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General Mills (GIS)Stock (Consumer Products Industry, Food & Beverage Industry, Processed & Packaged Goods Industry)
 With over $12B in sales[1], General Mills (NYSE: GIS) is one of the largest packaged food producers in the world. The firm owns some of the most recognizable brands in the grocery store, including Cheerios, Progresso Soup, Hamburger Helper, and Fruit Roll-Ups. U.S. retail accounts for 68% of sales[2], but its international segment, helped by a joint venture with French food giant Nestle SA, is growing fast as the company now operates in 100 countries worldwide. Like many other food and beverage companies, General Mills faces a market marked by increasing commodities prices. The company is a large purchaser of corn and wheat, and the rise in the price of oil has hurt as well. As the costs of doing business increase, General Mills must either absorb these losses or charge higher prices at the risk of losing market share. Nonetheless, General Mills has continued to increase profitability and has even boosted its margins from 35.2 percent in 2005 to 36.1 percent in 2007.[3] In doing so, the company has introduced new products like lower-sodium Progresso soups and Hamburger Helper singles for the microwave, while growing its reach from grocery stores into new channels like supercenters, drug and discount stores, and convenience stores. It is also expanding into fast growing markets like China, Russia and Latin America.[4]
[edit] HistoryGeneral Mills traces its history to Cadwallader Washburn, who opened a flour mill in 1866. After his business, the Washburn Crosby Co., won a gold medal at a competition, the company's flour was renamed Gold Medal (a brand that General Mills still owns). ]In 1928, Washburn Crosby merged with several other milling companies to form a flour company called General Mills. That year, the company's stock was listed on the New York Stock Exchange. Over the next half century, the company launched a number of brands, including Wheaties, Kix, Cheerios, and Nature Valley. General Mills also purchased a number of non-core businesses, including Eddie Bauer, Talbots, and the maker of Play Doh, although those businesses were spun off in the mid-1980s. In 2001, General Mills purchased Pillsbury in a $10.4 billion deal. The integration of the Pillsbury business is now complete. [edit] Business OverviewThe company divides its business into three core segments: U.S. retail, international, and bakeries and foodservice. The U.S. retail division is responsible for the vast majority of the company's profits and sales.
[edit] U.S. Retail (68%)The company sells a line of "Big G Cereals," such as Cheerios, Total, Chex, Lucky Charms, and Kix. It also sells a number of "convenient dinner products," including Betty Crocker and Hamburger Helper dinner mixes, Progresso soups, and Green Giant vegetables. Since its 2001 purchase of Pillsbury, General Mills has also offered Pillsbury refrigerated dough products. The company also distributes a number of other baking products under the Betty Crocker name, as well as Gold Medal flour. General Mills produces a number of snacks, including Nature Valley granola bars, Chex Mix, Fruit Roll-Ups, and Fruit By The Foot. General Mills also sells Yoplait and Colombo yogurt.[17]  [edit] New ProductsGeneral Mills constantly develops and markets new products. For instance, in the first fiscal quarter of 2007 alone, the company launched 19 products, including La Lechera Flakes cereal, Totinos Mega Pizza Rolls, Nature Valley Fruit Crisps, and Caribou Coffee Bars. New products are a significant driver of growth, especially in the mature cereal market, which has grown only 0.3% during the last eight years. [edit] International (17%)General Mills' international unit generates 17 percent of the company's sales[19]. General Mills makes its products in 17 countries and sells them in more than 100. General Mills sells its cereals outside the United States and Canada primarily through a joint venture with Swiss food giant Nestle. Both companies control 50 percent of Cereal Partners Worldwide, which sells the cereals around the world. General Mills also has a second joint venture with Nestle with regard to the Haagen-Dazs ice cream brand. Under the agreement, General Mills distributes Haagen-Dazs ice cream internationally while Nestle sells Haagen-Dazs products in the United States and Canada[20].  
[edit] Bakeries and foodservice (15%)In its bakeries and foodservice division, General Mills sells mixes, frozen dough products, and flour to restaurants, cafeterias, food service distributors, and bakeries. [edit] Trends & Forces[edit] Rising Food & Energy Costs Pressure MarginsGeneral Mills buys a number of commodities in order to manufacture its products, including cereal grains, sugar, dairy products, and fruit. Changes in the prices of such raw materials could negatively impact total production costs. Because General Mills operates in such a competitive environment, the fear of losing market share limits the company from charging its customers higher prices. To mitigate this ever-present risk, the company purchases commodities in advance using futures contracts and hedges the risks associated with buying commodities.   [edit] Strong International Performance is Driving GrowthNet sales from General Mills' international businesses totaled $3 billion in 2007. General Mills sees tremendous opportunities for our brands in global markets. As of fiscal 2007, Cereal Partners Worldwide, the company's joint venture with Nestlé, generated $1.6 billion in annual net sales. General Mills holds a a 50 percent stake in Cereal Partners Worldwide, which holds an estimated 24 percent share of category sales in the combined 130 markets where it competes. Sales for our wholly owned international businesses grew 16 percent in 2007[25]. General Mills also sees opportunity in a growing global taste for ethnic foods including the company's Mexican Old El Paso line and its Wanchai Ferry frozen dumpling brand in China which saw 17 percent growth in 2007[26].  [edit] Supermarket Consolidation Reduces Bargaining PowerA steady trend toward supermarket consolidation is concentrating the buying power of General Mill's largest customers. General Mill's largest customer is Wal-Mart Stores. Wal-Mart made up 20 percent of total sales in 2007, including 27 percent of sales at the U.S. retail division[28]. Although no other company made up more than 10 percent of sales, the company claims that its five largest customers in the U.S. retail division made up 54 percent of total sales in 2007 and the five largest customers in bakeries and foodservice made up 40 percent of total sales[29]. Because these large customers are so important to sales, Kellogg has less bargaining power when determining wholesale prices. [edit] New Healthy Products Draw New CustomersIncreasingly, consumers are buying products that claim to promote better health. Food companies like General Mills have had to adjust their product portfolios in order to adapt to this consumer trend. As of fiscal 2007, General Mills boasted over 100 products with less than 100 calories per serving[30] General Mills has seen particular success its yogurt segment; retail sales for Yoplait Light yogurt grew 20 percent in fiscal 2007 due in part to a strong advertising message that this yogurt tastes great and has 100 calories per serving[31]. General Mills has also seen success with the introduction of lower sodium, lower fat Progresso soups which contributed to 10% growth in that product line over 2007[32]. In the cereal category, General Mills has added whole grains to many of its cereals and has increased the amount of dietary fiber and iron in its reduced sugar cereals. At least three of its brands, Wheaties, Total, and Cascadian Farms, are considered among the leaders in healthy cereals. [edit] CompetitionIn addition, in order to compete with an increasing array of private label brands produced by private label manufacturers and supermarkets, General Mills has had to increase advertising expenditures. In 2006 two of General Mill's largest units, Pillsbury USA and Big G cereals, posted negative sales growth. The company has said it will "launch new products, achieve competitive levels of retailer merchandising activity and increase advertising" this year at "Big G[33]." At Pillsbury, the company says it plans to launch new products.[34] Even brands that are currently doing well, such as Yoplait and Progresso which saw double digit growth over fiscal 2007, could face increasing competition in the near-term. Danone, the maker of Dannon yogurts, is competing with General Mills in its fastest growing business—yogurts. Yoplait controled 40 percent of the American market for yogurt in 2006. Yoplait's sales growth was 14% vs.the overall market which grew 8%. Meanwhile, General Mills is defending its market share from Campbell Soup—which introduced a range of low-sodium soups in 2006— by introducing its own line of healthier, low-sodium Progresso soups.[35]
[edit] Market ShareAlthough General Mills is the second largest cereal maker in the United States after Kellogg, its products are still highly susceptible to price cuts and promotions by its competitors. Over the last few years, partly due to this competition, the company has lost market share in its cereal business. Kellogg now controls about one-third of the market, followed by General Mills with 31 percent and Quaker (a division of PepsiCo) and Post (a division of Kraft Foods) with 30 percent. Kellogg has also launched more cereals than General Mills recently. Kellogg controls 50% of the market for new cereals in the United States. New cereals are particularly important since manufacturers generally charge higher prices for them than for older products.  [edit] References
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