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Minnesota's food industry managed for decades to keep supplies of perishable animals, vegetables and grains moving smoothly from farm to box while keeping up with changing customer tastes.

The multi-billion-dollar business is trying to cope now with major shifts in consumer attitudes, along with avian flu and drought in California — all at the same time. The trends are so brutal Fortune magazine recently called it the 

 as it detailed how major packaged-food companies lost $4 billion in market share just last year.

Minnesota has a huge stake in Big Food. Packaged food makers including General Mills and Hormel, ingredient suppliers like Michael Foods and Cargill, and retailers and wholesalers such as Supervalu, Schwan's and Target generate more than $300 billion in annual revenue.
 

General Mills is confronting challenges on several fronts — and rushing to catch up with their customers. General Mills CEO Ken Powell told an investor conference last month that consumers aren't buying what they used to.


"Consumer food values are changing rapidly. Today's consumers want more natural foods with simple ingredients, fresh foods. They're avoiding things like gluten, simple carbohydrates and artificial ingredients. They're looking for more protein, more fiber, more whole grain, more organic products," said Powell.
 

General Mills executives are promising more innovation from a faster, more agile company as they ready the next corporate earnings report on Wednesday.


But consumers are effectively forcing the issue. Last week, General Mills announced it is eliminating artificial colors and flavors from its breakfast cereals including Lucky Charms and Trix.

The company acted on a survey finding that nearly half of all consumers consciously avoid artificial ingredients, said Lauren Pradhan, a General Mills marketing manager. "The announcement that we've made is one step in a larger conversation that we've been having with consumers," she added.

Part of that conversation is consumers saying they're less interested in breakfast cereals. Sales have declined in recent years.

General Mills could be faster in developing products that address changing tastes, said Morningstar food industry analyst Erin Lash. "Some of their product innovation cycles are too clunky and can't keep up with consumer trends," he noted.

General Mills and Hormel have also bought their way into those trends. They've each spent in the neighborhood of $800 million to buy food companies consumers perceive as more natural and are turning to in droves. General Mills bought Annie's and Hormel bought Applegate Farms. Target is moving in a similar direction in the food products it carries.

If the consumer is forcing major strategic shifts, nature is causing or threatening major supply problems.

The west coast drought has reduced supply and boosted prices for vegetables grown in in California. General Mills offers three vegetable brands, Muir Glen, Cascadian Farm and Green Giant. The company is working to influence California water policy on behalf of suppliers, said Ellen Silva of General Mills' sustainability group.

"We recognize that in order for our business to thrive, California farmers and ecosystems also have to thrive," said Silva. 

Golden Valley-based General Mills has partnered with other major corporations to form a coalition called "Connect the Drops" that wants to see more widespread water recycling in California.

But eggs and poultry are the biggest supply problems thanks to an unprecedented devastation off chicken and turkey operations from a poorly understood avian flu virus.

General Mills says the eggs it uses in a variety of products have in some cases more than tripled in price.  The company is looking for ways to reduce egg use in some recipes, without affecting quality. 

Large egg producers like Michael Foods and Rembrandt Enterprises lost millions of chickens. Austin, Minn.-based Hormel and its Jennie-O Turkey Store have also taken a heavy blow.  The company says the disease will reduce turkey sales at least 15 percent through the end of the year. 

Jennie-O president Glenn Leitch told an investor conference earlier this month, the disease hit the company's turkey production units just when the birds were almost ready for market and most costly to lose.

"One thing we have noticed is that the virus, at least in its early stages, when it first hit, was almost universally in older flocks," said Leitch. "These are not baby poults, these are birds that are sometimes three, four, five weeks from market," he said. "That becomes very problematic to your supply chain."

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