Premier Foods’ Power Brand plan questioned
Experts are concerned that the brands, including Hovis, Bisto and Loyd Grossman, may not be as powerful as they once were, which could undermine the firm’s strategy for recovery over the next few years.
Darren Shirley, an analyst at Shore Capital, told FoodManufacture.co.uk: “That is one of our concerns [the strength of the brands]. Quite whether you could call brands such as Bisto and Oxo Power Brands I don’t know. They are very historic and have been successful in their categories in the past, but some of them are very mature, shall we say.”
Shirley also expressed concern over Premier Foods’ marketing spend to promote the brands, which may not have the potency of some of the firms’ rivals.
Success of the plan
“Another concern is Premier is doubling its marketing spend this year,” he said.
“You’re looking at 3% of sales for this year, last year was 1%. But if you compare that with Unilever, which is spending within the teens of sales, then the success of the plan remains to be seen.”
Ultimately it would be the operating performance of the business that would be the key factor in Premier’s recovery, he added.
One analyst, who asked not to be named, said that the strategy was a sensible one, but he agreed that the performance of some of the brands over the past few years was worrying.
He said: “What Premier is doing is focusing on a number of brands and not spreading the business too thinly, so that makes sense.
“But when you look at the categories that some of those brands are in, you will see they haven’t shown growth for a while and aren’t likely too. And that is a concern.”
Premier has highlighted its intentions to reclaim financial stability after a troubled 2011, through a strategy of disposals and a focus on its eight core brands.
Share price
But FoodManufacture.co.uk reported on March 20 that Premier’s share price had plummeted by 90% since the acquisition of Power Brand Hovis in 2007. This followed the firm’s announcement earlier that week that its bread division, which includes the Hovis brand, had reported a loss of £230M last year.
The plan was also hit in November last year when Power Brand Loyd Grossman was at the centre of a botulism scare. The incident saw three children hospitalised in northern Scotland after consuming a jar of the brand’s Korma sauce.
They have subsequently recovered but, at the time, experts described the news as “the worst possible food safety development imaginable” for the business.
Despite this, one unnamed analyst praised md Michael Clarke’s strategy and said that with the re-financing deal secure, Clarke was on the right track to restore the business.
He said: “I think we can see that, in the past, Premier’s core brands have not been managed well. But I think Michael Clarke has the fundamentals and the potential. But they need to start delivering and obviously the operating performance of the business is key.
“As a result of the refinancing deal, they can now shift the focus on to the operating performance and away from the bankruptcy risks.”
Premier was unavailable for comment at the time of publication. But speaking in January after the launch of the firm’s new TV marketing campaign, Clarke said: “The awareness and popularity of our Power Brands remain strong but it’s clear that we haven’t invested enough in marketing compared with our competitors. I’m committed to changing that. The new TV ads are just the start of things to come.”
