Premier Foods: losing share in bread, cooking sauces and meat-free
The data, which covers the 12 weeks to June 26, reveals that Premier’s sales of wrapped bread were down 11.7% (against a market down 4.8%); its cooking sauces were down 11.7% (the market was down 0.7%); and its meat-free sales were down 1.5% (vs a market dip of 0.1%).
However, it did manage to buck the trend in wrapped cakes, posting a sales dip of 2.8%, whereas the market was down 4.1% over the period.
In a note released ahead of the publication of Premier’s second-quarter trading figures, due out tomorrow, Investec analyst Martin Deboo said: “The usual caveats apply to this data: we only have coverage of about 40% of group sales and Nielsen measures retail sales value, not manufacturer sales. Nonetheless we think it’s a meaningful barometer.
“While market conditions are weak as prices continue to deflate, Premier look to be losing value market share in three of the four categories we track.”
Bread – troubled outlook
More worryingly, things were also getting difficult again in bread, with rising wheat prices and aggressive pricing from rival Allied Bakeries, said Deboo. “Wheat prices are rising once again after a subdued 2009 and early 2010. So, once again, the outlook in bread is looking troubled.”
Premier and Allied had been selling more than half of their bread volumes in the major supermarkets on promotion over the past 12 months, he said. Warburtons, meanwhile, had only sold about a third of its bread on deal, he claimed.
“Looking ahead, we worry about the combination of continuing Warburtons success, sustained aggression from Associated British Foods [Allied Bakeries’ parent company] and what now looks like the resumption of dramatic wheat price inflation.”
Given that European wheat prices were “highly inter-related”, Premier’s move to use just British Wheat would not insulate it from rising wheat prices in other markets, he predicted.
“We would expect the likes of Premier to be paying perhaps £160-£170/t for milling wheat come the autumn. This represents a partial return to the price levels of 2008 that hurt Premier so badly.”
As such, “hopes of a much-needed second-half recovery look to be fading,” he said. “Continued weak performance in the second-quarter gives us little confidence that any recovery is underway. Our confidence in Premier’s trading prospects and leadership is continuing to ebb.”
New chairman should focus on balance sheet restructuring
Meanwhile, the decision to appoint Ronnie Bell as Premier’s new non-executive chairman, did not impress Deboo.
Bell, who has 30 years’ experience with Kraft, culminating in five years as president of Kraft Foods Europe, had excellent “grocery industry credentials”, acknowledged Deboo.
“But what Premier really needs is a chairman with a strong focus on balance sheet restructuring. During Bell’s likely tenure, we would expect Premier to be undertaking a programme of asset disposals, a likely debt refinancing and potential further negotiations with its pension trustees. Nor can a further equity issue be ruled out.
“We would therefore have preferred to see an appointee with more of a ‘corporate finance’ skill set.
"Our view is that faster and more decisive action on disposals needs to be triggered and that a formal performance review of the chief executive and executive team needs to be instituted.”
