Is this a good deal for General Mills? Only the company can make it so

General Mills is paying what seems like a lot of money — about 25 times cash earnings — for the Blue Buffalo pet food maker. Whether this turns out to be a fair deal is now completely up to General Mills. And its first goal must be to do no harm.

Plenty of big consumer companies that try to grow in a new category learn the hard way just how fragile the new brand really is.

Fortunately for General Mills shareholders, its recent track record has been a good one. Analyst David Palmer of RBC Capital Markets praised the company in a Friday research note, saying it "has built a reputation as a friendly home to growth brands such as Annie's and Larabar."

General Mills agreed to pay $40 per share for Connecticut-based Blue Buffalo, a fast-growing company that got its start in the early 2000s. If you haven't heard of this company before, it may be because you are unwilling to spend $35 for a 15-pound bag of Blue dog food. Plenty of other people do, and what General Mills called the "wholesome natural pet food" business has been growing quickly.

Blue Buffalo broke the $1 billion sales mark in 2015 and just reported an additional annual sales increase of about 11 percent, to nearly $1.3 billion.

Blue Buffalo products are available in the Twin Cities at Target and Menards, but they are mostly sold today through pet food stores and online.

Big companies have a playbook when they acquire a brand like this. Beginning the day after closing, they try to get the products into a lot of additional retailers. Then the task is to figure out what additional products the brand's traditional consumer will want to buy with a familiar label on them.

Neither one of these approaches seem complicated when listed on a PowerPoint slide, but both can lead to problems. The challenge is sometimes called maintaining brand authenticity, which means that the new owner of the company can't let consumers grow suspicious of a brand they had come to trust.

That's why it can be a challenge to add a new retailer, maybe a big store like Costco. One fan's reaction might be, great, it's now cheaper and comes in bigger bags. Yet having a favorite product pop up at Costco could subtly change the way another loyal customer experiences a brand.

Part of why a busy mom might go out of her way to a pet food store and pay a lot for food is that she's committed to keeping Rover as healthy as her own kids. That's the way brand loyalty often works, driven by an emotional connection rather than what's convenient or cheap.

And if the product is now everywhere, then maybe it wasn't special after all.

For examples of what has gone wrong in the industry, General Mills can look to its traditional rival, the Kellogg Co., and the history of its Kashi brand.

At first Kellogg's 2000 acquisition of Kashi went very well. Kashi was just what was then needed in a Kellogg brand portfolio that included things like Eggo frozen waffles and Frosted Flakes cereal, not exactly exemplars of fresh and natural.

Boosted in part by new products, sales of Kashi products surged. Then the mistakes started.

Just integrating the company further into Kellogg made old Kashi hands nervous. But the bigger problem came as Kellogg marketing executives tried to drag the Kashi brand further into the mainstream, selling more through big box stores and putting the Kashi brand on all sorts of products, including Kashi frozen dinners.

There were probably early Kashi customers who would rather eat Blue dog food than a Kashi frozen dinner. A Kashi consumer uproar about genetically modified ingredients didn't help, either.

General Mills, of course, has experience with brands a little like Kashi, including when it paid about $810 million in 2014 to acquire Annie's, best known for organic pasta.

Annie's and the General Mills team agreed that Annie's would be fully integrated into the Mills manufacturing and other back-office processes, but that Annie's would control the ingredient standards and the brand messaging, as explained by the leader of Annie's to the trade news site FoodNavigator-USA about 2 ½ years after the deal.

Sales by then had already almost doubled, as Annie's got the benefit of the relationships General Mills had with additional retailers. Annie's gained roughly 4 million more households as customers in each of the first two years after the transaction closed.

General Mills CEO Jeff Harmening was asked on a Friday conference call if what the company learned through the Annie's deal might be applied to Blue Buffalo. He was happy to talk about Annie's, as it has worked out well so far, but he pointed to another brand that could also be a model.

"It's actually fairly similar to Häagen-Dazs," Harmening said. "It's a premium position product and a big, profitable, attractive category, with lots of different avenues for innovation. And so, with Häagen-Dazs, it starts with great marketing, but you have mini cups, you have pints, you have it in shots, you have it in freezers, you have stick bars. And so there are number of ways to innovative."

lee.schafer@startribune.com

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