Business Critical Analysis Report

Guojing Liu

BA 3101-712

06-09-2019

General Mills paid silly money for Pet Food

Background

The case is about the General Mills’ acquisition of Blue Buffalo incorporation. The company

acquired Pet food manufacturing company for a huge sum i.e. $8 billion (General Mills Inc,

2018). Before the acquisition, the overall situation of the company was affected by several

macros and micro environmental factors. From the perspectives of the company itself, yogurt

and cereal sales were declining. People began to pursue a healthy lifestyle and the trend depicted

a gradual decline in demand for carbohydrates based cereals. In comparison to that, American

spending on pet-care food was increasing. Keeping in view the lucrative opportunity, General

Mills decided to diversify in Pet Food market segment.

Problem Statement

No doubt, the acquisition of a pet company and diversification in the market is an attractive

opportunity for General Mills but is it worth a huge sum? How the company will cover its

expenses and manage its profitable revenue streams? How the company will tackle the situation

of the rise in costs and stock reduction? These are the fundamental issues to address before

devising any strategy. Moreover, it was also identified that even after acquisition a decline in

General Mills share price was observed. Therefore the company needs to transform a new

business segment into ‘wunderkind’ so that both brands can leverage each other, generate

profitable returns and grow productively.

Available Alternatives

Since General Mills is already facing a decline in sales for its cereal and yogurt based products,

the fundamental focus of the company is to develop a strategy that covers its originally invested

cost and to maximize profitability. For managing the operations of a new product segment, there

are following available alternatives.

The first one is to let Blue Buffalo operate as an independent strategic business unit and focus on

increasing the sales of General Mills products

Pros: Two unrelated product segments will be easily manageable.

Cons: As it is observed that General Mills comprises of products that are rich in carbohydrates.

Focusing on its sales may increase marketing expenses but may not yield the desired outcomes.

Allowing Blue Buffalo Inc. to operate independently may increase the operational expenses and

the company will dedicate the efforts in two different categories. The managerial cost will

increase and instead of recovering the invested amount, the company will spend an additional

amount in managing different segments.

The second one is to operate Blue Buffalo under the corporate umbrella and form a new segment

for its operation

Pros: Additional cost will be saved. The company will be able to track down the revenue

streams effectively. The company will achieve its strategic objectives by leveraging brands.

Cons: There will be difficulty in managing an unrelated product segment and the company might

lose brand essence.

The third one is to allow the existing management to continue the pet food business and get the

share of profits.

Pros: It will save managerial cost

Cons: The management may not be as committed for enhancing sales and profitability of the

brand and the company will not be able to cover its invested amount.

Recommendations

Based on the pros and cons of both alternatives, the second alternative is recommended. The

fundamental goal of the company is to maximize profitability and reduce cost. The company has

already invested a huge amount in the acquisition of a pet food company. Therefore instead of

spending the additional amount in managing and marketing, the company must dedicate its effort

in adopting strategies that maximize profitable revenue streams (Newmeyer, Swaminathan, &

Hulland, 2016). Operating the newly developed segment will allow the management team to lead

it from headquarter, continue using its own supply chain mechanisms and distribution centers.

Tracking Metrics

Benchmarking is one of the best techniques that can be applied to this scenario where sale

benchmarks can be developed for gauging the performance of the brands. As a result, the

company will be able to monitor expected versus actual performance outcomes. Benchmarks will

further allow the company to check whether to follow an existing market strategy or to modify it.

What I Have Learned from This Critical Analysis Exercise

The analysis of the case, interpretation of the outcomes, and development of possible alternatives

has allowed me to view the scenario from a holistic perspective. There are several challenges one

might face during managing own business or while working at a managerial position. The

exercise has facilitated me to understand the situation, propose alternatives and weigh the

outcomes. The case has allowed me to enhance my analytical skills so that I can analyze the

situations effectively. Anyone can encounter such situations in life and having a know-how of

dealing with such scenarios can lead to fruitful outcomes.

References

Berman, J (2018). General Mills paid silly money for pet food. Retrieved from:

https://www.forbes.com/sites/jamesberman/2018/08/03/general-mills-paid-silly-money-

for-pet-food/#5c78d3641424

General Mills Inc. (2018). General Mills completes acquisition of Blue Buffalo Pet Products.

Retrieved from: https://www.prnewswire.com/news-releases/general-mills-completes-

acquisition-of-blue-buffalo-pet-products-300635629.html

Kalsec (2018). Growth in Pet Food Industry. Retrieved from:

https://www.kalsec.com/pet-food-market-growth/

Newmeyer, C. E., Swaminathan, V., & Hulland, J. (2016). When products and brands trade hands:

A framework for acquisition success. Journal of Marketing Theory and Practice, 24(2),

129-146.