General Mills just won the pet category
General Mills is accelerating efforts to transform its portfolio by buying natural pet food company Blue Buffalo for about $8 billion.
The transaction immediately establishes General Mills as a leader in the U.S. natural pet food category, the fastest growing portion of the overall pet food market.
"The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing Wholesome Natural pet food category and represents a significant milestone as we reshape our portfolio to drive additional growth and value creation for our shareholders," said General Mills Chairman and Chief Executive Officer Jeff Harmening.
Founded in 2002, Blue Buffalo is the fastest growing major pet food company making natural foods and treats for dogs and cats under the BLUE brand, which includes BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet. BLUE is the No. 1 natural pet food brand in the U.S., with $1.275 billion in net sales and $319 million in Adjusted EBITDA for fiscal year 2017, representing an Adjusted EBITDA margin of 25%. Over the past three years, Blue Buffalo has delivered compound annual net sales growth of 12% and Adjusted EBITDA growth of 18%.
"We are competing more effectively in our existing categories by really listening to consumers and providing a variety of options that meet their needs," Harmening said. "In pet food, as in human food, consumers are seeking more natural and premium products and we have tremendous respect for how attentive Blue Buffalo has been to the needs of their consumers, pet parents and pets, as they have built their brand. As we have done with Annie's, Lärabar and EPIC, we expect to help Blue Buffalo by leveraging our extensive supply chain, R&D and sales & marketing resources. We will in turn benefit from their experience building one of the strongest pull brands in the CPG world."
The $30 billion U.S. pet food market is generating consistent 3-4% growth and is highly attractive for retailers based on continued market growth, premiumization and subscription-like purchase patterns that drive traffic and repeat purchases.
General Mills outlined additional strategic and financial benefits of the acquisition:
- Addition of Attractive Growth Category. Blue Buffalo is the leader in the fastest-growing Wholesome Natural category with double-digit growth over each of the last three years. The Wholesome Natural market represents approximately 10% of the pet food market in volume and approximately 20% in value.1 Based on the strong consumer tailwinds, the Wholesome Natural market is poised to continue to grow, propelling BLUE's growth.
- Leading Brand with Loyal Consumer Base in Early Innings of its Growth. BLUE has one of the strongest brand equities in the pet food market and is the #1 brand in the Wholesome Natural category with retail sales of four-times the next largest Wholesome Natural pet food brand. Blue Buffalo has built a loyal consumer base, particularly amongst millennials, and is well positioned to capitalize on the pet humanization and the pet food premiumization trends, which are poised to continue for the foreseeable future. With all its success, BLUE still feeds only 3% of pets in the U.S. and has significant opportunities to convert more pets to BLUE.
- Proven Success in Existing and Emerging Channels. BLUE is the #1 pet food brand in the pet specialty channel at approximately twice the size of the next largest brand. BLUE is also the #1 pet food brand in the rapidly growing E-Commerce channel, where Blue Buffalo generated over $250 million of net revenues in 2017 growing over 75% versus prior year. BLUE has generated early success in the food, drug and mass (FDM) channel which, in conjunction with General Mills' capabilities, represents a significant growth opportunity through strengthening BLUE's distribution.
- Scaled Platform with Strong Growth and Operational Efficiency Poised to Benefit from the Transaction. General Mills' scale and decades of experience will support greater effectiveness and efficiency for Blue Buffalo across key business areas, including: sales, marketing, advertising, supply chain, R&D, innovation, and environmental stewardship. These capabilities are expected to contribute to meaningful revenue synergies over time, in addition to $50 million in anticipated cost savings opportunities.
- Meaningful Improvement to General Mills' Growth and Margin Profile. The transaction will be immediately accretive to General Mills net sales growth and operating margin profile, and is expected to be neutral to cash EPS in fiscal 2019 and accretive in fiscal 2020.2
General Mills' portfolio of brands include Cheerios, Annie's, Yoplait, Nature Valley, Fiber One, Häagen-Dazs, Betty Crocker, Pillsbury, Old El Paso, Wanchai Ferry, Yoki and more.