Premier comeback?

The great British food brand seemed to have lost its way. Over the past decade, Premier Foods was bombarded with massive debts, pension issues, falling sales and rising material costs, creating the perfect storm that left it reeling.

Even as recently as last summer, there were media reports of a massive strategic review, which the business moved to quell in a rare response to press rumours.

These rumours probably seem like minor inconveniences compared to the past month however, with shareholder Oasis Management accusing chief executive Gavin Darby of "overseeing five years of failure" ​and "destroying shareholder value". ​The Premier Foods board has lent its support to Darby​​ but there has been considerable noise​​ around Oasis' call for Darby to be replaced at the next agm on 18 July 2018.

Before Oasis turned on Darby, Premier Foods had been making statements of a different kind lately. Its full-year revenue was up 3.6%, with half-year revenue up 5.3%, while profit was up 5.1% – a five-year high for the company. Perhaps more importantly, net debt has decreased by £26.8m and the pension situation has improved.

It would be easy for chief executive Gavin Darby to claim all the credit for this, but he says it’s down to Premier Foods stretching itself creatively. “The Premier Foods we inherited wasn’t innovating. With no innovation, products grow older. ​

“Innovation is the lifeblood of the food industry. Angel Delight is a beautiful example of this. It’s a much-loved brand but was stagnant and not doing as well as it could. As soon as we moved into convenience and ready-to-eat pots, the brand started growing again.”​

Mr Kipling is another brand Darby is proud of. “We’ve had great success with innovation for this brand,”​ says Darby. “Quite recently, we did well with Unicorn Slices and we are launching Flamingo Slices as they’re quite popular right now. ​

‘Fashions and trends’​

“This is a good example of fashions and trends. If you want to keep your brand current, you need to bring excitement to it. Otherwise, consumers will take it for granted and drift away.”​

Another key growth driver for Premier Foods is its international expansion, including overseas partnerships with Mondelēz International and Nissin Foods, which contributed 55% of its revenue growth last year. “We’ve doubled our international sales, albeit from a low level. Everything we sell abroad, we make in the UK, so it’s very much a British export story.”​

Darby says the Premier Foods comeback has been the result of hard work and investment across the board.

“A lot of it is about people, marketing, research and development – it’s crucial to invest in structure and people to drive innovation.​

“Premier is the biggest British branded food company that faced some tough times. The day I started​ [in 2013], we had £960m of debt and, five years on, that has been reduced to £496m. We’ve certainly moved forward. We’ve invested in innovation, people and sites. And we’re exporting our products all over the world.”​

With Premier Foods having spent a lot of time struggling, is the business concerned that these dark times could return?

Dark times to return?​

“It’s important to remember that the entire food industry went into deflation at that time, so it wasn’t just a Premier Foods issue,”​ says Darby.

“Everybody’s revenue was declining and it was tough for the entire industry. We’ve halved our debt and nearly halved our pension liabilities, but we’ve still got debts and pension liabilities. Then, we went through a big switch with Brexit, which affected the entire industry thanks to currency changes. ​

“Every quarter is different, but we feel confident about revenue growth in the future.” ​

It’s not all plain sailing, with shareholder Oasis Management intending to vote against Darby’s re-election as chief executive, but the Premier Foods board has offered him support.

As the UK prepares to leave the EU, it may seem poor timing to embark on an international expansion programme, but Darby, who also sits on the Food and Drink Sector Council, representing industry interests to Government amid Brexit’s choppy waters, believes Premier Foods is in a better position than most.

International expansion​

“The majority of our international business is outside the EU,​ so if we hadn’t started pursuing our international strategy long before the referendum, it would be hailed as a great move. International expansion makes sense for Premier Foods; we’re growing in the UK and if you can​ add that international business to the domestic factories, it’s a win-win. ​

“All food companies are less than a year from a key milestone and should feel some jeopardy [but] the Brexit risk is shared by everybody. Given how much we manufacture in the UK, I suspect the risk is bigger for other multinational companies. For us, it’s about making sure we have enough raw material supply, but that’s less of a challenge than finished goods.”​

So, Premier Foods may be healthy commercially, but what about its products? Darby says reformulation to reduce salt and sugar was a priority for the business before government got involved. “When I started, our salt reduction programme was well under way.”

It’s an ongoing process, he says. “We work away on salt levels, month in and month out, and have made material reductions across our range. It’s the same for sugar. We launched a 10-point plan two years ago to address sugar reduction, ahead of the Government’s targets.”​

Darby says rather than seeing reformulation as a chore, Premier Foods has looked it as an opportunity. “We’ve launched a range of kids’ slices with 30% less sugar, and you’ll see more additions to the Mr Kipling range. It’s about providing choice. Within 90 days of starting, I took the decision to put our brands into traffic-light labelling to provide information to the consumer.​

“Reformulation needs to be led by the leaders. The companies that lean into it, and are progressive, will thrive.”​