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How struggling Premier Foods is trying to manage its brand portfolio (and recovery)

Thursday, September 20, 2012
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Ah!  If you’re roughly my age you’ll remember brands like Mr Kipling cakes, Bird’s custard, Ambrosia creamed rice – even Smash (a bizarre powdered potato product that somehow offered futuristic promise).  These products are still around, but their owner, Premier Foods, is struggling for survival and badly needs a plan to manage its portfolio of brands – and even to survive.

According to The Economist , the company’s story is a text book case of debt financed takeovers followed by recession-induced regret. Premier was re-listed on the stock market in 2004 (after a period as a private limited company or Ltd) and then went on a buying spree, taking advantage of cheap credit to acquire branded-food veterans such as Oxo and Bachelors. Bulking up would mean the firm could not be pushed around by the big supermarket chains when bargaining over prices, it was thought. As brands are often cheaper to buy than to build, Premier went shopping.

But then Premier bought RHM, maker of Hovis bread, in 2007. Premier borrowed and paid far too much and then the credit crunch made it too hard to sustain the debt burden. That plus recession and a burst of commodity inflation almost finished the firm off. Premier fell out with some customers, including Tesco, which stopped stocking some of its products for a while. From their peak in 2005, its shares lost 99% of their value.

What happens next?

The firms’ first move was to try to pay back some of the debts through selling bits of the company.  Next came the idea to channel cash into marketing eight “power brands”—products ranked either first or second in their category by sales. Competition for shelf space from the big supermarkets’ increasingly sophisticated own-label goods has led other suppliers, including big ones like Unilever, to get rid of less popular brands and put more marketing punch behind their bestsellers.

Next Premier have to try and increase demand for the brands it will not sell.  Part of the strategy is to tweak old products (using product extension strategies) so they seem up-to-date. Ambrosia is now sold in pots as well as tins; Mr Kipling cakes come in individually wrapped “snap packs” for lunch boxes. Some brands are being transplanted into adjacent markets: the new Hovis Breakfast Bake is a whole-grain biscuit that Premier hopes will take some of the growing market for on-the-go breakfasts.

The stock market is watching closely.  Analysts think that shares could soar if the recovery plan works well or fall to nothing if it fails. One optimistic assumption suggests the shares might be worth £1.68. Currently they are worth just 17p.

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