General Mills has proven its ability to grow the Blue Buffalo brand beyond simply growing distribution, according to officials for the Minneapolis-based company—despite a lack of confidence from some industry observers.
Blue Buffalo, which General Mills acquired in 2018, has been “really successful” for the company, Jeff Harmening, chairman and CEO, said during the company’s dbAccess Global Consumer Conference call on June 15. The company has “doubled household penetration,” and Blue Buffalo is in “about 20 percent of U.S. homes now,” he said.
Following the deal, industry observers had doubts about the acquisition. In August 2018, Forbes claimed: General Mills Paid Silly Money For Pet Food.
“General Mills might have to learn the hard way after it bought Blue Buffalo Pet Products Inc., a fast-growing pet food company for an enterprise value of $8 billion,” the Forbes article said. “Blue Buffalo has its charms. Just nothing worth the sum that General Mills paid for it in a deal that closed earlier this year.”
Surely, with evidence of the brand’s growth in hand, General Mills officials don’t feel silly about the purchase today. During the June 15 call, Harmening attributed some of the success to the pet humanization trend but added that the company has “proven we can innovate.”
“We’ve transformed our cat food business here in the U.S. with a Tastefuls brand. I think last quarter we grew to 75 percent, and the only reason it didn’t grow faster is that we kind of ran out of capacity at that point,” Harmening said. “We’ve added an acquisition like the Tyson business, and we’re growing that as well. And so, we think there’s a lot of room here in the U.S. to continue to grow.”
In response to a question about slow entry into global markets, Harmening said General Mills’ first move was to prove its ability to strengthen the brand in the U.S.
“We felt as if we had a lot to prove with the Blue Buffalo business in the U.S. and that if we didn’t prove that, then nobody was really going to care about what we would do outside the U.S.,” he said. “But if we could prove that we could grow the Blue Buffalo brand in the U.S., which I think we’ve proven at this point, then we can turn our sights [on] not only growing here in the U.S., but more broadly.”
On June 29, the company reported results for the fourth quarter and fiscal year, ended May 29, 2022. Fourth-quarter net sales for the pet segment increased 37 percent to $610 million, driven by favorable net price realization and mix and pound volume growth, officials said.
Fourth quarter pet segment highlights:
- Net sales results in the quarter included a 15-point benefit from the pet treats acquisition.
- Organic net sales were up 22 percent.
- Segment operating profit increased 10 percent to $113 million, driven primarily by favorable net price realization and mix and higher volume, including benefits from the pet treats acquisition, partially offset by higher input costs and higher SG&A expenses.
For the full year, pet segment net sales increased 30 percent to $2.3 billion.
Full year pet segment highlights:
- Net price realization and mix added 19 points to net sales growth, including 9 points of favorable mix from the pet treats acquisition and the impact of SRM actions put in place in response to input cost inflation.
- Pound volume added 11 points to net sales growth, including a 3-point benefit from the pet treats acquisition.
- Organic net sales were up 18 percent.
- Segment operating profit increased 13 percent to $471 million, driven primarily by favorable net price realization and mix and higher volume, including benefits from the pet treats acquisition, partially offset by higher input costs and higher SG&A expenses.