News Analysis: Has Premier taken a step too far?

Premier Foods and RHM's merged portfolio could prove too unwieldy to manage effectively, writes Joanna Bowery.

OXO, Bisto, Gale's and Golden Shred. Much-loved British brands all, and soon set to be part of the same company - not to mention Ambrosia, Branston Pickle, Hovis, Mr Kipling and a whole host of other family favourites.

Premier Foods' £1.2bn planned acquisition of RHM will make the former the biggest food producer in the UK, with sales of £2.6bn. The company's ascent from being a niche player in the canned-food sector has been nothing short of stratospheric.

In just two years since floating on the Stock Exchange, Premier has been on an acquisition spree. In 2005 it bought the Bird's desserts business, Quorn and Cauldron, and this year it snapped up the UK and Ireland operations of the Campbell Soup Company, including the Batchelor's and Fray Bentos brands.

Prior to its flotation, Premier had been owned since 1999 by private equity firm Hicks, Muse, Tate & Furst (now HM Capital Partners) and had expanded with the addition of the Branston, Crosse & Blackwell, Sarson's and Sun-Pat brands from Nestle in 2002 and Ambrosia from Unilever Bestfoods in 2003.

On the face of it, Premier appears to be a case study in how to build a successful business by adopting orphan brands.

'Premier is very good at the nuts and bolts of marketing and brand-building,' says David Goudge, managing director of The Brand Development Business, and a food-marketing specialist.

One of the company's success stories has been the extension of Branston from the pickle category into baked beans and sauces. The firm claims that it was able to develop the concept, recipe and consumer rationale and present the products to retailers in just 11 weeks.

This haste was born somewhat of necessity. The firm already produced a beans brand via a licensing deal with HP, but this tie became vulnerable in the wake of Heinz's acquisition of HP, leaving Premier little choice but to act quickly to maintain its market presence.

Premier has also revitalised tinned rice-pudding brand Ambrosia, expanding it into snack puddings. The launch of a brandy-flavoured custard and a yoghurt-pot style four-pack of custard and rice-puddings, backed by the brand's first TV ads for six years, led to a 12% rise in Ambrosia's sales last year and a growth in brand share to 8%.

Similarly, following its acquisition of Quorn and a pledge to broaden the brand's range of healthy-eating options, early indications suggest that sales are up by about 6%.

Yet, given the scale of its most recent acquisitions, not everyone is convinced Premier will be able to maintain the momentum. 'Its view is to take a brand and stick the label on products in different categories,' says one competitor. 'You have to be very careful with that strategy. Although there may be a short-term gain, there is a risk that it could weaken the brand's core proposition,' he says.

Another industry insider agrees that Premier still has a lot to prove. 'It only has a short track record and suddenly it has another pile of brands to deal with,' he says.

It is the size of the RHM deal that has some analysts worried. Companies with broad brand portfolios have to make decisions about how they allocate marketing spend and, as a result, non-core brands often suffer.

Questions are already being asked about Premier's approach to its Gale's and Hartley's brands. 'It looked as if it was on track to revitalise them, but with more acquisitions, this looks more doubtful,' says one industry observer.

Goudge believes the company's priority should be to find good marketers who understand a hard-nosed attitude to business. 'So far, long-term marketing investment hasn't been on the agenda,' he adds. 'Premier's biggest challenge is to remain focused. Undoubtedly, there will be winners and losers.'

Premier is not afraid of cutting loose brands. In 2005, it sold off its tea division, including Typhoo. At the time, chief executive Robert Schofield described the purge as part of a strategy of 'actively managing our portfolio of businesses to focus on leading UK brands with leading market positions and growth potential'. Analysts suggest that more brands may soon follow.

Looking at the potential of the RHM portfolio, Premier has already pointed to opportunities to move the Hovis brand into cereals and biscuits.

But the company must not become complacent simply because it has successfully handled bolt-on acquisitions in the past, nor must it underestimate the attention required to integrate a company twice its size.

It need only look as far as the example of supermarket Morrisons' takeover of Safeway as an example of a process that turned out to be far less straightforward than had been expected.

DATA FILE - PREMIER FOODS/RHM GROCERY BRANDS PORTFOLIO

Sector Brands Sector Mkt
value pos.
(pounds m)
Bread Hovis, Mother's Pride, Nimble, Ormo 1106 1
Convenience Batchelor's, Branston, Fray Bentos, 919 2
foods Smash, Crosse & Blackwell, Waistline
Cakes Mr Kipling, Cadbury, Lyons 916 1
Pickles & Branston, Sarson's, Haywards, Dufrais 517 2
table sauces
Cooking sauces Loyd Grossman, Sharwood's, Homepride 448 2
Ambient Ambrosia, Bird's, Hartley's 324 1
desserts
Spreads Robertson's, Hartley's, Frank Cooper's, 243 1
Rose's, Gale's, Sun-Pat, Golden Shred
Meat-free Quorn, Cauldron 182 1
Gravies Bisto 107 1
Stocks OXO 68 1

Source: Premier Foods, RHM

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