ustxtxb_obs_1978_11_17_50_00004-00000_000.pdf

Keith Dannemiller Some brands have been with us for such a long time that they have become a part of our culture and seem to have “Texas” indelibly stamped on them. But nothing is are no longer the makings of local or regional entrepreneurs. Instead, their successful enterprises have been bought up to become just another profit center in some conglomerate’s ample cupboard. Here are some examples: Brand Owner Brand Owner Ashley’s Mexican foods Holly Sugar Corp. Morton’s potato chips Acton Corp. Austex chili Colgate Palmolive Mrs. Tucker’s shortening Anderson Clayton, Inc. Blue Ribbon sausage Cullum Companies Old El Paso Mexican foods IC Industries Fritos PepsiCo, Inc. River Rice Colgate Palmolive Gebhardt Mexican foods Beatrice Foods Co. Texsun fruit juices Royal Crown. Cola Gooch sausage Cullum Companies Tom’s peanuts and snacks General Mills Light Crust flour and Uncle Ben’s rice Mars, Inc. biscuit mixes Cargill, Inc. Wolf Brand chili Quaker Oats RIVER ICE P2 OW N “Texas brands” by innovation, superior efficiency, or any of the other grubby aspects of true free enterprise; rather, they have bought their positions, swallowing up regional brands that have already been established by independent entrepreneurs. Beatrice Foods, which has made nearly 400 such acquisitions in the last 25 years, says that it looks for companies manufacturing products with regional brand identification, strong market share, long-term growth potential, and higherthan-average profit margins. Beatrice managers refer to its 400 or so sub, sidiaries as “profit centers.” Business Week magazine reported last month that a couple of conglomerates “are building small snack-food empires from scratch.” How? “By buying out smaller, regional companies.” One of the empire builders cited by Business Week was Acton Corporation, which started “from scratch” recently by buying Morton Foods, Inc., the long-established Dallas potato chip maker. The merger activity of these giant firms is the biggest news in the food industry, yet there has been practically no press attention to it. Far from abating, the movement is escalating, with national companies now becoming takeover targets. Del Monte, the largest processor of fruits and vegetables, has just 4 NOVEMBER 17, 1978 been bought by R. J. Reynolds. The big canner’s chief rival, Green Giant, is now a subsidiary of Pillsbury. Seven-Up was bought this summer by Philip Morris. Tropicana has merged into Beatrice Foods. Pet, which itself is a billiondollar-a-year conglomerate built by mergers, was picked off this year by IC Industries, the parent firm of the Illinois Central Railroad. It’s hard to keep up, it’s happening so fast. Increasingly, these takeovers are, in the vernacular of Wall Street, “hostile,” meaning that the mergees do not want to be bought. Del Monte, Seven-Up, Tropicana and Pet all fought to remain independent, but finally had to succumb to the enormous sums of money the purchasers were offering stockholders. Sometimes, the unwelcome suitors are successfully fought offGerber’s management put up such a legal battle last year that Houston-based Anderson Clayton finally backed away from its attempt to gain control of the baby-food firm. But such defeats are hardly the norm, and many cash-rich conglomerates are on the prowl, promising a continuation of mergersfor example, R. J. Reynolds’s chief financial officer described his firm as “an enormously powerful financial machine” and announced in September that “We’ll probably have a billion dollars” in cash and borrowing capacity to buy more , companies over the next five years. He said that his company could finance that extraordinary level of acquisitions, plus “meet ongoing demands for cash, pay shareholders an appropriate dividend and still be a positive cash generator.” Shared monopolies All this brand-name concentration means that there is far less competition than meets the eye in the supermarket. It is not that there is one big’ monopoly over food, as there is over automobiles, but that there is a series of shared monopolies in the food industry, with four or fewer firms controlling a majority of sales of a certain product. As Fortune magazine explained the market-share game in its September issue, “. . . foodcompany managers look at the marketplace not as a whole, but by product category. A product category, in the consumer-goods sense, defines a distinct, self-contained market, the battleground upon which all the direct competitors of a product are to be found. What’s important to the marketer is not what people are doing with food, but what they’re doing with frozen lima beans or single-layer cake mixes.”