Mid-range food companies in peril
A Wall Street Journal story ("Don't Ring Up a Sale of General Mills Just Yet," 5/7/2004) deals with the rumors that General Mills might be acquired by a bigger food company. As Diageo plans to unload its 21% share of the company this year, rumors are rife that a top-tier company like Nestle, Unilever, or Kraft (Altria) may be interested in buying.
The article, which raises the rumors to pooh-pooh them, does point out the precarious position of midrange food companies in a concentrating industry:
General Mills is one of a clutch of midsize companies that stayed independent during the mergers and acquisitions frenzy of 2001-2002, when Kellogg Co. gobbled up Keebler Foods CO. and Philip Morris (now Altria Group Inc.) bought Nabisco Holdings corp. This midtier, which includes Campbell Soup Co. and H. J. Heinz Co, is struggling to squeeze new growth out of products like soup and ketchup.
These companies lack the multinational scope and the sheer size to command the market. And the biggest problem is the retailers:
And Wal-Mart Stores Inc., and other supermarket firms, which are growing much faster than the suppliers, continue to grind down prices. If no purchased by a larger rival, the food makers may need to combine or switch brands to gain leverage.
In other words, oligopsonies (the big chains) breed oligopolies, as small companies, even big but not dominant ones like General Mills, can't deal as equals with the largest retailers, who can walk all over them.
The article notes that the timing may be bad right now, but that can change quickly. Unilever is still digesting Bestfoods, Nestle is dealing with its numerous US acquisitions (like Dreyer's), and Kraft may feed antitrust actions, as it is already big in breakfast cereals. But a holding company may want to make the move and hold General Mills until the time is right or until it sells off pieces to others. In any case, General Mills is a tempting prize and will remain so for the near future.
