General Mills Case

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In the late 1990’s and early 2000’s the food industry was struggling with weak sales and low inflation which caused waves of consolidation among some of the largest firms in the industry. In 1998 General Mills studied areas of potential growth and value creation for their company which lead to small acquisitions of other firms. Looking to further grow their company, in December 2000, management of General Mills made a recommendation to its shareholders that they authorize the creation of more shares of common stock and approve a proposal for the company to acquire Pillsbury Company, a producer of baked goods, from Diageo PLC.
Company Information
General Mills
General Mills is one of the leading food companies in the
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This results from the fact that it is a mature segment with many well established companies vying for market share. The industry is highly consolidated and very fragmented. To grow their businesses, companies rely heavily on mergers and acquisitions to capture additional market share. Historically, the grocery industry has been characterized by slow growth which results in strong price competition and the development of aggressive marketing campaigns between existing firms. Perceived product quality and strong brand recognition by consumers are the basis of competition among firms in the industry. The source of General Mills’ competitive advantage lies in its ability to develop innovative products and highly reputable brands. As a result, they hold cost leadership positions across a number of grocery categories. Exhibit 1 shows the top US companies according to their sale of packaged foods globally. Market leaders include Kraft Foods, PepsiCo, Nestle, Mars, Kellogg, and General Mills, however, neither company possess an overwhelming share of global sales. This is in part due to the large degree of product diversity throughout the industry and the strong brand rivalry of each competitor’s labels.
Threat of Substitutes
The threat of customers finding substitute products from other manufacturers in the food industry is high. In the ready-to-eat breakfast cereals segment, General Mills’ primary business focus, there are a variety of similar products being
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