Bereft of stars, Premier Foods' plan will flop
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Bad news for Paul Daniels. Britain’s favourite magician sliced off his ring finger last weekend with a circular saw in his back shed. Daniels had been putting the finishing touches to his props for his upcoming national tour. The better news is that his 26-date national tour, starting in Southsea on the 22nd February - tickets still available - has received a massive boost of publicity.
Clearly I am not insinuating that the diminutive entertainer deliberately lopped off an appendage in order to promote his magic show. But the precedent of cutting back on your core offering in order to be more commercially successful is a proven business strategy - especially in FMCG.
When I was a young marketing undergraduate in the 1980s, it would have been impossible to recite even a fraction of the brands that constituted the big FMCG giants like Procter & Gamble, Heinz and Unilever. There were literally thousands of brands within each company. As global marketing became more joined up and as private labels began to threaten smaller, weaker brands, the big boys all began to trim their portfolios in a most severe way.
Today, P&G is all about its 24 “billion-dollar brands” and focuses most of its operations on them. It’s a similar story at Unilever where the famed Path to Growth strategy saw the company kill the majority of its 1,600 brands while retaining 80% of its operating profit. Today Unilever makes 75% of its sales from its top 25 brands. The story is very similar for the likes of Heinz and Reckitt Benckiser, where 15 and 19 ‘powerbrands’ respectively provide the companies with 70% of their income.
So one can only applaud the efforts of Michael Clarke, the new chief executive of Premier Foods, who arrived from Kraft last year. Clarke has finally followed suit and identified his eight powerbrands on which Premier will now focus. The logic behind his decision is very strong. Premier is in deep financial trouble. Imagine having £850,000 left to pay on your mortgage and an annual take-home pay of only £175,000. And your bank is getting twitchy. That’s exactly the situation Premier is in - except we can add three zeros to both the income and debt figures.
With the exception of Hovis and Loyd Grossman, Premier Foods’ ‘powerbrands’ are faded icons. It has the right strategy but not the brands
Clarke has correctly diagnosed that while employees and other operating costs have to be shed for the sake of survival, his ad budget has to increase. The new powerbrand strategy allows him to do just that and 2012 will see Premier double its marketing communications budget to £52m in a concerted attempt to build brand equity, defend share and hopefully drive sales. Meanwhile, many of the non-focus brands that did not make into the powerbrand list will be sold.
There is only one snag. And it becomes abundantly clear the minute you examine the ‘powerbrands’ in Premier Foods’ portfolio. The future of the group now depends on Hovis, Oxo, Ambrosia, Mr Kipling, Sharwood’s, Loyd Grossman, Bisto and Batchelors.
Gulp.
With the exception of Hovis and Loyd Grossman, those aren’t powerbrands. They are dusty, faded icons that are all on their last legs. Clarke has the right strategy; he just doesn’t have the brands to make it work. It’s a bit like me announcing that I am giving up being a marketing professor to become a movie star in Hollywood because I will earn more money. My contention - that being the next George Clooney will be better than being the current Mark Ritson - is entirely correct. But clearly I lack the looks, talent, body or demeanour to achieve my objective.
The proof of Premier’s failings is in the pudding. Or in this case, the cake. Because, with the exception of Hovis, the kind of strategies Premier is contemplating to activate its power-brand strategy don’t make any sense. Listen to Clarke describing one of his new powerbrand strategies: “Mr Kipling has for too long allowed confectionery to steal share of space on shop shelf and share of consumers’ purse. There is no reason why it can’t take on Mars Bar or Cadbury Flake. It has way less fat and sugar and it’s a fresh product with a considerably shorter shelf life than chocolate bars.”
See what I mean? For Premier to succeed it has to engage with a generation who either don’t know what Battenburgs are or who associate them with their long dead Granny and interminable Sunday afternoons. And it will need to empower them to start buying these cakes from the newsagents over established incumbent confectionery brands with 10 times the budget and 50 times the brand equity. It’s bonkers.
And if you think Premier will struggle with the first part of its strategy, imagine how hard the second part will prove when it tries to sell off the other brands left in its portfolio. If Ambrosia and Bisto are your idea of powerbrands, what does that say about the others in your portfolio? Anyone interested in paying top dollar for Bird’s custard? Angel Delight? Sarson’s vinegar?
It looks like the end of the road for Premier Foods. Not because the strategy is flawed, but because its foods aren’t premier enough to support it.
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Readers' comments (22)
Richard | Wed, 25 Jan 2012 1:23 pm
Your analogy of the mortgage payments is completely flawed; Premier are currently looking to dispose of Sarson's (and have received interest) for c£40m, with the price tag on Hartley's potentially up to £200m (again, with interest received), neither of which demand a particularly high EBITDA multiple to achieve.
So let's look at your analogy again; if you had an £850k mortgage left to pay, with take-home of £175k, and you told your bank you could pay off around £250k of the capital outstanding within the next few months, leaving £600k outstanding to be covered by your income, do you think your bank manager would do anything other than smile? Ok, so the 8 power brands could do with a bit of a spruce-up, but these are still profitable brands with a good strong management team (finally) behind them.
Perhaps you should re-post your article above in 12 months' time, and we'll see whether you have Angel Delight, sorry egg, on your face.
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Sue Rifkin | Wed, 25 Jan 2012 1:26 pm
Was really enjoying this piece until the bit about 'long dead Granny' and Battenburg cake. Mr Ritson - please stop this ageist approach, it is discriminatory. Of course some brands are predominantly for the young, but cake and biscuits, like fashion, are enjoyed by people of all ages.
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Mark Ritson | Wed, 25 Jan 2012 2:42 pm
Both great comments. But both entirely incorrect.
Richard - the bank would still be unhappy with 600k mortgage if your take home was only 175 based on the 2.5 multiplier that most banks apply to their approval process. And that assumes there really are buyers out there ready to pay tens of millions for the unwanted brands. Most bank managers I know ignore this kind of talk until the money's in da bank.
Sue - its only ageist if it's a stereotype. Scanner data will show that the average age of current battenburg buyers is high.
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Anonymous | Wed, 25 Jan 2012 3:11 pm
Premier has good brands and if they get the marketing right , by end of year you should see a very different Premier Foods, People don't stop eating, it's what they eat .
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Nigel | Wed, 25 Jan 2012 5:36 pm
You claim that Premier Products apart from Hovis and Loyd Grossman are 'dusty faded icons that are on their last legs' is simply not true. You have not given any analytical reasoning for your view and the facts show how inaccurate this statement is.
Ambrosia turnover is way up from the £60m when it was purchased in November 2003. In 2010 it was £85m (up from £83m in 2009)
Sharwoods turnover up to £65m in 2010 (from £62m in 2009)
Mr Kipling turnover up to £136m in 2010 (from £132m in 2009 and £128m in 2008)
Batchelors turnover £131m in 2010 (was £132m in 2009 and £122m in 2008)
Bisto £95m in 2010 (was £96m in 2009 and was £94m in 2008)
So which of these brands is showing evidence of being on its last legs? None according to these stats. Premier has suffered from lack of advertising but that is about to resume. Yes many grannys and grandads enjoy Mr Kipling, Ambrosia etc but so do their children and their grandchildren. My teenage children love their brands and they'll be Premier's customers of the future.
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Anonymous | Wed, 25 Jan 2012 6:20 pm
There's a difference between take home salary and the trading profit... The 175k would be better equated to disposable income rather than take home salary.
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Anonymous | Wed, 25 Jan 2012 7:36 pm
FACTS IN A NUTSHELL - Premier Foods is the UK's largest Food Manufacturer. It owns several disposable none core brands to draw down its debt to a sustainable level. The Company is also undertaking stringent cost reduction measures. It is trading profitably with very little promotion at present. With some reshaping, rebranding and serious advertising for its major brands (look what they're rolling out for Hovis in the near future) the Company will be in a strong position to move forward. The banks have already provided Premier with breathing space to get their house in order. I attended a Marketing Business School as well and I don't agree with your observations!
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James | Wed, 25 Jan 2012 10:52 pm
There are a lot of positives for Premier Foods that you have not mentioned, I have been watching their products flying off the shelves. Now the problem with Tesco's seems to be resolved and with the increased advertising, Premier is emerging as a much leaner and more efficient company. The power 8 brands are strong and will produce solid sales for years to come, unlike some flash in the pan products.
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Anonymous | Thu, 26 Jan 2012 8:35 am
I think this man has missed the point, Although the thought of Ambrosia or Bisto as "power brands" may surprise many I have one question, who do you think makes all of the own label gravy, custards and rice puddings for the retailers?
A power brand is not necessarily purely a major player in the market but in some cases they are the "only" players in the market.
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Anonymous | Thu, 26 Jan 2012 10:50 am
Look at the debt, Premier Foods have tried cutting costs by cutting product quality, they have tried putting the burden of the company problems onto the general work force by employing agency staff (cheaper salaries) yet they still reward their senior managers with higher wages even when the company is failing. They even tried taking on Tesco's and lost that's why Tesco's removed Premier Foods products from their shelves last year. Buying their products is just supporting the senior managers salaries and lifestyles. Good luck to all who are happy to support this type of company. I think Mark Ritson is spot on.
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