The Pillsbury Company Business Information, Profile, and History

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History of The Pillsbury Company

The Pillsbury Company is one of the oldest and most recognized firms in American food retailing. From its beginnings in flour milling in the late 1800s, Pillsbury has grown into the leading refrigerated dough brand in the United States, with a product arsenal that includes a variety of biscuits, breadsticks, cookies, pie crusts, crescent rolls, and bread. Pillsbury also manufactures and sells frozen breakfast pastries, frozen pancakes and waffles, and the Jeno's and Totino's brands of frozen pizza products. In 1989, Pillsbury was acquired by Grand Metropolitan plc, a diversified British beverage company. General Mills Inc. became one of the largest food companies in the world after buying Pillsbury for $10.4 billion in 2001.

Pillsbury Gets Its Start in 1869

In 1869, after working in his uncle's hardware supply company in Minneapolis, 27-year-old Charles A. Pillsbury bought one-third of a local flour mill for $10,000 and began what would become the Pillsbury Company. Pillsbury and a competitor, the Washburn Crosby Company, formed the Minneapolis Millers Association that same year.

Pillsbury's improvements in milling machinery included the early incorporation of modern equipment for milling the very hard local wheat. These improvements and the purchase of two additional mills allowed him to produce 2,000 barrels of flour a day by 1872. That year, he reorganized the company as C.A. Pillsbury and Company, making his father and uncle partners. In addition, he registered the trademark Pillsbury's Best XXXX in 1872.

During the 1880s, Pillsbury added six more mills, including one that was then the largest flour mill in the world. This mill was equipped with state-of-the-art machinery that more than tripled the company's output. Weakened by three mill fires in 1881, Pillsbury had just begun to recover and was buying grain elevators to cut storage costs, when, in 1889, it sold the Pillsbury mills to an English financial syndicate. The syndicate also purchased competing Minnesota mills, elevators, and bordering water-power rights. Charles Pillsbury remained as managing director of the new outfit, which was called the Pillsbury-Washburn Flour Mills Company Ltd. The company put its water-power rights to use, and in 1896 the company passed the 10,000-barrels-per-day mark. Pillsbury-Washburn eventually grew, under Pillsbury's leadership, into the world's largest milling company.

During the 1890s, the company focused on vertical integration. It began selling flour directly to retailers and stepped up advertising. Pillsbury-Washburn struggled with freight rates and the depressed agricultural economy during the first few years of the 20th century. In 1907, following a poor harvest, it became impossible for the company to mill profitably. Unmet financial obligations forced it into receivership. Charles S. Pillsbury, Charles A. Pillsbury's son, was one of the three men appointed to reorganize the firm, which became the Pillsbury Flour Mills Company.

The new company overhauled the mills and the organization that ran them. In addition, Pillsbury became a pioneer in product research by building its own laboratory. The firm rebounded and, on June 27, 1923, the Pillsbury Flour Mills Company purchased all remaining assets from the shareholders of Pillsbury-Washburn.

Expansion and Diversification: 1920s to the 1950s

During the 1920s, the Pillsburys opened several new plants and began to diversify. By 1932, Pillsbury had expanded into specialized grain products like cake flour and cereals. Expansion continued through 1940 with deals like the $3 million purchase of the Globe Grain and Milling Company and its various plants. The purchase helped Pillsbury set a new flour-milling record of 40,000 barrels a day. Pillsbury also continued manufacturing Globe's line of pancake mixes, biscuit mixes, and pasta.

In 1944, the company changed its name to Pillsbury Mills, Inc. Throughout this period, Pillsbury family members had run the company, and in 1940 Philip W. Pillsbury, Charles S. Pillsbury's son, became president. The company limited itself to kitchen staples through the 1940s but expanded its offerings in that line. Pillsbury began to export its flour, introduced food products for hotels and restaurants, and manufactured food products for U.S. troops during World War II, developing dry soup mixes in addition to its grains.

In the late 1940s, Pillsbury ventured into higher-margin convenience products to meet growing consumer demand. Cake mixes were introduced in 1948, and over the next ten years Pillsbury increased the varieties it offered. The company expanded its product line with yet another acquisition, in 1951, of Ballard & Ballard Company and its line of refrigerated foods.

Pillsbury invested heavily in market research and development during the 1950s and by the end of the decade had broadened beyond baking-related products. The company also continued its vertical integration efforts during the decade, opening milling plants in Canada and increasing its grain storage capacity. The company grew so quickly that by 1963 the Pillsbury name appeared on 127 different products. As the company's marketing and development continued to accelerate throughout the 1950s, so did its interest in a bigger market.

In 1959, Pillsbury began purchasing flour mills abroad, including units in Venezuela, El Salvador, Guatemala, Ghana, the Philippines, and Trinidad. In successive years, international operations increased to include food companies in France, Australia, and Germany. Fast growth continued, and in 1960 Pillsbury made its first nonfood purchase, Tidy House Products Company, a manufacturer of household cleaners.

Growth through Acquisition Begins in 1967

Robert J. Keith, who became president in 1966, brought Pillsbury into a new phase of food production. The postwar convenience era culminated in 1967 with the purchase of Burger King, the fast-food restaurant chain. By 1968, Pillsbury also owned interests in a variety of companies, including a computer time-sharing business, publishing concerns, and a life insurance company.

At the end of its first 100 years, the Pillsbury Company had become highly diversified and decentralized in order to handle the variety of management decisions involved with producing flours and instant foods, as well as running restaurant, computer, and publishing operations. Terrance Hanold, who became president in 1967, planned to continue diversifying and increasing independence for managers in the 1970s.

In 1973, William H. Spoor became CEO, and Pillsbury entered an era of increasing sales and earnings. Spoor valued growth through acquisition, but he wanted Pillsbury to focus on food products, and he quickly stripped the company of businesses unrelated to that industry. Under Spoor, Pillsbury purchased Totino's Finer Foods, following this venture into frozen foods with the 1979 purchase of Green Giant, a packager of frozen vegetables. Steak & Ale, Pillsbury's first full-service restaurant chain, was acquired in 1976; the purchase of HäagenDazs ice cream came in 1983; and Van de Kamp, the seafood company that produced Chicken of the Sea canned tuna followed in 1984. A few weeks after Spoor retired in 1984, Pillsbury announced the purchase of two more restaurant companies: Diversifoods Inc. and QuikWok Inc.

Pillsbury's business boomed during the 1970s, as Spoor solidified Pillsbury's strategy and made several smart purchases. Green Giant and other frozen-food companies gave Pillsbury a much larger share of the food industry and more consistent earnings. Profits in 1976 were divided almost evenly between three groups: consumer foods, agricultural products, and restaurants. By 1984, the agriproducts group had shrunk to only 4 percent and restaurants provided 53 percent.

The agriproducts group had long been run by Fred C. Pillsbury, Charles S. Pillsbury's brother, who developed cattle feeds from mill byproducts before the turn of the century. The division grew to become responsible for the collection, milling, storage, trading, and distribution of grain and feed ingredients. Pillsbury continued to provide about 10 percent of U.S. flour into the 1980s, and the division became one of the largest U.S. purchasers of grains and dry beans.

Consumer foods, the company's largest division, marketed Pillsbury's supermarket products. In addition to its domestic subsidiaries, Pillsbury sold grocery items through H.J. Green and Hammond's in the United Kingdom, Erasco and Jokisch in West Germany, Gringoir/Brossard and Singapour in France and Belgium, and Milani in Venezuela. Pillsbury also owned similar operations in Mexico, Guatemala, Jamaica, and the Philippines. In the United States, Pillsbury's line of refrigerated dough, for products such as pastries and cookies, was distributed by Kraft Foods for many years. These products accounted for about 10 percent of the company's sales.

Pillsbury owed much of the credit for its extraordinary growth to its restaurants. By expanding Burger King's operations and hiring Donald Smith from McDonald's, it became the second largest fast-food chain operator. The purchase of Diversifoods--at $390 million Pillsbury's biggest acquisition--included nearly 400 additional Burger King outlets as well as Godfather's Pizza, Chart House, and Luther's BarBQ. Pillsbury decided to compete with McDonald's not in size but in per unit sales. As Burger King continued to grow, franchising became more common and only 20 percent of the restaurants remained company owned.

John M. Stafford inherited a healthy company when he was appointed president in 1984. Each year between 1972 and 1986, the company set records for both sales and earnings. Pillsbury had a reputation for quiet, conservative growth, despite nearly doubling its earnings between 1980 and 1985, from $100 million to $190 million. Pillsbury finally surpassed its chief competitor and future suitor, General Mills, during Stafford's first full year. Because Stafford, who came to Pillsbury through Green Giant, expected growth through increased demand for products from the agriproducts and restaurant groups, company structure remained unchanged.

Pillsbury, however, had dramatically changed its position internationally. The company no longer exported flour, since local mills could produce it more efficiently. Instead, the international division began marketing prepared foods and restaurants overseas. By 1984, Pillsbury sold over 200 products in 55 countries and Burger King had restaurants in 22 countries.

Unchecked growth continued in 1985. Cash dividends increased for the 27th consecutive year. Earnings were up 13 percent over the previous year, setting another record, and over 400 percent higher than the 1976 level. Pillsbury focused on consumer foods abroad through acquisitions and subsidiary product development. In 1986, the company's international subsidiaries reported a 6 percent increase in sales, and Pillsbury prepared to market its domestic labels, like HäagenDazs, in Japan and Europe. International sales increased 18 percent the next year.

A Reversal of Fortune in 1989

The mid-1980s, however, saw the company's progress beginning to slow. Sectors of agriproducts reported losses, and the company spent heavily on concept development for its restaurants. The success of its Bennigan's restaurant chain covered its start-up costs, but sales for chains like Steak & Ale failed to increase.

Stafford began to shift priorities, albeit conservatively. Bennigan's and Burger King were squeezed to make up for decreasing returns on the smaller restaurant chains. Consumer foods showed a profit gain of 22 percent between 1985 and 1987, and Stafford planned to continue development of Pillsbury's frozen foods and its microwave line, first introduced in 1979.

The corporation continued to have problems second guessing the fast-paced restaurant industry. Total sales increased 5 percent, but earnings declined for the first time in 16 years, down 13 percent. Consumer foods and agriproducts remained strong, but the decline in profits prompted further evaluation.

Although acquisitions overseas and in Canada continued, the company announced early in 1988, after a nine-month review, that it would reduce its restaurant division. While it kept Burger King, Bennigan's, Godfather's, and Steak & Ale, the corporation sought to rid itself of company-run units by selling them to franchisers. It also planned to refurbish 145 Burger King units. These modest reductions disappointed some analysts and takeover rumors began to circulate.

Such rumors gained momentum when the board asked William Spoor to return as CEO. Then, the chairman of Steak & Ale and the president of the U.S. foods division left the company, creating the perception of a lack of leadership. In 1988, earnings plummeted to $6.9 million, less than half the level of the year before. Management attributed much of this decline to restaurant-related restructuring changes.

Philip L. Smith, formerly of the General Foods Corporation, became CEO in August 1988. He held the post for five months as he tried to fight off a takeover attempt that had begun in October, when the British distiller Grand Metropolitan plc first made a $60-per-share bid for Pillsbury. For nearly three months after GrandMet's initial offer, Pillsbury fought the takeover. The company tried to arrange a poison pill defense and to spin off Burger King, but it was prevented from doing so by court order.

In 1989, Pillsbury became a part of Grand Metropolitan after shareholders accepted a $66 per share offer. GrandMet was one of the world's leading consumer goods companies, specializing in branded food and drink businesses. The deal, worth $5.75 billion, made GrandMet the eighth largest food manufacturing company in the world. GrandMet's branded consumer foods businesses were organized into two main groups: Pillsbury and GrandMet Foods-Europe. Pillsbury's consumer foods business was organized along major brand groups, including Pillsbury, Green Giant, and HäagenDazs. Burger King became a separate entity within the food sector.

Operations Improve in the Early to Mid-1990s

Pillsbury's operations and sales improved following the acquisition. GrandMet's restructuring reduced expenses by about $150 million and eliminated about 3,550 jobs by the middle of 1990. In May of that year, GrandMet released an impressive financial report for the first six months of the fiscal year. Pre-tax profits were up 36 percent and earnings per share increased 25 percent. Furthermore, the company predicted it would turn a profit on the Pillsbury acquisition in its first full fiscal year and would have no problem meeting the corporate goal of 15 percent annual earnings growth.

Pillsbury, under the management of CEO Paul Walsh, planned to move away from commodity products such as flour and focus on products with established brand names, while expanding into the international market. Toward that end, the company made several significant acquisitions during the 1990s. The company's February 1992 acquisition of McGlynn Bakeries' frozen products division enhanced Pillsbury's bakery division through its marketing of frozen dough products to food service and convenience outlets, as well as bakery mixes to in-store bakeries. The McGlynn products were given the more recognizable Pillsbury brand name.

In November 1993, Pillsbury purchased Roush Products Company, a manufacturer of variety and specialty bread mixes for food service and wholesale bakers. The acquisition also included Country Hearth, a market-leading brand of bread. In 1994, Pillsbury purchased Rudi Foods Inc., a leading producer of partially baked breads for food service and supermarket bakeries. The operations were combined with Pillsbury Bakeries and Foodservice Inc., an entity with annual sales of about $500 million. That same year, Pillsbury acquired Martha White brand baking mixes and flours. Perhaps one of the most notable acquisitions was Pillsbury's February 1995 acquisition of food conglomerate Pet Inc. for $2.6 billion. The purchase gave Pillsbury such popular brand names as Old El Paso, Progresso, Pet-Ritz, and Downyflake. Moreover, the Pet line enabled Pillsbury to create a more diverse product line, so that the Pillsbury name spanned across supermarket shelves.

In 1994, Pillsbury introduced over 80 new products, including Totino's Select Pizza, Pillsbury Cream Cheese Toaster Strudel, HäagenDazs Sorbet, and Hungry Jack Microwave Syrups. Internationally, Pillsbury products were sold in more than 55 countries. In Japan, Green Giant achieved a market-leading position in the frozen vegetable market, and HäagenDazs became the leading brand of premium ice cream. The company planned on expanding its Pillsbury, Green Giant, and HäagenDazs brands into Russia, India, Asia, and Latin America.

By now, Pillsbury had created and marketed some of the best-known brands and products for over 125 years, making the Pillsbury Doughboy--created in 1965 by the Leo Burnett advertising agency--and Jolly Green Giant familiar figures to American consumers. Under GrandMet, Pillsbury remained a prominent leader in the food industry and was positioned as a powerful competitor in world markets.

A Change in Ownership for the New Century

By the late 1990s, GrandMet's focus had changed. In 1997, it merged with Guinness plc to form Diageo plc. The new company's main area of operations became its profitable spirits business, which included Smirnoff vodka, Johnnie Walker scotch whiskey, and Gordon's gin. With an eye on purchasing additional brands in this category, it soon became apparent that Pillsbury's operations, along with the rest of Diageo's food-related business, were taking a back seat. Nearly 34 percent of Diageo's investment capital had been earmarked for Pillsbury and its brands. Pillsbury, however, was generating just 9 percent growth in return on investment. Indeed, its U.S. sales were falling, which prompted Diageo management to put Pillsbury up for sale.

In July 2000, Diageo announced that General Mills Inc. had made a play for Pillsbury. For Diageo, the sale would mark its exit from the food business, leaving it well positioned to pursue additional beer and liquor brand purchases. General Mills stood to gain handsomely from the sale as well. By adding Pillsbury to its arsenal, the company would nearly double in size, become the third-largest food concern in North America, and stand as the fifth-largest food company in the world. General Mills also felt pressure to make a bold move as a result of recent consolidation in the food industry. Other mergers in the works at this time included ties between Unilever and Bestfoods and between Philip Morris and Nabisco Group Holdings. General Mills eyed its purchase of Pillsbury as necessary to keep pace with changing industry conditions.

The deal, worth $10.5 billion in stock and cash, underwent a long period of intense scrutiny by the Federal Trade Commission (FTC). Both General Mills and Pillsbury were forced to sell off certain brands in order to gain FTC approval. In a complex deal, Multifoods Corp. agreed to buy the Pillsbury and Martha White dessert operations, the Hungry Jack brand, various Pillsbury bake-mix products, and General Mills' Robin Hood flour brand. The FTC finally gave its authorization, and in October 2001 Pillsbury became part of General Mills' portfolio.

Pillsbury's integration, however, did not go as smoothly as planned. By spring 2002, General Mills was under fire from analysts when profits began to soften. "Clearly, over the past six months we have been getting our first real operating experience with businesses that we haven't lived with before, so our predicting capabilities haven't been as good," remarked General Mills CEO Steve Sanger in an April 2002 Minneapolis Star Tribune article. Meanwhile, the company faced slowing sales, intense competition, and a growing debt load. To make matters worse, General Mills was forced to pay out $273 million in April 2003 to Diageo plc. According to a February 2004 Star Tribune article, Diageo was given 141 million shares of the company's stock and a promise of a payment if General Mills stock did not reach $49 per share by April 30, 2003. Unfortunately, General Mills stock was only in the mid-$40s at that time, which forced the cash payout.

Despite these problems, Sanger and his management team continued to be optimistic about the purchase, claiming it would indeed pay off in the long term. In fact, by 2003 the company reported a sales increase of 32 percent over the previous year, while net earnings doubled. Pillsbury continued to hold its leading position in the refrigerated dough segment, with sales in that category reached $1.6 billion in 2003. By that time, General Mills had experienced $350 million in cost savings as a result of the Pillsbury acquisition. While only time would tell how much success Pillsbury would experience under its new ownership, its products would no doubt line grocery store shelves for years to come.

Principal Competitors: Nestlé S.A.; Sara Lee Bakery Group; Interstate Bakeries Corp.

Chronology

• Key Dates:
• 1869: Charles A. Pillsbury establishes the Pillsbury Flour Mills Company.
• 1872: Pillsbury's Best XXXX becomes a registered trademark.
• 1889: The company is purchased by an English financial syndicate, merges with a competitor, and is renamed the Pillsbury-Washburn Flour Mills Co. Ltd.
• 1923: Pillsbury severs all ties with its English parent.
• 1951: Ballard & Ballard Company is acquired.
• 1965: Poppin' Fresh, the Pillsbury Doughboy, makes his first appearance.
• 1967: Pillsbury purchases fast-food chain Burger King.
• 1979: Frozen vegetable brand Green Giant is added to the company's arsenal.
• 1989: Pillsbury is acquired by Grand Metropolitan plc.
• 2001: General Mills Inc. acquires Pillsbury.