manufacturing excellence. Its corporate responsibility reports are full of awards for sustainability, charitable works and workplace equality and diversity. It's made the nutritional improvement of all of its products a cornerstone. For those reasons and many more, we name General Mills our 2016 Processor of the Year

History: Flour mills to submarines

General Mills started life in 1866 along the banks of the Mississippi River in Minneapolis. Cadwallader Washburn started a flour mill there, which eventually grew into Washburn Crosby Co. Although massive for its time, it found an untapped market for milled flour … which prompted Charles Pillsbury to build his own mill on the opposite river bank in 1869.

Both companies prospered and remained separate firms until 2001.

On June 20, 1928, Washburn Crosby Co. adopted the name General Mills, with the goal of "reshaping the milling industry," according to company history. Five months later the company's stock began trading on the New York Stock Exchange.

Gold Medal flour was the first surviving brand, debuting in 1880 (and today remains the top-selling flour in the U.S.). Bisquick and then Kix cereal were introduced during the Depression. Kix was the result of a General Mills innovation — a research department. In addition to the puffing gun, which delivered a puffed cereal, rather than flakes, the department created an affordable process for producing vitamin D. Cheerioats, later renamed Cheerios, emerged from the lab in 1941.

General Mills' highly regarded engineering department turned its efforts to wartime machinery during World War II and is credited with many innovations that helped win the war. In the 1960s, Big G's Aeronautical Research Labs developed a deep-diving submarine.

While General Mills spent the post-war years diversifying but staying domestic, Pillsbury was expanding internationally with acquisitions from Ghana to Venezuela. It also bought a small restaurant chain called Burger King and took it national. In 1989, Pillsbury was bought by the British firm Grand Metropolitan Plc, which eventually renamed itself Diageo – and eventually ended all Pillsbury manufacturing in favor of contract processors.

Diageo grew more interested in alcoholic spirits than food, so in late 2000, the British firm agreed to sell Pillsbury to General Mills, with the deal being completed a year later.

At $10.5 billion, it was the biggest deal in General Mills' history, bringing along such brands as Green Giant, Old El Paso, Totino's and of course the Pillsbury frozen dough products – but not the dry baking mixes, which were sold to another Minnesota company, International Multifoods (which was later acquired by J.M. Smucker) to satisfy antitrust concerns.

Strategic acquisitions

General Mills, more than most companies at the top of the U.S. food and beverage industry, has grown organically. But there has been a number of acquisitions through the years, many of them bolt-ons but some transformative.

Haagen-Dazs, one of the founders of the super-premium ice cream category, came along with the Pillsbury acquisition. Pillsbury had contracted-out manufacturing of the ice cream to Nestle's U.S. ice cream subsidiary, Dreyer's, and the Swiss company retained the rights for the U.S. only. General Mills owns the brand and markets it elsewhere in the world.

Yoplait was started in 1964, when French farmers joined together to sell their products, primarily yogurt, nationally. The names of the two lead co-ops were Yola and Coplait, hence the name. Yogurt was just catching on in the U.S., so General Mills first licensed the brand from the French dairy cooperatives and in 2011 bought a controlling 51 percent interest in the brand's main operating company, Sodiaal.

Cereal Partners Worldwide, a joint venture with Nestlé and based in Lausanne, Switzerland, was created in 1990. It gave General Mills cereals worldwide distribution through a strong, global partner.

A startup organic company called Small Planet Foods began in 1997, and it eventually acquired another organic processor, Muir Glen. Small Planet was bought by General Mills in 2000, marking the Minneapolis firm's first big foray into organic foods.

Over the next several years, General Mills acquired Food Should Taste Good, Immaculate Baking, Lärabar, Liberté and Mountain High, all in the organic or natural space. But it was the purchase of Annie's Homegrown that made General Mills the fourth-largest U.S. maker of natural and organic foods.

There were questions raised when General Mills paid $820 million for a 25-year-old company with just $200 million in sales. General Mills executives saw great potential and reach in Annie's, and they have begun to exploit that potential.

"This acquisition will significantly expand our presence in the U.S. branded organic and natural foods industry, where sales have been growing at a 12 percent compound rate over the last 10 years," said Jeff Harmening, then an executive vice president and COO. "Annie’s competes in a number of attractive food categories, with particular strength in convenient meals and snacks---two of General Mills’ priority platforms."

At the time of the acquisition, Annie's was best known for its bunny-shaped crackers and macaroni and cheese, although it claimed 145 products in more than 35,000 retail locations in the U.S. and Canada. General Mills wouldn't confirm, but Annie's apparently own only one manufacturing plant.

What Annie's did have was a sterling reputation among young (especially millennial) mothers for being organic and natural (read: pure). General Mills saw the potential to grow the product line and the distribution without tarnishing the brand's reputation.

The new parent quickly moved Annie's into categories General Mills already had experience in. First were organic soups and frozen appetizers (Pizza Poppers and Mini Pizza Bagels). Cereals and yogurts followed. Now there are Annie's products in baking mixes, dressings and condiments & sauces. Most are organic, a few are "natural" and the newest Pea B&J Pockets (peanut-free peanut butter and jelly sandwiches) have "no artificial flavors or colors."

"Today, Annie’s is one of the most recognized natural and organic brands in the U.S.," said a company spokesperson. "By working together, General Mills and Annie’s can have a far greater influence on the broader food industry: getting organic food in more homes across the country, expanding organic acres and farms, and increasing the social impact of our work."

On the other hand, the company's fiscal 2016 also saw the divestiture of the Green Giant vegetable business, for about an equal price as Annie's.
Are there other Annie's businesses out there to be discovered (and acquired)? General Mills created its own venture capital business, 301 Inc., formed in mid-2015, to invest in small, early-stage, regional startups that are looking for capital and Big Food know-how to grow.

"We have found that more and more innovation was coming from small companies," says John Haugen, vice president and general manager of 301 Inc. "There are ways for us to partner and provide growth capital."

Today and tomorrow

Today's General Mills manufactures products in 13 countries and markets them in more than 100 countries. It has three operating segments: U.S. Retail (accounting for $10 billion, 60 percent of sales but consistently 72 percent of operating profit), International ($4.632 billion) and Convenience Stores and Foodservice ($1.924 billion).

Joint ventures -- Cereal Partners Worldwide and Häagen-Dazs Japan – add another $1.1 billion in sales.

General Mills has some of the world's best known brands -- Betty Crocker, Cheerios, Haagen-Dazs, Nature Valley, Old El Paso, Pillsbury and Yoplait each generate more than $1 billion in annual retail sales. Other leading brands include Annie’s, Chex, Fruit Roll-Ups, Gardetto’s, Gold Medal, Helpers, Jeno’s, Lucky Charms, Progresso, Wanchai Ferry, Wheaties and Yoki. That last one is the result of the company's most significant overseas acquisition: Brazil's Yoki (for $1.16 billion in 2012).

General Mills focuses on five large global categories:

  • Ready-to-eat cereal
  • Convenient meals, including meal kits, ethnic meals, pizza, soup, side dish mixes, frozen breakfast, and frozen entrees
  • Snacks, including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks
  • Yogurt
  • Super-premium ice cream.

Baking mixes and ingredients and refrigerated and frozen dough are other significant product categories

The company has 59 production facilities, including 30 in the U.S., four in China, two in the Asia/Middle East/Africa Region, four in Canada, 10 in Europe/Australia and nine in Latin America and Mexico.

General Mills always has had an orderly succession at the top. In his 37th year with the company – including nine years as CEO and eight as chairman -- Kendall Powell this summer named Jeff Harmening president/COO (Harmening already was an executive vice president and COO). If history is a guide, Harmening will be at least CEO and probably chairman some day soon.

Insiders say Harmening was a big proponent of moves toward more natural foods, playing key roles in the acquisition of Annie's and in the removal of artificial flavors and colors from children's cereals.

What will the next 150 years, or at least the foreseeable future, bring for General Mill?

"We are developing new capabilities throughout our organization to enable growth in a rapidly changing marketplace," the company said in a prepared statement. "We’re integrating consumer-first principles into our innovation process to drive faster, more successful product introductions. We’re also investing in e-commerce capabilities to capture growth from this emerging channel. We are confident in our plans for growth and we look forward to continued strong performance for the next 150 years."