General Mills leads by its slim margins

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: May 29, 2010 - 9:10 PM

CEO Ken Powell talks about the food giant's success with finding savings through "holistic margin management," and where he sees growth opportunities.


Ken Powell, General Mills CEO

Photo: Glen Stubbe, Star Tribune

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Wall Street is more a battlefield than ever, but the General is firmly in command. Golden Valley-based General Mills Inc. is the packaged food industry's darling, a well-deserved reputation, say those who follow its stock.

Ken Powell, a 31-year General Mills veteran who rose up the ranks, became chief executive in September 2007. Since then, General Mills' stock has handily outperformed its peers, giving investors a 33 percent return compared with the 6 percent registered by the Standard & Poor's 500 packaged food index.

Sales and profits have grown nicely at the $15 billion company, maker of everything from Yoplait yogurt to Progresso soup to Green Giant vegetables. And it's launched a host of successful new products -- Fiber One brand breakfast bars and chocolate and banana nut Cheerios, to name a few.

"They're hitting on all cylinders," said Jack Russo, a stock analyst at Edward Jones. "They would never claim leadership in this industry, but a lot of analysts would say they have it."

A key component of General Mills' success lies in its "Holistic Margin Management" (HMM) program, implemented by Powell's predecessor, Steve Sanger, in 2005 and brought to full fruition under Powell, analysts say. "He has made Holistic Margin Management an important part of the culture of the company," said Robert Moskow, a stock analyst at Credit Suisse.

While it sounds like so much biz-school speak, HMM is a big-time initiative to cut costs through cutting waste, but not just via the traditional supply-chain route. Its aimed at permeating every aspect of the company, from marketing to payroll administration. Money saved through HMM is "fuel" to invest in the company's storied brands and drive sales growth, Powell says.

The Star Tribune spoke with Powell last week about that effort and several other aspects of General Mills' business.

QAssess your performance. How has your leadership most benefited the company? How, if at all, has it fallen short?

AWhen I became chief operating officer in 2005, the integration of Pillsbury was done and we had to fulfill the promise of that major acquisition. I carried that objective into my role as CEO. We had to really revitalize core strategies like margin expansion and innovation. Also, the world economy was clearly transforming and we wanted to make sure we would participate in growing international markets. But that changing world economy was also going to create cost pressures on us unlike what we'd seen historically -- there would be more intense inflation. You go back 20 years, and you saw input inflation of 1 percent to 2 percent a year, a benign environment. All of a sudden inflation globally is 4 or 5 or 6 percent a year. Energy, grains -- you name it. What it was doing was basically obstructing and eroding our ability to invest in innovation and invest in our brands. We needed to change our business model to adjust to that.

QIs that where holistic margin management comes in?

AYes, and it has proven to be a very powerful program for us. It goes down to employees on the shop floor of our plants -- everybody is involved. It's allowed us to maintain margins during a period of time when most of our peer companies have seen margin erosion. But the key is what it has enabled us to do. It has enabled us to invest in brands. We've been able to do more marketing initiatives on the Internet so we can reach more consumers. And we've had very strong investment in R&D [research and development], which resulted in a string of really good new products.

QHow does it differ from any old cost-cutting program?

AI don't want to sound like a professor here, but we are cutting waste. We're looking at, "Where do we actually add value?"

QGive me an example.

ALet's use Nature Valley granola bars. When we pack a bar inside a foil liner, we figured out we have this big sleeve at the end. We've got ¾ of an inch on either end. ... So somebody figures out how to seal these bars with no waste on either end. Then we can put the bar in a slightly smaller box. Now we can fit more cases on a pallet in a truck. And all of sudden there are these very significant logistics savings.

QSome stock analysts say you've done so well in growing profit margins that their main worry is whether you can keep it up, particularly over the next few quarters.

AWe're benchmarking companies that have been doing this 30, 40 or 50 years. A lot of these ideas are taken from the Japanese auto industry. We've committed publicly, through HMM, to take out another $1 billion in costs out over the next three years. And we've said we'll identify an additional $4 billion in savings over the next decade. We think this is a long-term program.

QGeneral Mills claims to spend more than other packaged food companies on marketing to Hispanic U.S. consumers. What is the main way you do that, and is it paying off?

AWe are using Univision and Telemundo, Hispanic networks that on some nights of the week have more viewers than CBS. We've developed a magazine for Hispanic consumers called Que Rica Vida which is about cooking, baking and nutrition. It's also available on the Web. Multicultural consumers are the fastest-growing consumer group, so this activity has been very rewarding for us.

QProduct and brand wise, what are your biggest U.S. growth opportunities?

AThe proposition to invest in General Mills is that we are in fabulous categories. Cereal, healthy snacking bars, yogurt, soup vegetables. These are categories where innovation drives the top line. We have a long pipeline of new products.

QEmerging markets, particularly China, are critical to your international growth plans. You've talked about tripling revenue in China to $900 million by 2015. That seems like a pretty tall order. How are you going to do that?

AFirst, the continuing growth of the country is just phenomenal, and then we have three very promising platforms there. We started our Häagen-Dazs ice cream business in the eastern coastal cities and we are now pressing it inland into large cities that are starting to develop a very strong middle class. The second growth platform for us there is our Wanchai Ferry brand frozen convenient meals. And the last business we have there, which is growing very nicely for us, is snacks. We are selling Bugles and Fruit Roll-Ups under the Trix brand.

QThe Food Safety Modernization Act looks like it will become a reality. It's a major overhaul of U.S. food safety laws, and should give the U.S. Food and Drug Administration more power. What's good about the legislation, what's not?

AWe advocated for the law roughly as it is written now. We advocated with a consortium of other food companies and organizations that are sometimes critical of the food industry. We came together and said look, "We think the FDA is underfunded for what you are asking it to do." They need more inspectors, they need more technical and analytical capability. The money has to come from somewhere, so we're very happy to have a charge assessed on all of our facilities industrywide. Trust is the coin of the realm. People have to trust the food supply and we think a bigger stronger FDA is going to be a very positive thing.

Mike Hughlett • 612-673-7003

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