COMMENT: Premier reorganisation could bring home bread
Premier Foods announced yesterday (4 October) that it will divide its grocery and bread businesses as it looks to drive growth of its "power brands". While the company will retain the benefits of any crossover between bread and grocery, a greater focus in each division could help Premier maintain its momentum, Katy Askew suggests.
Premier Foods has done much to turn its fortunes around over the last 15 months. Since the appointment of Mike Clarke as CEO, the food group has gone from being a debt-laden giant that many expected to topple to a leaner, slimmed-down version of its former self.
Premier has worked to mend fences and strengthen its strained relationships with retailers. It has drastically increased the marketing spend behind its eight power brands. It has ramped up its innovation pipeline and worked to re-engage consumers, convincing them of the relevance of its stable of iconic names, such as Mr Kipling, Hovis and Bisto.
Even as Premier increases its levels of brand support, the company is also working to lower its cost base by increasing efficiency. As it looks to reduce complexity in its business, Premier has said it will streamline its supply chain. The company has said it expects this to generate targeted cost savings of GBP40m by the end of 2013.
The company is also simplifying its operations by selling off non-core businesses. Over the past year, Premier has gone on a veritable selling spree, auctioning off various assets including its pickles and vinegars business and, most recently, its spreads unit.
The proceeds have been used to strengthen Premier's balance sheet and address the issues presented by shockingly high debt levels, racked up at a time when borrowing was in fashion and the world thought the debt-fuelled boom would continue indefinitely.
And, while there is still a long way to go as Premier looks to meet its disposal target of GBP330m by end-June 2013 (set down in its refinancing agreement), the company seems to be on the right track.
Yesterday's announcement that Premier will reorganise its business into two distinct units, grocery and bakery, is another step towards becoming a tighter ship.
The company said the move recognised the "different opportunities and challenges" that face the grocery and bread businesses.
"The focus for grocery will be on continuing to build momentum behind the company's branded portfolio, which represents 86% of total grocery sales," Premier said.
It is likely, then, that we will see more of the same from the grocery business. Premier will continue to invest in marketing initiatives, innovation and product development for its major brands - ranging from Sharwoods and Loyd Grossman sauces to Batchelors and Ambrosia (a frequently touted potential disposal).
Meanwhile, Premier said it was planning a strategic change of tact in its bread business.
"In bread, a more fundamental approach will be taken to help unlock future value and address the category challenges faced by this division," the company revealed.
According to Investec Securities analyst Martin Deboo, Premier's adoption of more "radical thinking" in bread can be viewed as a positive.
"Premier appear to be acknowledging that bread is a fundamentally challenged business that needs dedicated focus and a willingness to think the unthinkable," Deboo said. "We welcome this, but don't expect there to be easy answers."
It is understood that Bob Spooner, who currently serves as the group's supply chain director, will assume divisional leadership of the unit. While Spooner is a seasoned hand, he will nevertheless have his work cut out for him as he looks to improve the performance of Premier's baking operations.
Premier Foods today (17 January) said its trading was "in line" with market expectations. This albeit subdued update will likely comfort investors, given the growing pressure UK branded food manufactu...
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