General Mills: Driving Food Systems Change Through Regenerative Agriculture

Abstract

In 2019, global food company General Mills (GMI) made a public commitment to advancing regenerative agriculture on one million acres of farmland by 2030. It was a risky commitment for the company to make externally because a supply chain for regeneratively-grown ingredients doesn’t exist and the company doesn’t own the acreage. Also, the costs and outcome are uncertain. The Natural and Organic Operating Unit is spearheading regenerative practices which sequester carbon instead of contributing to climate change. But while Annie’s Mac & Cheese consumers care about regeneratively grown products, Lucky Charms and Betty Crocker consumers are less motivated by the term. Can an acquired brand drive transformation across a 150-year-old company resulting in the triple-bottom-line they believe is critical for the planet and their long-term viability?

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Exhibit 1 Fiscal Year 2019 Net Sales

In the image, there are three sections listed as follows:

  • The first section reads:
    • “Total Company net Sales by Operating Segment
    • In fiscal 2019, we reported net sales in five operating segments. We see clear opportunities to grow our business across all segments, leveraging the scale and resources of our global organization.”
  • The second title reads:
    • “Total Company Net Sales by Product Platform
    • Our portfolio spans multiple product platforms, including our four Accelerate platforms – snack bars, Häagen-Dazs ice cream, Old El Paso Mexican food, and natural and organic brands – as well as our pet food business, where we see the fastest growth opportunities. We also have two large platforms, cereal and yogurt, where we have differential capabilities that position us to win.”
  • The third section reads:
    • “Fiscal 2019 Joint Venture Net Sales – $1.0 Billion
    • In addition to $16.9 billion of consolidated net sales, our proportionate share of non-consolidated joint venture net sales was $0.8 billion from Cereal Partners Worldwide and $0.2 billion from Haagen-Dazs Japan.”

Below the third section are two pie charts stacked horizontally. The first pie chart is titled “Net Sales by Operating Segment.” Data shown by pie chart are listed as follows:

  • North America Retail (59%)
  • Convenience Stores & Foodservice (12%)
  • Europe & Australia (11%)
  • Asia & Latin America (10%)
  • Pet (8%)

The second pie chart is titled “Net Sales by Product Platform.” Data shown by the pie chart are listed as follows:

  • Accelerate Platforms (25%)
    • Snack Bars
    • Ice cream
    • Mexican
    • Natural & Organic
  • Pet Food (8%)
  • Cereal (15%)
  • Yogurt (12%)
  • Other Snacks and Meals (20%)
  • Mixes and Dough (20%)

In the center of each pie chart is the logo of General Mills.

An image shows net sales of the fiscal year 2019.

Source: General Mills, 2019 Annual Report

Exhibit 2 Selected Financial Data

The following table sets forth selected financial data for each of the fiscal years in the five-year period ended May 26, 2019:

In Millions, Except Per Share Data, Percentages and Ratios

Fiscal Year

2019 (a)

2018

2017

2016

2015 (b)

Operating data:

Net sales

$16,865.2

$15,740.4

$15,619.8

$16,563.1

$17,630.3

Gross margin (c) (d)

5,756.8

5,435.6

5,567.8

5,843.3

5,967.8

Selling, general, and administrative expenses(d)

2,935.8

2,850.1

2,888.8

3,141.4

3,389.9

Operating profit (d)

2,515.9

2,419.9

2,492.1

2,719.1

2,071.8

Net earnings attributable to General Mills

1,752.7

2,131.0

1,657.5

1,697.4

1,221.3

Advertising and media expense

601.6

575.9

623.8

754.4

823.1

Research and development expense

221.9

219.1

218.2

222.1

229.4

Average shares outstanding:

Diluted

605.4

585.7

598.0

611.9

618.8

Earnings per share:

    Diluted

$2.90

$3.64

$2.77

$2.77

$1.97

    Adjusted diluted (c) (e)

$3.22

$3.11

$3.08

$2.92

$2.86

Operating ratios:

Gross margin as a percentage of net sales (d)

34.1%

34.5%

35.6%

35.3%

33.8%

Selling, general, and administrative expenses as a percentage of net sales (d)

17.4%

18.1%

18.5%

19.0%

19.2%

Operating profit as a percentage of net sales (d)

14.9%

15.4%

16.0%

16.4%

11.8%

Adjusted operating profit as a percentage of net sales (c) (d) (e)

16.9%

16.6%

17.6%

16.8%

15.7%

Effective income tax rate

17.7%

2.7%

28.8%

31.4%

33.3%

Balance sheet data:

Land, buildings, and equipment

$3,787.2

$4,047.2

$3,687.7

$3,743.6

$3,783.3

Total assets

30,111.2

30,624.0

21,812.6

21,712.3

21,832.0

Long-term debt, excluding current portion

11,624.8

12,668.7

7,642.9

7,057.7

7,575.3

Total debt (c)

14,490.0

15,818.6

9,481.7

8,430.9

9,191.5

Cash flow data:

Net cash provided by operating activities (f)

$2,807.0

$2,841.0

$2,415.2

$2,764.2

$2,648.5

Capital expenditures

537.6

622.7

684.4

729.3

712.4

Free cash flow (c)

2,269.4

2,218.3

1,730.8

2,034.9

1,936.1

Share data:

Cash dividends per common share

$1.96

$1.96

$1.92

$1.78

$1.67

a. In fiscal 2018, we acquired Blue Buffalo. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report.

b. Fiscal 2015 was a 53-week year; all other fiscal years were 52 weeks.

c. Please see “Glossary” in Item 8 of this report for definition.

d. In the first quarter of fiscal 2019, we retrospectively adopted new accounting requirements related to the presentation of net periodic defined benefit pension expense, net periodic postretirement benefit expense, and net periodic postemployment benefit expense. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.

e. Please see “Non-GAAP Measures” in Item 7 of this report for our discussion of this measure not defined by generally accepted accounting principles.

f. In fiscal 2018, we retrospectively adopted new requirements for the accounting and presentation of stock-based payments. Please see Note 2 to the Consolidated Financial Statements in Item 8 of this report.

Source: General Mills, 2019 Annual Report

Exhibit 3 2019 CAGNY (Consumer Analyst Group New York) Presentation

The top section is titled “Accelerate Platforms Represent a Tremendous Growth Opportunity.” It has an image of Haagen-Dazs ice-creams labeled $61B, +MSD; an image of Natural & Organic labeled $47B, +HSD; an image of Old EL Paso labeled $4B, +LSD; and an image of snack bars labeled $26B, +MSD. Below the images, a text reads “Category Size and Growth.” The middle section is titled “General Mills U.S. Retail Market share Performance.” It shows a table, which is replicated as follows:

F17

F18 H1

F18 H2

F19 YTD

Cereal

+

+

=

Bars

+

Yogurt

+

Refrigerated Dough

+

+

Soup

+

+

Hot snacks

+

+

+

Desserts

+

+

Mexican

+

+

+

+

Fruit Snacks

+

+

Natural & Organic

+

+

+

+

Top 10 Holding/Gaining Share

3 of 10

6 of 10

8 of 10

7 of 10

The last bottom section is titled “U.S. Snacks and Natural & Organic Highlights.” Its subtitle reads “(F19 YTD Retail Sales % vs. LY).” Its left subsection section is titled “Work continues on U.S. Snacks Strong Nutrition Bar Performance.” Starting from top left, in a clockwise direction, four images in this section are that of Nature Valley Wafer, Protein One, LARABAR, and Fiber One. A text below the images reads: “Retail Sales – 3%.” The right subsection is titled “Success on Core Natural & Organic.” It shows an image of a box of Annie’s and a tin of Muir Glen Organic. A text below Annie’s reads “Retail Sales +15%” and a text below Muir Glen reads “Retail Sales +14%.”

An illustration shows a 2019 Consumer Analyst Group New York (CAGNY) presentation.

Source: General Mills Investor Presentation, February 2019.

Exhibit 4 Organizational Chart, Selected Roles

Data shown by the chart are listed as follows:

  • Jeffrey Harmening Chairman & CEO.
  • Jonathan L. Nudi, Group President, North American Retail
    • Jim Murphy, President, Retail Meals and Baking
    • Dana McNabb, President, Cereal & Snacks
    • Carla Vernon, President, Natural and Organic
  • Dan Stangler, Director, Annie’s
    • Ali Kelley, Marketing Manager
  • Shauna Sadowski, Head of Sustainability
    • Christina Skonberg, Sr. Sustainability Analyst.
  • Ivan Pollard, Chief Marketing Officer
  • John Church, Chief Supply Chain Officer
    • Mary Jane Melendez, (pre. Jerry Lynch), Chief Sustainability Officer
    • Colleen Soukup, Chief Procurement Officer
      • Beth Robertson-Martin, Sourcing Director
      • Kendra Rhodes, Organic Sourcing Lead
  • Jodi Benson, Chief Innovation, Technology, and Quality Officer
    • Tom Rabaey, Sr. ITQ Manager
    • Steve Rosenzweig, Soil Scientist

Some boxes in the chart have dashed boundaries, which show that they are a Sustainability Governance Committee member. Those boxes are of Jeffrey Harmening, Ivan Pollard, John Church, Jodi Benson, and Mary Jane Melendez. A dotted line connects Mary Jane Melendez to Shauna Sadowski.

An organizational chart shows selected roles.

Exhibit 5 General Mills Soil Health Booth at Natural Products Expo (2016–2019)

A photo shows General Mills’ soil health booth at Natural Products Expo (2016–2019).

Source: Christina Skonberg, General Mills.

Exhibit 6 Annie’s Limited-Edition Products

Two photos show Annie’s limited-edition products. First image shows Honey Bunny Grahams and Elbow Pasta Cheddar kept in a wooden block. The second image is titled Meet Nate and it’s decorated with texts, pictures, and illustrations.

Source: General Mills.

Exhibit 7 Regenerative Agriculture Definition and Framework

Text on its op reads: General Mills Definition: Regenerative agriculture protects and intentionally enhances natural resources and farming communities. Below the title are two rows titled Shared Outcome and Shared Strategies. Shared outcomes shows a picture of soil that is captioned “Soil health,” a picture of flowers captioned “Above-ground biodiversity,” and a photo of a group of people captioned “Farmer economic resilience.” Shared strategies has texts listed as follows:

  • Product & Supply Chain – Leveraging our supply chain to partner with farmers using regenerative practices, connecting consumers to the people and places that grow their food.
  • Policy & Partnerships – Advancing agricultural systems change through strategic partnerships and research.
  • Education & inspiration – Building awareness by educating and inspiring through differential marketing, industry leadership and internal engagement.

Text at the bottom reads:

“Brands lead activation against these strategies.

Standard measurement tools enable impact and credibility.”

An illustration shows regenerative agriculture definition and framework.

Source: General Mills.

Exhibit 8 Regenerative Agriculture Self-Assessment

Farming Is the Foundation of Our Business

Up to 1/3 of global greenhouse gas emissions stems from the food system, an estimated 80% of which comes from agriculture. At General Mills, we recognize the critical role that farming plays in our business and we are committed to advancing agricultural practices that positively impact people and planet.

Purpose of the Self-Assessment

Version 2.0 of the General Mills Regenerative Agriculture Self-Assessment is a user-friendly tool for farmers to understand alignment between their agricultural practices and the principles of regenerative agriculture. The tool is also designed to help companies with agricultural supply chains gain visibility to farm-level practices.

At General Mills, we define regenerative agriculture as farming that protects and intentionally enhances natural resources and farm communities.

This practices-based assessment includes farming techniques that align with five recognized principles of regenerative agriculture: keep the soil covered, minimize soil disturbance, maximize crop diversity, maintain living root in the ground year-round, and integrate livestock. Research suggests that implementation of these principles leads to positive outcomes in soil health, above ground biodiversity, and economic resilience in farming communities.

How to Use the Self-Assessment

The tool is designed to be inclusive of all farming systems—small and large, organic and conventional, crop and livestock, domestic and international. This questionnaire is not a standard or a framework for a product claim, but rather a self-assessment designed to be completed in under 20 minutes. While the tool aims to highlight opportunities for continuous improvement, it is also intended to identify and celebrate ways that farmers are already advancing soil health, above ground biodiversity, and economic resilience in farming communities.

Development of the Self-Assessment

The self-assessment was developed in collaboration with farmers, scientists, practitioners, and a diverse group of employees across the General Mills family. Following the launch of Version 1.0 in 2018, we spent 15 months piloting the inaugural version in our own supply chain while collecting feedback from farmers, scientists, and other stakeholders. We hosted farmer feedback roundtables across the U.S. to engage 140 farmers who helped hone the content of the self-assessment so it can be useful to a variety of farmers across diverse agricultural systems.

How We Are Using the Self-Assessment at General Mills

We are implementing the tool with key General Mills suppliers to empower farmers at the foundation of our supply chain to explore how their practices align with regenerative agriculture principles. We are also using the tool to track progress against our commitment to advance regenerative agriculture on one million acres by 2030.

In addition to this tool, we are developing robust scientific methodologies for measuring and researching the outcomes associated with regenerative agriculture. You can learn more about this and our other efforts on our Regenerative Agriculture Webpage. While the research on outcomes continues, we recognize the importance of assessing agricultural practices as a proxy for farm-level impact.

To honor the privacy of participating farmers, General Mills will keep all data attributable to individual operations strictly confidential.

Adapted Baseline Criteria

All Acres

Living Root in the Ground: Fields have a living root in the ground for at least 130 days per calendar year. Weeds do not count. Dormancy may count toward days with a living root in the ground. Assume living root starts at planting and ends at harvest.

Pest Management: All pesticide use is justified with evidence that a severe pest outbreak exists or has the potential to exist, as determined by scouting and monitoring protocols for common crop pests to determine whether an economic threshold has been reached. If no established threshold exists, the professional judgement of a certified pest control adviser, accredited crop consultant, extension agent, or other third party credentialed independent pest management specialist can determine whether pesticide use is justified. Nitroguanidine neonicotinoids (clothianidin, dinotefuran, imidacloprid and thiamethoxam) are not used.

Nutrient Provisions: Nutrient application follows the 4R’s of nutrient stewardship:

1. Right source – nutrients supplied in plant-available forms that are appropriate for the soil’s properties

2. Right rate – soil tests are used to determine appropriate application rate

3. Right time – timing of nutrient uptake and dynamics of soil nutrient supply are addressed

4. Right place – nutrients are supplied strategically so plants can access them.

Plant Diversity: Over a 3-year period, fields include at least 3 different species of plants, spanning both of the following categories: grasses and broadleaf plants.

Crop Acres

Livestock Acres

Minimization of Tillage: At least 30% of the soil surface is covered by living plans or crop residue year-round.

Animal Welfare: Producer adheres to the 5 Freedoms of Animal Welfare and animals have access to the outdoors for at least 100 days out of the year.

Integration of Planned Livestock Grazing into Cropping Systems: Producer integrates livestock into cropping area and at least 30% of the crop residue and/or living vegetation remains in the field after grazing.

Holistic, Adaptive, and Prescribed Grazing: Producer has developed a written Holistic, Adaptive, or Prescribed Grazing Plan.

Above & Beyond

Holistic Wealth Management: Producer keeps detailed records on expenses and returns in order to understand profit and loss margins.

Community Engagement: Producer uses informal or formal means of sharing learnings and discussing best practices with other farmers

Natural Habitat: At least 5% of the field is planted to natural habitat. Natural habitat must consist of at least 50% native vegetation. Examples of natural habitat include insectary strips, riparian buffers, prairie, shrublands, woodlands, and grasslands. Lawn grass and row crops are not considered natural.

Source: GM RA Self-Assessment (Adapted). General Mills.

Exhibit 9 Regenerative Agriculture Self-Assessment Measurement Specifics, Partners and Frequency

The image has three sections that are listed as follows:

The top section is titled: Biodiversity. On the title’s right, the text in a circle reads: Measured annually. Below it are logos of ecdysis and Applied Ecological Services. In this section, the first box from left reads: Plant diversity, Measurements: Plant species, canopy, cover, and erosion control effectiveness. The middle box reads: Insects inventory: Measurements: Soil, foliar and airborne invertebrate bioinventories assessed during cash crop flowering and cover crop growth, Measured multiple times per year. * The right box reads: Breeding Bird Survey: Measurements: Species, location and behavior of common and rare birds.

The middle section is titled: Soil health. On the title’s right, the text in a circle reads: Measured once every 3 years. Below it are logos of UnderstandingAG and Applied Ecological Services. In this section, the first box from left reads: Soil health: Measurements: Soil structure, microbial diversity & abundance (i.e. types of microbial bacteria & fungi with quantity of each), soil penetration resistance, nutrient availability (Haney test to measure available NPK, organic, & inorganic nitrogen, & microbial activity), active carbon. The middle box reads: Soil Functions: Measurements Water infiltration rate, water holding capacity, microbial respiration. The right box reads: Soil Carbon Sequestration: Measurements: Meter-deep soil organic carbon stocks. Data used to calibrate greenhouse gas emission models.

The bottom section is titled: Farm Management & Economics. On the title’s right, the text in a circle reads: Recorded weekly. Below it are logos of farmOS and Our Sci. In this section, the first box from left reads: Field operations: Measurements: Cash & cover crops varieties, time of planting. GMO or not seed treatments used, seed & planting cost, livestock operations, and tillage practices. The middle box reads: All Inputs Used: Measurements: Type/name of input used (fertilizer, herbicide, fungicide, pesticide or biological amendment), amount & method used, cost and date of application. For pesticides & fungicides, pest or disease being controlled and reason for application (i.e., economic impact vs. following application schedule). The right box reads: Economic Data: Measurements: costs of all inputs and operations, crop, yield, revenue from livestock.

An images shows regenerative agriculture self-assessment measurement specifics, partners, and frequency.

Source: General Mills.

Exhibit 10 Timeline of General Mills Regenerative Agriculture Initiatives

Company Events

Year

Regenerative Initiatives

Cascadian Farm founded

1972

  • Cascadian Farm founded on organic/regenerative principles

Annie’s founded

1989

Muir Glen founded

1991

  • Muir Glen is first large-scale certified organic tomato processor

Cascadian Farm acquires Muir Glen

1994

1998

  • Annie’s first organic product launch

General Mills acquires Cascadian Farm and Muir Glen

2000

Annie’s goes public

2012

  • Annie’s first life cycle assessment of products

Annie’s joins General Mills

2014

  • General Mills/Cascadian Farm supports Kernza research
  • July 2014 General Mills releases climate policy

General Mills pledges to reduce greenhouse gas emissions by 28% by 2025 (over 2010 baseline) and to double natural/organic sales to $1B by 2020

2015

  • General Mills partners with Xerces to add pollinator habitat on or near existing crop lands
  • General Mills pledges $50 k for Prairie Organic Grain Initiative

General Mills acquires EPIC Provisions

2016

  • June 2016 Strategic Sourcing Partnership with Organic Valley
  • Announced +3000 acres of organic dairy over 3 years
  • Nov 2016 Soil Health Roadmap unveiling (partnership with The Nature Conservancy)

General Mills Triple Bottom Line Operating Unit created, including 4 of General Mills’ 9 Natural and Organic brands: Annie’s Cascadian Farm, EPIC Provisions, and Muir Glen

2017

  • Cascadian Farm invests in Kernza commercialization
  • $2 m commitment to support widespread adoption of soil health practices (The Nature Conservancy, Soil Health Institute, Soil Health Partnership)
  • General Mills showcases soil health and regenerative agriculture at Expo East trade show

2018

  • February 2018 – General Mills regenerative agriculture scorecard v1.0 release
  • 2018 – Regenerative Agriculture Soil Sampling Protocol launch on 3 pilot farms in supply chain
  • March 2018 – Mac & Cheese with ingredients grown using regenerative practices pilot launch
  • March 2018 – Announce investment in the conversion of 34,000 acres to organic by 2020. Gunsmoke Farms in South Dakota
  • EPIC Provisions has first verified regenerative outcome product with Land to Market Program

2019

  • Mar 2019 – Announce commitment to advance regenerative agriculture practices on 1 m acres of farmland by 2030

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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