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  1. Analysis
July 27, 2010

Analysis: Will Picard’s unique proposition translate abroad?

France's largest frozen food retailer Picard is being sold to Lion Capital in a deal that is rumoured to be worth EUR1.5bn (US$1.94bn), including debt, a move that analysts have described as a positive one for the private-equity house.

France’s largest frozen food retailer Picard is being sold to Lion Capital in a deal that is rumoured to be worth EUR1.5bn (US$1.94bn), including debt, a move that analysts have described as a positive one for the private-equity house.

A consultation period with employee representatives is expected to begin before the end of the week, with the completion of the transaction set for the fourth quarter of the year, pending the approval of European competition authorities.

Verdict Research analyst Dan Lucht said private-equity firms acquire companies with an exit strategy in mind, and Lion will spend the next couple of years building value into the company so it can make a profit when it sells. “However, we can only speculate over what their end game is at the moment,” he said.

As Lion Captial is the third private-equity firm to take on Picard over the past decade, it can only be assumed that the retailer is already running a lean operation, with costs stripped out of the business through its previous owners. Its lean operations, successful business model and a new private equity owner seeking to add value to the operation, now makes it ripe for expansion.

Euromonitor analyst Diane Bolelli said Picard has gone from strength to strength throughout the recession, capitalising on trends towards people eating at home and throwing dinner parties instead of eating out. Frozen food’s long shelf-life has only helped the company’s prospects – allowing it to offer a broad range of more sophisticated products, with lower levels of spoilage.

Picard provides a unique premium frozen food offer, which includes high-end meals and ingredients, rather than just focusing on low prices like UK-based frozen chains like Iceland Foods or Heron. Picard’s high-end range includes sashimi, foie gras and rooster with truffle shavings, alongside standard frozen fare like pizza and fries.

Lucht added that an acquisition by Lion is a good move, as it will give the retailer opportunities to expand in France through more convenience stores. Convenience is a big story at the moment and there is lots of opportunity in the area following President Nicolas Sarkozy’s liberalisation of the small store sector a couple of years ago, which was designed to let the German discounters, like Aldi and Lidl in, he said.

However Bolelli is less sure of the company’s potential for expansion in france. She said the French market is quite mature, and expressed doubts over the company’s ability to expand further. “France is a mature market, but the company still wants to expand, so we’ll see how they go,” she said. Picard spokesperson Sophie Bodin today (27 July) confirmed that the retailer plans to open 35-40 outlets a year in France over the next few years.

With France offering mixed potential, the retailer is now expected to consider new markets to enter, although Lucht said he has concerns about how “translatable the model is”.

So far, Picard’s international expansion has not been a resounding success. Three outlets in Italy recently closed, but Bodin said it is now going to focus on Turin, Milan and Rome. “Rome is one of the European cities where frozen food is the most consumed,” she said.

Bolelli said it would be “difficult to imagine Picard in the UK” as it has a very specific offer. “The frozen food range at places like Tesco is quite small, so I’m not sure that British people are so keen on frozen food.” The company would also face an uphill battle convincing the market to pay for its premium frozen offer, a channel that until now has sat firmly in the discount and value areas of the market. Also, she added that the nature of French cuisine is very different to that expected by the UK market, which would make it difficult Picard to charge a premium for its products.

However Bolelli did see potential for the company to expand in Germany as there are other retailers that offer similar frozen food and home shopping models. Yet it seems unlikely this would happen as it would be tricky for the premium retailer to compete in a market that is dominated by heavy price competition from discounters like Aldi and Lidl and consumers that are heavily driven by price.

Belgium, where it already offers a home delivery service, is one market that it could successfully expand further into. CEO Philippe Pauze confirmed this in a recent Reuters interview saying that the company planned to open stores in the country.

IGD analyst Cecile Riverain suggested Picard might also find success through “channel development” either online or through partnerships. “[They] might also provide new avenues for this specialist retailer,” she said.

Bodin added that Picard is looking at countries that are big consumers of frozen food and which “would be seduced by French gastronomy that makes Picard’s success” as well as considering countries in northern Europe.

The sale combined with its popular store concept means that expansion for the chain is almost certain. The questions that remain are: into which countries will Lion and Picard expand and will this unique store proposition translate?

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