- The Washington Times - Monday, August 28, 2000

The Pillsbury Dough Boy is alive and well. Maxwell House is still good to the last drop. And Thomas' English muffins still have their nooks and crannies.
In fact, shoppers perusing the cereal or canned-food aisles won't notice much change as six of the world's largest food manufacturers plan to merge into three.
"Consolidation is driven by the need for companies to maintain investor confidence, grow their bottom and top lines to be profitable and invest money behind brands to meet consumer needs," said John Gould, a spokesman for Unilever, which owns hundreds of brands worldwide including Good Humor-Breyers and Ragu.
"Will a U.S. consumer see any difference? The answer is, absolutely not."
The acquisitions if approved by the government and company shareholders would put some of the most popular food names under one roof.
In a $10.5 billion deal, General Mills maker of Betty Crocker cake mixes, Cheerios, Lucky Charms and Bisquick would combine with Diageo's Pillsbury division, which owns Haagen-Dazs ice cream, Old El Paso taco products and Hungry Jack potato mixes, among dozens of others.
Hellmann's mayonnaise, Entenmann's baked goods and Thomas' English Muffins would be combined with Ragu tomato sauces, Breyers ice cream and Lipton ice tea as Unilever waits approval of its $24.3 billion purchase of Bestfoods.
If Kraft's $15 billion purchase of Nabisco goes through, treats like Triscuits, Oreos and Life Savers would be produced by the same company that makes Post Honeycomb cereal, Cool Whip and Jell-O. Philip Morris Cos. owns Kraft's 70-plus brands.
The intended mergers are the answer the companies need to increase their profits and boost shareholder confidence, they say.
But for the consumer, who may not have heard of Unilever but buys Klondike bars and I Can't Believe It's Not Butter, the company's deal with Bestfoods means nothing. And it's not unusual for a consumer to know a brand rather than its parent company.
"Brands themselves are built on their connection to the consumer, not the company's connection to the consumer," said Pamela Stegeman, vice president, industry affairs of the Grocery Manufacturers of America.
Despite all the activity within the food industry, consumers likely will still find their favorite brands on the shelves. The new companies would re-evaluate their brands and get rid of the unsuccessful ones those products that consumers probably aren't buying anyway.
Even Unilever, which announced last year it was going to shed 1,200 of its worldwide brands, still plans to focus on the company's 400 leading brands like Lipton. Unilever's European bakery division, for example, already has been sold.
While the six companies involved in the latest round of mergers all have a worldwide presence, they combine to make up at least 10 percent to 15 percent of the $460 billion U.S. food and beverage market, according to Tim Willard, a spokesman for the National Food Processors Association.
Philip Morris, which owns Kraft and Miller Brewing, raked in $31.1 billion last year in U.S. food sales, according to Food Processing, a monthly trade publication. But there are dozens of food companies that specialize in a niche or region that fill in the remaining market.
Worldwide, Switzerland-based Nestle is the leader with $74.6 billion in sales last year.
Industry officials say the mergers are a way for companies to round out their portfolios. For example, General Mills would significantly expand its presence in the refrigerated-foods category with the purchase of Pillsbury a leader in sales of refrigerated dough products like sweet rolls, biscuits, cookies and pie crusts.
"It's cheaper for them to buy than to build a brand," said Mike Gilles, president of the Growth Group, a marketing and consulting firm in California.
Before the companies begin restructuring, they need both regulatory and shareholder approval.
The companies must file with the Federal Trade Commission to start the regulatory-approval process. The proposed agreement is scrutinized either by the FTC or the U.S. Department of Justice in search of any illegal anti-competitive practices.
So far, the FTC has begun the review process only for the Nabisco-Kraft deal, according to Mitch Katz, an FTC spokesman. Reviews of the other two mergers have not begun at either agency.
If the deal is approved, the FTC would continue to watch the new companies to make sure they don't abuse their increased power by engaging in price gouging, Mr. Katz said.
Officials say the companies have no intention of jeopardizing the already-established relationships that consumers have with popular brands.
However, if a brand does not fit in with the company's philosophy, it likely would be sold off.
General Mills plans to sell off Pillsbury dessert mixes a category it already dominates with its Betty Crocker brand. The company also will sell the Pillsbury Green Giant canned-vegetable business, but will keep Green Giant's frozen vegetable line and meal starters.
The new General Mills will focus on brands that are leaders in their categories, like Pillsbury refrigerated baked goods, Yoplait yogurt, Hungry Jack frozen waffles, Totino's frozen pizza, Big G cereals and Betty Crocker dessert, dinner and side-dish mixes.
That's good news for smaller food companies that may be regional or have one successful product.
"This is an opportunity for smaller companies to come in and take over and deliver benefits for that segment of people buying [those products]," Mr. Gilles said.
Buying an established brand gives smaller niche food companies more power and eventually makes them attractive enough to be bought by a larger company.
Industry analysts weren't surprised by the recent wave of consolidation in the food industry, considering how slowly the companies were growing and how rapidly their customers the supermarkets and retailers were increasing.
As the food companies grow, they "have more clout" when dealing with retailers and stocking shelves with their products, Mr. Gilles said.
General Mills decided to buy Pillsbury "to grow our top and bottom lines faster than either of us could do as separate companies," said spokesman Austin Sullivan. "It's adding shareholder value."
European companies also are looking to buy American companies as an inexpensive way to strengthen their presence in the United States.
Earlier this year, Unilever, based in London, snatched up Slim Fast and Ben & Jerry's ice cream on the same day.
Despite all the activity on the corporate level, consumers don't have much to worry about. The biggest change will be internally as companies will have "huge savings in infrastructure costs," Mr. Gilles said.
For example, companies can cut down on the number of employees or pay less for advertising because the company is buying more time or ad pages, which means discounts.
But consumers shouldn't expect any of the savings to be passed on to them.
"In a perfect world, they would decrease [their prices] because of these greater efficiencies," but that's not likely, Mr. Gilles said.
But the prices probably won't skyrocket either.
If a company charges higher prices, it runs the risk of losing its loyal customers to a competitor charging lower prices.
Ann Gurkin, a food analyst for Davenport & Co. in Richmond, said she expects the companies will continue brand emphasis, particularly with the cross-selling of products.
It's a strategy that's already working. For example, Cool Whip has been marketed as a great addition to Jell-O. Both are owned by Kraft.
"They're trying to build core brands," Mr. Willard said. "If anything, you'll see more emphasis on brands."

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