It’s been nearly a year since General Mills closed the biggest takeover in its 74-year history. Once the drawn-out deal with Pillsbury was final, the real work began.
The No. 3 U.S. food company (behind Kraft Foods and ConAgra) introduces 80 new products by December with $100 million in marketing support to offset momentum lost during the $10.5 billion, 16-month-long acquisition of 133-year-old The Pillsbury Co. from Diageo last November.
“New products with significant marketing support are a critical part of the new General Mills,” says Mills vp Ann Carr. “On the established brand front, we are trying to create much bigger multi-branded events to motivate our consumers and [retail] customers.”
Mills also signed a worldwide, multi-year pact with DreamWorks SKG for promotions tied to the studio’s animated theatrical and video releases. It’s Mills’ biggest entertainment deal to date. First work comes next summer with Sinbad: Legend of the Seven Seas, followed by Shrek 2 for summer 2004. Mills plans to field promos on hundreds of millions of packages across several product categories.
Minneapolis-based Big G’s strong suit is repackaging staples in exciting ways. That could help ailing Doughboy brands, while Mills uses its former hometown rival’s frozen dinner and refrigerated dough businesses to jumpstart food service and international sales.
The task of bringing together two behemoths worth more than $13 billion combined is delicate. Mills’ unexpected delay — a Federal Trade Commission investigation forced the companies to sell some of their assets before they could close the deal — let competitors make inroads. Archrival Kellogg, for example, crept to the No. 1 spot in ready-to-eat cereal for the first time since 1999.
Add to that the complication that some Pillsbury brands aren’t as healthy as when the merger was announced in July 2000. Former parent Diageo, London, cut back marketing efforts when it accepted the bid. Big G introduced fewer new products (two in fourth quarter of fiscal 2002, as opposed to the typical few dozen) as it integrated its sales and marketing forces with Pillsbury’s, and retailers ordered less to keep inventory low. Fiscal fourth-quarter profit this year fell 61 percent.
The question on Wall Street is whether Mills can rebound from losses incurred during the delay. “If anyone can do it, they can,” says Richard Joy, a senior investment officer at New York City-based Standard & Poor’s.
“I’d have to say that the jury is still out; they just can’t lose their focus now,” says Kevin McCloskey, portfolio manager with Federated Investors, Pittsburgh, PA.
Mills is focused on what it does best: innovation. Its product development savvy, for example, can help Pillsbury’s dough stave off private-label competition.
“I think you will see their momentum pick up. They are in highly competitive and fairly mature categories, and they are going to continue to slug it out and innovate year by year,” says Jack Ryder, president of Wilton, CT-based Cannondale Associates.
Mills is expected to spend $100 million — money saved through streamlining infrastructure — on marketing to launch new goodies and rekindle old standbys. Much of that will funnel through Mills’ Promotion Marketing Organization, spearheaded by 20-year veteran Carr (recently promoted from director to vp). Carr’s team will leverage Pillsbury’s strongest promotions, such as the Pillsbury Bake-Off and its cookie business’ seasonal licensing programs.
“Their Bake-Off was one of the best promotions in the industry,” says Carr. “They knew how to use promotional marketing. I think we just use a much broader array of promotional tools and techniques.”
Mills’ first big effort broke in August, when it extended the seven-year-old Box Tops for Education program to include Pillsbury’s Green Giant, Totino’s, Progresso, Old El Paso, Gold Medal, and refrigerated and frozen products. That doubled the number of participating products to 800 across 20 categories. (The label-collection program to date has earned more than $70 million for registered schools.)
“The minute the deal was done, we were talking to everyone at Pillsbury about Box Tops and the power of getting them on board,” Carr says.
“You look at the number of aisles that Box Tops is in now and that’s a real compelling selling point for our [retail] customers,” says Mills’ Jeff Peterson, director of corporate promotion marketing. In-store marketing increased as well, and packaging has been touting the widened portfolio. (In August and September, back panels on 13 million boxes of Cheerios carried coupons for Doughboy product.) “When you look at the other side of the fence, the real estate that Pillsbury has is staggering,” Peterson says.
General Mills has built a strong reputation for handling virtually all of its promotion marketing in-house — and doing it well. (Premiums, packaging, and activation are occasionally farmed out to agencies.) The more than 30-member staff represents all walks of life, according to Carr, from former agency workers and college students to migrants from Mills’ sales and finance departments.
There are many benefits to working in-house: “We can run up to the head of sales or we can walk into another company and have a discussion where we are truly representing General Mills,” Carr says. “We have worked with agencies, but [internal staffers] have a much deeper understanding because [we] are dealing with only CPGs; the only trade-off is [we] don’t have the benefit of working on other industry businesses.”
The proximity of staffers also drives integrated promotions. “Very easily we can have face-to-face brainstorm sessions with the online or p.r. teams that make a promotion that much bigger,” Carr says.
Pillsbury, on the other hand, out-sourced all planning to agencies since disbanding its promotion department in 1998. It made sense to bring the Pillsbury business in-house, says Carr. Mills hired promotion staffers in addition to the handful of Pillsbury employees who came on board after the merger.
The team’s first test was Bake-Off, slated to run in Orlando only 90 days after the companies became one. “We had all of these contracts to deal with while we were folding Pillsbury into our organization,” says Carr. “It was challenging.”
The company is now planning a blowout for the semi-annual Bake-Off, which will include Mills brands, in February 2004.
“We had been sitting here for years looking at that as the gold standard of food competition,” Peterson says. “We are excited to dial up the visibility of the program with relevance to how people are spending time in the kitchen these days. We can bring a fresh meals solution angle to it.”
Likewise, the Pillsbury marketers had their eyes on the Box Tops program. “In their mind, they had signed up for Box Tops and had been redesigning their cartons,” Peterson says.
But getting the program together was another hurdle. “It was a Herculean effort to do the packaging in a matter of weeks instead of months,” he says.
Rolling the Dough
Mills also incorporated Pillsbury into its “Taking brands to new heights” promotion marketing strategy, which plays up innovation and strategic partnerships.
“We have to look at not only alliance-driven ideas, but proprietary events like putting marshmallow watches inside Lucky Charms boxes — the unique things that reinforce that point of difference,” Carr says. Even entertainment tie-ins highlight product: For its May 2002 tie-in with Star Wars Episode II: Attack of the Clones, the Yoplait division created Go-Gurt squeezeable yogurt tubes shaped like light sabers, in glow-in-the-dark packages. (Partner was Lucasfilms, Nicasio, CA.)
Mills’ deal with Glendale, CA-based DreamWorks SKG will strengthen its presence on shelf and reinforce Mills’ leverage with retailers. Its expanded portfolio and unified sales force gives Mills more power in store aisles. “The grocery store and mass merchants is where you will see a lot of this [DreamWorks] relationship come to life,” Peterson says. “We will use the retail environment as our primary communication.”
DreamWorks was impressed “with the diversity of their promotions, the new products, and the offers,” says Wendy Ryding, DreamWorks’ head of national promotions. “They have the gamut from movie tickets to premiums, but it was the quality of their offers that sets them apart to consumers.”
Last month, Big G put DVDs on cereal packs through a partnership with Columbia TriStar Home Entertainment, Culver City, CA. More than eight million discs will be distributed across six brands at 20,000 retail locations, and an audiobook comes on-pack through December via a partnership with Simon & Schuster.
Promotion planning typically begins 12 to 18 months out. That got tricky when the merger was held up: Mills was left wondering whether or not Pillsbury would be a part of the company when planning for the 2002 Winter Olympics in Salt Lake City. (Alas, the deal closed too close to the start of the Games to include Doughboy brands.)
Stored Up
Most of Mills’ new products this year are line extensions, which Standard & Poor’s Joy calls “a low-risk, sensible approach to get them back on track,” but Federal Investors’ McCloskey says retailers aren’t so impressed. “I think this is a problem with the whole packaged goods industry — there aren’t enough new items to drive incremental sales,” he says. “With product extensions, they need to rationalize what they are doing and prune those brands that aren’t meeting targets.”
Big G introduced its first chewy yogurt-flavored Nature Valley granola bar last month (to compete with Kellogg’s Nutri-Grain Yogurt cereal bars) and a Cherry Rage Fruit by the Foot SKU. More than seven million granola bar samples were distributed at marathons, health clubs, and sports events. Cherry Rage got a TV and print push targeting tweens.
Other brand extensions include Banana Nut Morning Chex and Yoplait Nouriche (August PROMO).
Mills ranks No. 3 behind Procter & Gamble and Kraft in Cannondale’s 2001 PoweRanking survey, where retailers rate CPGs on marketing prowess. (Pillsbury ranked No. 10.) Mills was also No. 3 (behind P&G and Kraft) in Cannondale’s 2002 Category Management Industry Benchmarking Study, which researches emerging best practices in category management. (Pillsbury came in at No. 7.) More than 22 percent of retailers placed Mills in the top three, compared with 9.1 percent for Pillsbury.
Despite a 12-month period of little activity, retailers are glad to see that Mills is refocused, Cannondale’s Ryder says. “Their hallmark is innovation,” he says. “They are the most innovative in the industry. They are neck-and-neck with Kellogg in cereals, Dannon in yogurt, and Duncan Hines in desserts. The competitive dogfights over the years have bred a certain culture of innovation.”
Still, merger delays took a toll. “It was an extremely long approval process with lots of question marks that put the Pillsbury franchise in a state of limbo and suspicion,” says Cannondale partner Don Stuart. “It’s difficult to run a company when you don’t know whether or not you will be sold. [Pillsbury] lost people, they lost focus, and now they need to get back on track.”
Joy is reserving judgment. “It’s still a little early. Some of the key categories that Mills was able to expand into [like Progresso soup] are tied into the colder months, so we won’t see any impact until the holiday season,” he says. “My sense is that they will be as competitive as anyone out there.”
Despite forecast misses and the still-slowing economy, Mills’ net sales for the fiscal year ended May 26 were up 46 percent to $7.95 billion. Sales in its biggest category — ready-to-eat cereals — dropped 3.1 percent to $2.19 billion for 52 weeks ended July 14, per Information Resources Inc., Chicago. (Kellogg rose 3.6 percent to $2.23 billion, IRI reports.)
“General Mills has become so broad and has so much breadth, which has benefits and negatives,” Joy says. “They aren’t focused on any one category as some of their competitors are, which makes things tougher. But it looks like they are holding their own against Kellogg’s.”
Outside the supermarket, General Mills has quadrupled its foodservice business to $1.7 billion. Mills’ most notable weakness was in restaurants and schools, Pillsbury’s stronghold. The new breadth of brands has benefited Mills’ foodservice potential. “To have access to the kind of products they offer is a big bonus,” says Joy.
Wall Street — and other packaged goods marketers — will continue to watch what Mills makes of its potential.
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