An eclectic bag of brands may prove profitable within the world of e-commerce, but it has proved too dangerous for those companies who seek space on supermarket shelves. As Aurora Foods struggles to move on from the management fraud scandal that accompanied its problematic, if promising, business strategy, analysts are blaming retailers and marketing dynamics. Consolidation of food categories or mixed bag of orphan brands? Clare Harman investigates.
Following a management debacle and a failed business strategy, Aurora Foods has reissued its 2000 earnings US$82m less than previously recorded. Market spectators insist however that it is the retailers who are to blame for the downturn of what was once a promising company.
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Based on a strategy of gathering up the “orphan” brands from the food giants’ eclectic portfolios and squeezing extra growth through increasing attention on them, Aurora was an exciting business for investors when it was launched in 1995 and listed in August 1998. Recent events have taken their toll however, including a series of dramatically falling sales figures over the last few years, the false reporting of US$80m profit for the last financial year and the indictment by a US federal grand jury on founder Ian R Wilson and two colleagues for fraud.
The largest problem facing Aurora was, according to analysts however, that the retailers never really caught on to the idea of giving prime shelf space to neglected food items without the marketing leverage of the multinationals. Instead they focussed on promoting those that already enjoy brand strength from companies that produce brand leaders. Grocery stores are also more interested in drawing consumer attention to growing ranges of own brand products.
What has worked time and again within the Internet would simply not work in the supermarket however. E-commerce sites can cater for the consumers seeking particular smaller brands or homegrown favourites without having to convince retailers to take a risk with precious shelf (or freezer) space. By keeping the 
costs down, a mixed bag of goods can prove profitable for the e-supplier, and there are many examples of such success: from British based http://www.ex-pat.co.uk to US favourite http://www.hometownfavorites.com.
Over the last five years, Aurora has bought up the production and distribution for about a dozen previously neglected brands, including the US$114.1m purchase of Mrs. Butterworth’s syrup from Unilever, and Log Cabin, Duncan Hines desserts. On the frozen food side, Aurora snapped up Mrs Paul’s frozen fish, Van de Kamp’s Seafood, Lender’s Bagels, Chef’s Choice, Mama Celeste’s Deluxe Pizza, and the Aunt Jemima frozen breakfast products. The majority of these saw their supermarket sales fall under Aurora’s management and market watchers questioned if the brands it had chosen actually had any growth potential left.
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By GlobalDataThe marketing challenges were proving too much and Aurora could not fulfil the profit expectations. In response, the company’s executives committed fraud to convince those concerned that all was well. According to the recent indictment, filed in January of this year, from July 1998 to February 2000, Wilson “materially overstated to the SEC and investing public” figures of net income and current assets. The executives involved meanwhile continued to “deceive Aurora’s Auditors in order to avoid detection of their financial manipulation.”
A mislaid memo about manipulating financial figures tipped off an auditor from Pricewaterhouse Coopers however, and on 18 February, an investigation into the allegations culminated in the resignation of the four members of senior management based in San Francisco, including Wilson. This month, Aurora’s earnings were reposted, US$82m less than previously recorded. Jim Smith’s replacement of Wilson at the helm is likely to mean a few changes at Aurora, not least at the strategic level of brand choice. Smith will focus on categories of foods, rather than an unrelated bag of orphan brands, and admits he may consider selling back some of the products to their former multinational parents.
By Clare Harman, just-food.com editorial team
