The End of an Era
Recently, General Mills made another big splash in the food and beverage market with the leaked announcement of a potential divestiture of the Jolly Green Giant (JGG) label. Representing a large portion of General Mills’ frozen food portfolio, Jolly Green Giant accounts for approximately $700 million of the frozen division’s $1.5 billion in total sales and has become a staple on the dinner table across the country as one of the most recognizable food brands.
Unfortunately for fans of the label, their results have been “ho-ho-ho” hum. The writing seemed to be on the wall since February during the Consumer Analyst Group of New York’s (CAGNY) annual conference. At the conference, General Mills CEO Ken Powell commented that General Mills was committed to providing consumers with the natural choices they truly desire, stating: “We’ll continue to meet growing consumer interest in natural and organic products, which is expected to drive double-digit industry sales growth over the next five years.” Further, Jeff Harmening, COO of General Mills, also commented on General Mills’ bullish attitude toward natural and organics, confirming that General Mills’ goal is to build a $1 billion natural and organic business by 2020. With the blockbuster acquisition of Annie’s and subsequent divestitures of brands which are not core to their growth strategy (Jolly Green Giant was the first; could Totino’s be next?), General Mills indicated that they are truly committed to their outlined strategy for naturals and organics, even if that means shedding brands that are decades old.
Given Harmening and Powell’s expressed attitudes, a key question remains: what is next for the Jolly Green Giant? While General Mills has yet to provide official comment, Pinnacle Foods, a key player in the frozen industry, seems well suited for an acquisition of Jolly Green Giant.
A New Path Forward with Pinnacle Foods
Aligned Operational Focus
Pinnacle Foods specializes in the shelf stable and frozen food categories and remains one of the few within the food industry committed to growth within the frozen category. In 2014, Pinnacle realized net sales of $2.6 billion in sales, with a large portion of sales driven from their Birds Eye frozen family of products.
As Birds Eye holds the #1 and #2 market position1 for frozen vegetables and frozen bagged meals respectively, Pinnacle categorizes Birds Eye as a “leadership” brand within their product portfolio and remains focused on investing in the brand to drive growth and share expansion. At CAGNY, Pinnacle executives described Birds Eye as a “$1 billion health & wellness brand poised to capitalize on America’s need to eat more vegetables.” To capture the expected increase in vegetable demand, Pinnacle will focus on product innovation of the existing Birds Eye portfolio of products across the core vegetables, steamed vegetables and side dishes segments.
While Jolly Green Giant offers similar products to the current Birds Eye portfolio, an acquisition would provide Pinnacle with access to new products such as Jolly Green Giant Hummus, Chips, Sautés by Green Giant, and Just for One meals – an interesting opportunity given the fact 41% of consumers view snacks as an important part of a healthy eating plan throughout the day2 . Additionally, over the past few years Jolly Green Giant underwent a brand facelift, and began to target consumer perceptions of dieting, categorizing the brand as meal substitute or snack rather than merely a side at dinner2. The marketing efforts seemed to pay off as consumers actively engaged with the brand via social media, reacting well to recipe posts which outlined unique ways to incorporate Jolly Green Giant into foods like soup and smoothies.
In addition to product synergies, Pinnacle could also capitalize on Jolly Green Giant’s international presence to penetrate new markets. Pinnacle executives have yet to express a great interest in international expansion, but as the domestic market continues to face rapidly changing consumer tastes Pinnacle could find a new growth opportunity abroad.
Ultimately, Pinnacle will be forced to make a decision to incorporate Green Giant within the existing Birds Eye portfolio or keep the brand separate. If the brands remained distinct, Pinnacle could realize a greater degree of product placement (especially within frozen) within the store and build upon the solid brand campaign executed at General Mills.
The potential acquisition of Jolly Green Giant would represent a significant investment for Pinnacle. However, the organization appears to be well suited to support a large, transformative acquisition. For one, the company is incredibly lean with SG&A overhead consistently below 9% of net sales, whereas the peer average rests around 12%. Further, At CAGNY, Pinnacle executives indicated that the company has significant cash – $628 million – deployed to drive shareholder value through a wide range of initiatives. Though this cash is certainly not entirely earmarked for acquisition activity, a large portion appears to be set aside for strategic acquisitions. Both S&P and Moody’s allow for leverage up to 5.5x (total leverage ratio) to support acquisition activity.
Most interestingly, Pinnacle executives offered additional commentary on expected M&A activity highlighting the following criteria for future acquisitions:
- North America focus
- Existing or adjacent categories
- Market leadership or line of sight to leadership
- Synergy-rich transaction
- Speed of integration
For those keeping track at home, Jolly Green Giant is 4/5 from the field with speed of integration representing the only criteria Jolly Green Giant fails to satisfy. However, given the strong alignment between the two brands, Pinnacle should not have to wait long to realize a return on their investment.
As recently seen with the Kraft/Heinz mega-deal, the food industry is rapidly changing via consolidation and continues to face challenging industry fundamentals. Though Pinnacle has done well recently to outpace category growth, Pinnacle executives have highlighted the need to accelerate growth via acquisitions. Thus far, management has shown a proven ability to integrate acquisitions into existing operations, albeit on a smaller scale, with the successful integrations of Wish-Bone salad dressings ($580 million) and Gardein Protein ($155 million) in the last two years.
Perhaps most importantly, Pinnacle executives demonstrated a clear focus on future growth opportunities and truly believe in the frozen market. Though there is no doubt that the current frozen landscape is challenging, an acquisition led by Pinnacle will help keep Jolly Green Giant on dinner tables across America.
1 Pinnacle Foods, “Reinvigorating Iconic Brands”
2 Food Navigator, “Sales of Indulgent Snacks Outpace Healthy Options, IRI data shows”