General Mills faces extreme challenges in the external environment. Being a food company, and a very large one at that, they are regulated by several organizations and government agencies such as the FDA. They also claim most of their products to be very nutritious; therefore they must back their statements up. General Mills is a very important piece of the overall economy, being so large, so we are all external stakeholders. This is why they try to be socially responsible achieving #2 and #3 in 2009 and 2010 in Corporate Responsibility Magazine. The Company also must always be prepared for situations like the Palm Oil controversy with Cargill.
General Mills is #1, but they do face fierce competition from Kraft and Kelloggs. Their tier two competition consists of The JM Smucker Co., Ralcorp Holdings, and Conagra Foods. The risk of entry from potential competitors is low, because the market is already saturated. They also have an absolute cost advantage over potential entrants but not over tier 1 and 2 competition. Many General Mills customers are loyal considering they have names on the shelves like Cheerios. I am a loyal Cheerio and Honey Nut Cheerio guy myself.
General Mills does face the threat of substitute products, but they will never be the same as long as they have Cargill locked in as a supplier. Honey Nut O’s don’t get their Palm Oil from Cargill, so they are just not the same. The main threat is that the substitutes are much cheaper and you get a larger amount. The price of a family size box of Honey Nut Cheerios is $5.95. The substitute offers a bag that is 6 ounces larger and nearly $2.00 cheaper. That definitely poses a threat in this economy, and that is just for one cereal out of the thousands of food products General Mills offers.
The economy affects General Mills in more ways than one as well. If the price of their raw materials goes up they must pass at least some of that onto the customer in a trickling effect. This drives their stock...
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