“Why my neighbour, Premier Foods, has had to go back to basics.”
I live across the road from the headquarters of Premier Foods, owners of Hovis, Mr Kipling, Ambrosia, Sharwood’s, Lloyd Grossman, Oxo, Bisto and Batchelors. Which just happen to be most of the things I eat, but I guess I am not alone. From the outside you wouldn’t know that this is a business struggling to recover from many years of ill-considered acquisitions that have reduced its equity value from over £2bn in 2007 to less than £400m today. I take my hat off to them, with such strong brands that must have been quite difficult to do.
Premier Foods has grown by acquisition ever since it was founded in 1975 as Hillsdown Holdings by Harry Solomon and David Thompson. With that sort of business model you’d have thought that a core competence would be being pretty slick at buying businesses but, alas, in later years this doesn’t seem to have been the case at all. Clive Black an analyst at Shore Capital described the 2006 acquisition of Campbell’s UK and Irish businesses and of Rank Hovis McDougal, in 2007, as “the worst sort of deal”.
No wonder then that eventually the board got the message and in August last year Michael Clarke, who used to work at Kraft, was parachuted in to refocus the business. Mr Clarke has now got it focused on just eight core brands. He has also refinanced the debt and sorted out relationships with a key customer, thought to be Tesco, that went wrong last year.
I particularly like the positioning theme that he is developing around the idea of a portfolio of UK products, even renaming Mr Kipling’s French Fancies as Great British Fancies to celebrate the Queen’s diamond jubilee. The Sharwood’s brand is also running a Great British Curry marketing campaign too. Mr Clarke has noticed that, unlike its biggest competitors, its brands are more dependent on UK workers to make them with 82% of ingredients coming from the UK. He thinks it’s an angle worthy of exploiting in these difficult times. It all goes to show that he is concentrating on the basics, the brands, once again.
I think the signs are encouraging and that Mr Clarke is doing the right things. Kraft know a thing or two about brand management after all, which you would have thought was enough of a challenge in the retail food industry, dominated by so few big and powerful retailers quite capable of selling own brand products to under cut any brand. You need skill and money to maintain brand share as the world changes so that you can protect your market share, margins and share of supermarket shelves. Wasting cash on ill-judged and poorly executed acquisitions seems a silly mistake to have made.
Premier Foods is not the only business to get overly ambitious. Though hardly comparable with the RBS fiasco, there is a common theme. It is surprisingly easy for folk at the top of a business to let their egos get the better of them and think that because they have had success in one area that they can turn their hands to anything. In fact, it is a very common entrepreneurial mistake too. On any scale you should be very careful about making big decisions if you are not very familiar with that sort of decision. Success managing a handful of brands doesn’t necessarily equip you at all to buy another one, or two. I know that might seem obvious, but sadly the blindingly obvious can be obscured by the smoke and mirrors of corporate power.
Take a lesson from Premier Foods. If you have a big decision to make and you haven’t done it, much, before you will always have more success if you get help from someone who has, even though you might think otherwise.