General Mills, Inc.

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General Mills, Inc.

9200 Wayzata Boulevard
Minneapolis, Minnesota 55440
U.S.A.
(612) 540-2311

Public Company
Incorporated: 1928
Employees: 74,453
Sales: $5.18 billion
Stock Index: New York Midwest

For more than 60 years General Mills has survived as an independent corporation by relying on its flour milling and breakfast cereals. From the 1930s through the 1980s the company attempted to diversify into several industries, but a restructuring in 1985 sent ripples through the company’s makeup and earnings, and today it has trimmed itself down to focus exclusively on consumer foods and restaurants.

General Mills was incorporated relatively recently, but its origins go back to 1866, when Cadwallader Washburn opened a flour mill in Minneapolis, Minnesota. His business, which soon became the Washburn Crosby Company, competed with local miller C. A. Pillsbury. In 1869 they joined forces to form the Minneapolis Millers Association. Pillsbury and Washburn both wanted to find a way to make midwestern winter wheat into a higher grade of flour. Eventually, with the help of a French engineer, Washburn not only improved the method but made his product the best flour available in America. When Pillsbury adopted the same technique, Minneapolis became the country’s flour-milling center.

In 1878 the Association was reorganized to appease farmers who found its business practices unfair. James S. Bell succeeded Washburn as head of the Washburn Crosby Company, ousting Washburn’s heirs, and the mill prospered through the turn of the century. In 1928, the year General Mills was formed, the company had 5,800 employees and annual sales of $123 million. Its strongest products were Gold Medal Flour, Softasilk Cake Flour, and Wheaties, a recently introduced ready-to-eat cereal.

Bell’s son, James Ford, was responsible for creating General Mills in 1928 by consolidating the Washburn mill with several other major flour-milling companies around the country, including the Red Star Milling Company, the Sperry Milling Company, and the Larrowe Milling Company. Within five months Ford had collected 27 companies, making General Mills (GM) the largest flour-milling company in the world. As a part of GM, these mills kept their operational independence but left advertising and product development to General Mills headquarters. This consolidation was well timed, as it gave the company the strength to survive and even prosper through the Depression, when earnings grew steadily and stock in the company was stable.

Bell’s research emphasis put General Mills in a strong position for the changing demands of increasingly urban consumers. The company soon introduced Bisquick, the first baking mix, and another ready-to-eat cereal, Cheerios, which 50 years later would be the best-selling cereal in America.

Bell’s early interest in diversification and technology made mobilization for World War II easier. General Mills’ factories were restructured to produce equipment for the navy, medicinal alcohol, and bags to make into sandbags, as well as the expected dehydrated food. In 1942 Donald D. Davis, president of GM since James Bell moved to chairman in 1934, resigned to head the War Production Board.

Henry Bullis, who began at the company as a mill hand after World War I, replaced him. Following Bell’s industrial lead, Bullis immediately entered the animal-feed-industry by processing soybeans, a venture which ultimately became GM’s chemical division.

Postwar demand for consumer foods allowed the company to de-emphasize industrial activity and to concentrate on the success of its cereals and cake mixes. Consumers demanded less time in the kitchen and continued to buy foods that required less preparation. Ready-to-eat cereals, now the company’s staple, grew dramatically, and more brands were introduced.

Throughout the 1920s Bell and his associates had invested heavily in advertising, which was becoming a significant force in selling products to a national market. Betty Crocker, created in 1921, was a legacy from Washburn Crosby. By 1928 Betty Crocker’s name, signature, and radio voice had been introduced in connection with General Mills’ consumer goods. General Mills also sponsored radio programs and pioneered the use of athlete endorsements on its own radio station, WCCO.

The postwar consumer’s interest in convenience complemented General Mills’ growing advertising efforts. The company continued to refine its advertising methods after World War II, and promotions like the Betty Crocker Cookbook and advertisements on TV, an exciting new medium at the time, helped to increase sales and consumer recognition of the company. Capitalizing on its research and media prominence, the company soon held the second position in breakfast-food sales.

Another career GM man, Charles H. Bell, rose to the presidency in 1952. Since advertising had become the main force in marketing its various brands, centralization had crept into the organization. Bell found it necessary to reassign management decisions closer to operations. In 1958 he moved headquarters out of downtown Minneapolis and into suburban Golden Valley. Still stronger changes were needed, but the company was hesitant. GM’s 1940s ventures into electronics and appliances had failed, and the company had recently begun to post losses in animal feeds and flour milling. Consumer foods remained the main moneymaker, but GM’s stock value dropped to $1.25 a share in 1962, its lowest point in 12 years.

Bell recruited an outsider, Edwin W. Rawlings, in 1959, and two years later Rawlings was appointed president. Rawlings reevaluated company output and shook up management positions. The family flour market was declining 3% a year, and Rawlings decided consumer preferences had shifted once again. Although the company was then the largest flour miller in the world and flour made up greatest volume of output, Rawlings closed half of GM’s mills and renewed the company’s commitment to packaged foods by introducing food-service products for restaurants and hotels. He also divested its interests in electronics, appliances, formula feeds, and other smaller operations. These actions caused a short-term, five-year sales decline for the company.

Next he began a series of acquisitions that would alter corporate structure for the next 20 years and provide two decades of continual earnings growth. Snack foods entered the company’s portfolio with the purchase of Morton Foods, Inc. in 1964. In 1966 came the Tom Huston Peanut Company, and in 1968 General Mills went abroad with the purchase of Smiths Food Group, Ltd. of England and Belgium. The French Biscuiterie Nantaise soon followed, as did snack-food companies in Latin America and Japan.

Other major acquisitions were Gorton’s, a frozen-fish company, and an aggressive move into the toy and game industry with Rainbow Crafts (Play-Doh), Kenner, and Parker Brothers, all in 1968. In ten years international toy operations would comprise one-third of the company’s sales, at $482.3 million. General Mills was no longer the world’s largest miller, but it was now the world’s largest toy manufacturer.

Early in 1969 the Federal Trade Commission issued a consent order blocking General Mills from further acquisitions within the snack-food industry. At the time of purchase, both Morton and Tom Huston were among the top-ten producers of potato and corn chips.

During his seven years as GM chief, Rawlings managed to double the company’s earnings and bring consumer foods to 80% of total sales, up from 45%. Although Rawlings wanted another outsider to succeed him, the board of directors chose James P. McFarland in 1969. General Mills was the only company McFarland had ever worked for, and in choosing him the corporation renewed its commitment to balance and stability.

Seeking controlled growth, McFarland slowed, but did not stop, acquisitions. The first of many clothingcompany purchases was David Crystal, Inc. (Lacoste clothing) in 1969. Along with the purchase of Monet Jewelry in the same year, the purchase introduced General Mills to specialty retailing. Although the company missed the growth of fast-food opportunities, purchasing and developing the Red Lobster Restaurant chain would eventually make the new restaurant group General Mills’ second-largest division.

McFarland, an experienced salesman, involved himself with day-to-day operations and left long-term planning to operating chief James A. Summer. In his first two years as CEO, McFarland saw sales rise from $885 million to $1.1 billion and operating profits from $37.5 million to $44 million. His goal was to reach $2 billion in sales by 1976. Sales that year were actually $2.6 billion, four times the 1969 level, with earnings of more than $100 million. He then announced E. Robert Kinney as his successor.

Like most quickly expanding companies of this time period, however, not all of GM’s forays were successful. Between 1950 and 1986, General Mills made 86 acquisitions in new industries; 73% of those made by 1975 had been divested within five years. A profitable core business in consumer foods eased the burden of these failed efforts.

General Mills’ advertising budget is typically as large as its earnings. Although spending less than it did in the late 1970s and early 1980s, General Mills still ranks as the thirteenth largest spender in all media, at $572 million a year. Being such a highly visible company has not always provided favorable attention.

In the early 1970s the Federal Trade Commission (FTC) attempted to dismiss GM’s 1968 acquisition of Gorton’s. The block was lifted in 1973. Later, by allying itself with General Foods, the firm succeeded in blocking a 1977 FTC proposal to forbid advertisements aimed at children. Late in 1980, the FTC again filed a complaint against cereal companies, this time an antitrust suit following a ten-year investigation. It charged that between 1958 and 1972 cereal manufacturers had an average after-tax profit of 19.8%, compared to a general manufacturing average of 8.9% and suggested that Kellogg Company, General Mills, and General Foods Corporation shared a monopoly over the cereal industry. The charges were dismissed in 1981 after the companies had lobbied for and won congressional favor.

By heavily promoting its brands, the company did well in the 1970s, reporting gains in the toy division and the tripling of sales for consumer foods. Between 1973 and 1978, sales increased $1.7 billion. Of this growth, 41% came from new products developed internally, 15% from acquisitions, and 18% from expansion of restaurant and retail centers. General Mills’ management system, in which one manager oversees the production, marketing, and sales of each brand, also got credit for some of the increase. After the 1977 sale of the chemical division, General Mills divided its business into food processing, restaurants, games and toys, fashion, and specialty retailing.

In 1981 H. Brewster Atwater Jr. became president. The following year was a solid one for the company, as consumer foods, restaurants, toys, fashion, and retailing reported sales increases of between 12% and 24%. However, retailing profit was half that of its previous year, and although the toy and game division had grown, the toy industry worldwide had decreased 2.9%.

Izod Lacoste also performed well. With $400 million in sales, General Mills intended to develop more items under the label. But by 1985 sales had dropped to $225 million, and the company hoped to cut overhead in order to break even at $180 million by 1986.

In 1985 the largest toymaker in the world divested items representing over 25% of its sales, including toys, fashion, and non-apparel retailing. Former President Kinney became head of the spun-off Kenner Parker Toys Inc. The other spin-off, called The Fashion Company, consisted of Monet jewelry, Izod Lacoste, and Ship ’n Shore. The company kept its furniture group (Pennsylvania House, Kittinger) for future sale. Also kept was Eddie Bauer, despite its reported loss because of excess inventory. General Mills reported a net loss of $72 million due to the restructuring and a 21% increase in advertising expenses.

As expected by analysts, General Mills quickly recovered. Earnings were up to $222 million by 1987. Its core businesses were the Big G cereals, Red Lobster, and Talbot’s in its consumer-foods, restaurants, and specialty-retailing divisions.

The consolidation process begun in 1985 continued in the latter half of the 1980s. Pared down somewhat, the company originally planned to expand its remaining retailing operations. But the takeover climate of the late 1980s and a disappointing Christmas in 1987 forced the company to exit retailing altogether by selling Eddie Bauer and Talbot’s.

General Mills has divested itself of nearly 50 businesses since 1976, but its surviving businesses have a firm footing in their markets. More than 90% of the company’s food sales come from products with a first or second place market share position. Streamlining has also allowed the company to keep up with the rapid pace of new-product development. From 1985 to 1988, 24% to 29% of the food divisions’ growth came from new products.

General Mills now focuses on its remaining restaurants, its cereals, and its Betty Crocker brand foods. Food production guarantees a return that can be used in the expensive planning necessary to tap growing demand for restaurants. Keeping its range in the restaurant industry narrow, General Mills finds it growth in sales-per-unit exceeds the industry norm. Red Lobster, for instance, has yet to turn in a decline in average sales-per-unit.

GM has also increased its share in the fast-growing cereal market, boosed by the oat-bran craze of the late 1980s (Cheerios’ market share alone climbed 3.1% in one year) and the accompanying breakfast-food boom. General Mills alone among top cereal producers was prepared for these trends. During the 1990s, General Mills should begin to expand into international markets, a sector which rival Kellogg has been exploiting for years.

In 1989 General Mills began showing return for its restructuring efforts. Sluggish since 1983, the company’s stock rose 20% toward the end of the decade. Intent on remaining independent despite the acquisition of several of its main competitors, large-scale, tangential acquisitions are unlikely as General Mills faces the 1990s more tightly focused on the food industry than it has been in decades.

Principal Subsidiaries:

Alternative Care Capital Corp. (50%); Biscuiterie Nantaise - BN S.A.; General Mills Export Co.; General Mills Europe Co.; General Mills Products Corp.; General Mills Finance, Inc.; General Mills Restaurants, Inc.; GMD Distributing, Inc.; Gold Medal Insurance Co.; Vroman Foods, Inc.; Yoplait USA, Inc.