Sector News

General Mills quietly breaks up organic and frozen food divisions

December 30, 2014
Food & Drink
General Mills has disbanded two major segments of its domestic retail business — frozen foods and its natural and organic division, Small Planet Foods — and subsumed their brands into other parts of the company.
 
The company said the reorganization was separate from cost-cutting efforts that led to layoffs in September.
 
In September, the Golden Valley-based food giant announced internally that it would cut its seven business units down to five and put its frozen foods and Small Planet brands into the remaining divisions. The change became effective Nov. 1, said spokeswoman Bridget Christenson.
 
General Mills’ U.S. retail business now includes only the following divisions: Big G Cereal, Yoplait, Snacks, Meals, and Baking. The changes don’t affect Annie’s Homegrown, which General Mills recently acquired and will continue to operate as a separate business.
 
The company’s reorganization of its stateside retail operations became apparent during its most-recent earnings call on Dec. 17.
 
Analysts seemed unfazed by the absorption of the frozen foods business, which has been floundering for some time, but the break-up of Small Planet did leave some scratching their heads.
 
With $348 million in sales during 2014, Small Planet was one of the few bright spots in General Mills’ earnings statements. The division, which included brands like Food Should Taste Good and Larabar, was one of General Mills’ fastest growing. In June, the company chose Elizabeth Nordlie to lead the division(she has since been reassigned to Baked Goods).
 
Deutsche Bank Analysts Eric Katzman and Rohini Nair wrote that they were “somewhat puzzled” by the move and questioned the wisdom of meting out Small Planet’s brands to enormous, billion-dollar divisions like Cereals or Snacks.
 
“Small Planet had previously been growing sales at a double-digit annual rate for over a decade as a separate unit. We point to Kellogg’s recent decision to separate Kashi from the rest of its business (as it had once been run previously) after the brand struggled when managed within the overall business,” Katzman and Nair wrote. “We wonder whether brands such as Cascadian Farm and Larabar could experience some of the same longer-term struggles as Kashi did when it tried to become more mainstream.”
 
Wall Street has faith in General Mills’ upper management, said Jack Russo, a consumer staples analyst for Edward Jones, but he echoed Katzman and Nair.
 
“It’s a fair point. You want to make sure those brands get taken care of,” Russo said. “They really are different than the rest of General Mills.”
 
General Mills officials said a similar arrangement with organic or natural brands like Liberté yogurt and Immaculate Baking Co. has not only been manageable, but successful.
 
The consolidation of Small Planet allows the smaller brands to benefit from the increased sourcing, manufacturing and R&D resources of their larger operating units, said Jeff Harmening, chief operating officer and leader of retail in the U.S., during the earnings call.
 
The company also is establishing a “natural and organic center of excellence” within its central marketing department, led by Ann Simonds, who most recently led the company’s baking products operation.
 
By Clare Kennedy 
 

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