Serial successes – includes related articles – 1991 Food Processor of the Year: General Mills; Company Profile – Cover Story

Alison Otto

Amid tough competition in the cereal bowl, new products position General Mills for relentless growth.

Innovation: General Mills has a long list of firsts to its credit, dating back 50 years when Cheerios was the first ready-to-eat oat cereal. More recent firsts include fruit snacks and light microwave popcorn and cake mixes. Speed: General Mills wrapped up its lucrative joint-venture agreement with Nestle in just 23 days. Eight months later, after buying Ranks Hovis McDougall, the General Mills/Nestle share of the U.K. cereal market soared from 0% to 14%. Commitment: Employees own 6% of General Mills, a company with a market valuation of more than $10 billion. When the stock improves, they gain along with other investors.

The formula sounds simple: innovation, speed and commitment. Innovate in products and marketing, and be the first company to do it. Recruit employees who are committed to the cause and give them stock as incentive.

Making it work is the tricky part, but that’s how General Mills continues to flourish in some of the most competitive areas of the food business. Last year, the company gained another market share point in the rough-and-tumble cereal business. Betty Crocker brands, many of which are decades old, racked up double-digit volume increases across the board. And the list goes on.

How does General Mills continue to pull off coup after coup, year after year?

A relentless competitor, General Mills has been described as having a low tolerance for failure. Chairman and CEO H. Brewster Atwater distills it a different way: “We have a high affinity for success.”

That affinity for success has been well developed within General Mills. Managers echo Atwater’s sentiments toward innovation, speed and commitment. This consistency in business philosophy encourages strong execution, and it is buttressed by the company’s creative marketing and strong new products record.

Within the General Mills culture, the three principles are inextricably intertwined. Managers can execute because they know how they’re supposed to get where they’re going. “First you have to have the idea,” says Atwater. “Then you have to go like the wind.”

One of the best examples of innovation and speed is GM’s joint venture with Nestle in Europe, but the small successes add up as well. “If you stay focused, then you can do all of the mundane things better than anybody else,” says president and COO Mark Willes. “And as a result of doing it a little bit better, a little bit sooner than anybody else does it, you get the rewards and other people don’t.”

What rewards?

The payoff has been impressive, including a healthy operating income in fiscal year 1991, for example, and a spiraling return on equity. A long-time favorite of Wall Street, GM continues its record of glowing financial performances. Earnings per share climbed from $1.00 in 1986 to $2.66 in 1991. Return on capital grew from 12% in 1986 to 22% in 1991. Return on equity soared from 21% to 46% during the same period.

Those figures, as analysts point out, are a tribute to the company’s management. “Good management and good luck,” says analyst Richard Davis, of Wessels, Arnold and Henderson in Minneapolis. “Good management in the respect that they recognized they had a window and leveraged off of that.”

Constant change

General Mills is particularly adept at leveraging its assets. In fact, one of GM’s greatest strengths is its ability to make good brands better. At Big G, president Steve Sanger’s goal is to improve one-third of products each year so that every product in the cereal line is revamped in some way at least every three years.

Sometimes the changes are subtle, like adding a marshmallow shape to Lucky Charms (new marshmallows have helped double Lucky Charms’ volume over the last two decades) or adding apples and cinnamon to Cheerios (within two years of its launch in 1988, Apple Cinnamon Cheerios moved into the top 20 of U.S. cereals). Sometimes, as with the new Wheaties Honey Gold, a corn and wheat variety, the changes make headlines.

Promotions are another key. For example, this year General Mills took to the street to approach consumers face to face. To promote Oatmeal Raisin Crisp, the company came up with the idea of a “Mom patrol,” a group of actresses who literally stop pedestrians on the street to point out the virtues of eating cereals.

Likewise, Big G continually tries to improve its already strong sports marketing franchise. Wheaties boasts one of the sports world’s highest profile spokesmen in Bulls basketball superstar Michael Jordan. But the company hasn’t stopped there.

General Mills periodically creates special regional packages of Wheaties for selected special events. To pull this off, the company has to be particularly nimble. When the Pittsburgh Penguins clinched the Stanley Cup title this year, General Mills waited until the game was won to get a photo of the team for the Wheaties box. Wheaties packages featuring the Penguins hit local supermarket shelves four days later.

More recently, a special package with Michael Jordan and the rest of the Bulls starting lineup was available to Chicago consumers three days after the team clinched the NBA championship.

All told, this combination of novel marketing and strong new product launches has pushed General Mills’ dollar market share position in cereals from 22% in 1980 to 28% in 1991.

“Products more than 10 years old are supposed to be disasters,” says Atwater. “They’re all supposed to sink into the night according to the conventional wisdom.”

The old and the new

The company manages to squeeze new growth from old brands, like Cheerios, age 50, and Wheaties, 67. Volume for 54-year-old Kix grew 30% last year.

In 1981, the company’s cereals 10 years or older contributed sales of $515 million. By 1991, that figure grew to $1.29 billion.

At the same time, the company has wisely chosen its new product launches. By this fall when Wheaties Honey Gold hits store shelves, the company will have launched three new cereals in 1991 alone. Two cereals were introduced earlier this year: Triples, a puffed cereal with corn, rice and wheat; and Basic 4, a combination of flakes, fruits and nuts (all four food groups are represented when milk is added).

Sales of new brands, estimated at $73 million in 1986, grew to $530 million in 1991.

“That’s the same kind of thing we do in all of our businesses,” Atwater says. “Our objective is to continue to grow in market share and to innovate in ways that will build the entire market.”

Stealing share

Of course, the only way to grow in cereals is to take market share away from another company. In the $7.4-billion RTE (ready-to-eat) cereal market, the booty is worth the trouble.

While acknowledging the competitiveness of the cereal business, Atwater bristles at talk of a brawl between GM and Kellogg. Of course, GM wants more market share. But, he insists, “We don’t focus on our competitors, but rather on our consumers.”

Sometimes that focus on consumers means pulling products. A case in point is Benefit, the company’s psyllium-based cereal, introduced in test markets in April 1989 and discontinued nine months later. Says Sanger, “The fundamental issue was that consumers didn’t think it tasted good.”

Good taste is one of the basic strengths of General Mills cereal products. Although oat-based Cheerios benefited from the oat bran craze, the product wasn’t any worse for the wear when oat bran lost its magic. “Consumers dropped the sawdust and kept eating Cheerios,” says analyst Davis.

Good taste and constant change in established product lines also are hallmarks of the Betty Crocker division-which, although often overshadowed by the more glitzy cereal business, is recording impressive gains. In fiscal year’91, Betty Crocker unit volumes were up 13%, including a 10% increase for brownies and 33% growth for granola.

The division is a textbook case of brand rejuvenation in a diverse range of products, from baking mixes to fruit snacks. The first to introduce a light cake mix under the 70-year-old Betty Crocker name, the company now holds an estimated 66% market share of the light desserts category.

“We don’t ride the wave,” says Betty Crocker president David Murphy. “We make the waves.” (See related article on page 32.)

Where it started

General Mills’ successes today probably wouldn’t have happened if the company hadn’t restructured in the mid-1980s, casting off businesses like toys and apparel to focus on packaged foods and restaurants. At the time, it wasn’t a fashionable business tactic.

“We had a fair number of people saying,’what are you going to do for growth?… recalls Willes. “For a while, we got blank stares like you wouldn’t believe … But the fact is, if have basically good businesses and you really focus on growing those businesses, you can grow far faster than anybody ever thought possible. And that’s exactly what we’ve done.”

Focus and execute. That simple approach is paying off. General Mills is now clearly concentrating its attention on packaged foods and restaurants. It is so focused, in fact, that Atwater is confident the company can triple its sales to $19 billion by the year 2000. He sees $16 billion in sales from the company’s current businesses, including Big G, Betty Crocker, Red Lobster and The Olive Garden, and the rest from new ventures.

Packaged foods contribute about 70% of GM’s sales, but its restaurant business also is rapidly expanding. Here the company is squarely positioned in the full-service segment with Red Lobster and Olive Garden, and its newest venture, China Coast.

General Mills added 111 new restaurants in fiscal year’91, and Atwater projects sales of 3.5 billion for Red Lobster by the year 2000, up from only $397 million in 1980. Likewise, fueled by Americans penchant for pasta, the company is forecasting sales of $2.5 billion for Olive Garden by the year 2000.

Through Cereal Partners Worldwide, General Mills also has big international plans. “We’re saying that we’re going to have a $1-billion (in sales) in cereals alone in Europe,” says Atwater. “And that doesn’t count what we might be doing in other parts of the world outside the U.S. by the year 2000.”

A meritocracy

General Mills managers point to another facet of the company’s success. At the same time the company was focusing its business in the 1980s, another important change was taking place. Managers were becoming owners of the company.

Today, GM employees control almost 6% of the company’s stock. “Top executives here think like owners,” says Atwater.

Atwater sees General Mills as a meritocracy, a big change from the bureaucratic company he first started working for in the late 1950s. “We can be very informal and fast. We don’t write quantities of memos. We work on the phone, in the hall. Bureaucracies and innovation don’t go together very well,” he says.

One of Atwater’s favorite examples is Olive Garden, which expanded from one restaurant in 1983 to 253 last year. “Most people say that large companies are no good at start-ups. The Olive Garden, in fact, was thought of, developed and expanded entirely internally at General Mills.” At the plant level, the company has implemented High Performance Work Systems (HPWS), designed to improve productivity. Essentially, the program encourages employees to be more broadly trained and more involved in running operations. They’re also accountable for results.

General Mills designed its new cereal plant in Covington, Ga., around this system, and the company’s Albuquerque, N.M., plant, due to open in late 1992, also will practice HPWS.

Although the program is still in its early stages, the company hopes to implement it in all of its plants. Willes expects productivity improvements of 15% to 20%, depending on the line.

The companion program of HPWS at General Mills’ headquarters in Minneapolis is what the company’s value statement calls, “The Championship Way.” It’s the cornerstone of the company’s goals of innovation, speed and commitment as a prelude to gaining competitive advantage.

Part of the key to this program’s success-besides managers owning the company-has been GM’s goal to strip out layers of management. This process, which increases managers’ spans of control, is ongoing.

Willes, who once had five operating executives reporting to him, now has 10. When vice chairman and CFO Cal Blodgett retires next year, Red Lobster president Joe Lee will become CFO, and Red Lobster and The Olive Garden will report directly to Willes.

“We have tried to really make the organization more fluid and more flexible,” says Willes.

Indeed. The word to competitors may be this: Catch them if you can. Cheerio to the U.K. and Europe

General Mills is not accustomed to being the newcomer on the block when it comes to the cereal business. But that’s what it is in Europe.

it’s not likely to have that reputation for long, however. Since it was founded in November 1989, Cereal Partners Worldwide (CPW), General Mills’ joint-venture with Nestle, is rapidly making its presence known.

In August 1990, CPW’s purchase of Ranks Hovis McDougall gave it an immediate 14% share of the $1-billion U.K. cereal market. Shortly after that, in December, the company launched three cereals in Portugal, Spain and France.

Through the British company, CPW picked up two established brands, Shredded Wheat and Shreddies.

CPW, headed by CEO Charles Gaillard, a General Mills executive vice president who previously managed the company’s U.S. cereal business, is using some of GM’s domestic marketing tactics on the British cereals. At this point, as General Mills president and COO Mark Willes points out, CPW is doing a lot of “basic blocking and tackling.”

For Shredded Wheat, the company is trying a strategy that is loosely similar to the one used for Wheaties back home. New advertising features a well-known British soccer coach, who advises consumers to eat their Shredded Wheat.

Likewise, General Mills marketers used their experience in kids’ cereals to reposition Chocapic, a Nestle brand. First move: They replaced a windmill on the package with a cartoon dog.

What of King Kellogg?

Meanwhile, Kellogg, which holds an estimated 50% share of the world cereal market, is not taking the threat lightly. As Fortune magazine recently pointed out, “This food fight could get messy.”

Right before CPW’s cereals started showing up in stores in France, Spain and Portugal under the Nestle name, Kellogg launched two new cereals: Honey Nut Loops and Kellogg’s Golden Crackles. Both cereals, General Mills’ executives contend, are dead ringers of General Mills products (Honey Nut Cheerios and Golden Grahams). “I don’t object to Kellogg trying to preempt us,” says Willes.”I think that’s a perfectly sensible thing to do. But they’re not new and innovative products.” Kellogg is ready to defend the approach. As company chairman William LaMothe told Fortune, “We will be doing as much countering as we possibly can, anticipating what might be their logical moves.”

$1 billion by 2000 Despite Kellogg’s moves, General Mills chairman Atwater holds to his original goal of $1 billion in sales for CPW by the year 2000. He’s betting on the two companies’ distinct strengths: General Mills’ marketing and production expertise, and Nestle’s sales and distribution clout. Another plus, he says, is that both companies share a similar work ethic. “They’ve all been with the company a long time. It’s a meritocracy. They are smart. They’re hard-working people. They’re very open.” CPW generated an estimated $160 million in sales in fiscal year ’91. Atwater has assuaged usually antsy investors by telling them up front that he doesn’t expect the venture to turn a profit until the mid-1990s. It remains to be seen just how long investors will be willing to wait, but at this point most analysts are comfortable that General Mills will pull off a lucrative coup. Because of its long-term investments in Europe, Kellogg must fend off both CPW and its shareholders, who are used to healthy international profits. One thing is sure: What General Mills may lack in market penetration in Europe, it makes up for in ambition. “We are last (in Europe),” admits Willes. “Having said that, I think General Mills and Nestle form a pretty potent combination. We’re determined to succeed, and we will succeed.” Why Betty Crocker is smiling

After six face lifts, she looks younger than ever. And as Betty Crocker president David Murphy quips, If any of us had her kind of money at age 70, we’d be smiling, too.”

Betty Crocker has many reasons to smile-perhaps even snicker, if she weren’t so well-mannered. Last year, unit sales of Betty products were up 13% from the year before.

Unlike the cereal business, where General Mills focuses on one product segment, Murphy and his team have their hands full juggling the market nuances of a diverse mix of products, from desserts to popcorn to granola.

Yet the division has scored constant gains since it was formed several years ago by the melding of the Betty Crocker brands with General Mills’ Golden Valley division.

Tooting Bugles’ horn

Much of the division’s progress has come from small triumphs, but they add up.

Consider the resurrection of Bugles snacks. Volumes for the 27-year-old product grew 42% in fiscal year’91, due mainly to updated packaging and a new ranch flavor. Although General Mills hasn’t done much with the product until recently, it still has high name recognition among consumers, Murphy says.

“It’s an interesting thing about Bugles,” he says. “If you ask consumers to name their favorite salty snacks, less than 1% will include Bugles. If you say, Have you ever heard of Bugles?’ 80% will say,’Oh, yeah, I love that product. is that still around?’ “

Murphy is optimistic about more gains, especially on the West Coast, where Betty Crocker gets 20% of its volume but where Bugles distribution is spotty.

Another example of brand rejuvenation is the company’s $240-million Helper dinner mix business. Although growth of the product category, one the company created, dipped during the late 1970s, the product line is making a comeback. While Murphy admits Betty Crocker takes a fair amount of ribbing for Hamburger Helper, General Mills is getting the last laugh.

“It’s always going to be the butt of jokes, and that’s okay,” he says, pointing to a chart reflecting the brand’s performance since it first came out in 1972. “As long as this happens I don’t care what they joke about.”

What “this” means is a 12% increase in volume in fiscal year’91. Last year, case volume for Helpers reached an all-time high of 7.5 million cases, above the brand’s peak performance in 1973.

Much of the growth has come from new flavors, many of which are carefully attuned to changing consumer habits. New flavors introduced this year include Tuna Helper Romanoff and four varieties of Hamburger Helper: Zesty Italian, Cheesy Italian, Beef Taco, and Nacho Cheese. Last year’s new entries included Hamburger Helper Cheddar’n Bacon and Tuna Helper Fettucine Alfredo.

Almost one-third of the business now comes from products that are four or five years old, Murphy estimates.

Positioned as a meal for the budget-wise, Hamburger Helper’s key is convenience, says Murphy, who has learned that from experience.

“Not all of our attempts to be innovative work,” he says. “We tried to extend the Helper franchise from the stove top to ideas that are made in the oven, and they just didn’t work. They weren’t as quick and convenient.”

Watching the consumer

One of the division’s strengths is acting fast on changing consumer preferences.

In its flagship Betty Crocker dessert mix business, the company was first to market with a light cake mix, and it now claims a 66% share of the light desserts category. Likewise, Pop Secret Light, the first light microwave popcorn, has helped push the brand’s sales up to $135 million.

The main reason the Betty Crocker brands have been doing well is that the company doesn’t rest on its laurels. “Our share was up in every business this year,” says Murphy. “And that’s because we made the waves.”

COPYRIGHT 1991 Business News Publishing Co.

COPYRIGHT 2004 Gale Group

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