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The strategy adopted by food giants such as Swiss behemoth Nestlé and Anglo-Dutch conglomerate Unilever to sell non-core brands is now being taken up by smaller companies as they fight to remain competitive.
The UK mini-conglomerate Uniq recently announced its plans to sell the St. Ivel butter and yoghurt business in an attempt to reduce its crippling £185m (US$285.96m) debt burden and allow it to concentrate on its better performing chilled convenience food division. In putting the St Ivel brand up for sale, analysts believe that Uniq has succumbed to the same market pressures that Unilever spotted two years ago when it established its “Path to Growth” divestment strategy.
As a result of “Path to Growth”, Unilever is in the process of cutting its portfolio from an expansive 1600 brands to just its top 400, including Dove, Knorr, Birds Eye frozen food, Hellmann’s mayonnaise and Lipton iced teas. The plan aims to increase underlying annual sales growth to 5% or 6% a year, while raising profit margins above 16% by 2004. Unilever has already sold its fish business John West, Batchelors soups and Oxo stock cubes. Its oils and fats business Loders Croklaan is also currently looking for a buyer.
The less fleet-of-foot follow the astute
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By GlobalData“I think a few of the more astute companies like Unilever adopted these strategies some time ago and now we see the drift down to slower, less fleet-of-foot companies like Uniq doing it now,” a leading analyst commented.
“They are being forced into this partially because they have to, and partially because investors want them to. Uniq needs to get debt down; it needs to sell something. Its business was operating in a number of areas. It is hard being good in just one area, let alone lots.”
The obvious difference between Uniq and Unilever is that the latter is divesting from a position of strength while Uniq is being forced to sell in order to stay alive.
Uniq has already ditched its dairy division Unigate, and now St Ivel – an undoubtedly strong brand with products like Shape yoghurt and Utterly Butterly included in the sell off. Uniq reported a loss of £115.2m in the year to the end of March and the new management team has its hands full finding brands that will pull the company out of the mire.
Multiple brands are too expensive
But for both Uniq and Unilever the same economic imperative is driving their actions: it is simply too expensive to run a business with multiple brands in today’s food market. A company of Unilever’s size can obviously manage more brands than Uniq, but both are constrained by the expense involved in marketing consumer products.
“It is all about businesses understanding what their core competences are,” said Uniq chief executive Bill Ronald, who joined the company in February after 23 years at US confectioner Mars. “It sounds a bit text-booky but we were not cutting it in the yoghurt market so we decided to sell. and I’m sure there will be people eager to acquire it. We will have a leaner and fitter range in the portfolio as a result.
“If you are fighting on too many fronts you are going to get someone coming over the barricades. We are going to concentrate on clear categories. We are realistic but optimistic for this business although we realise there are a lot of doubters.”
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Nearly every manufacturer in the food sector is taking a long look at the brands within its stable. Northern Foods in the UK has sold Ski yoghurt, Lift lemon and its Pork Farms meat delivery arm, while Nestlé has abandoned Crosse & Blackwell and Sun Pat spreads.
Divestment as an opportunity to grow
While most companies are scaling back, Nestlé is unusual in that it is using divestment as an opportunity to aggressively grow into new areas. Nestlé is taking advantage of the rethink by other companies and is snapping up brands and companies that will help it grow in areas like ice cream and chilled dairy products (it bought Northern Food’s Ski yoghurt and is a likely contender for the St Ivel package).
The Swiss giant’s determination to challenge Unilever in the ice cream arena was demonstrated recently when it agreed to merge its US operations with Dreyers Grand Ice Cream. This deal gives Nestle a 20% market share in the US compared with Unilever’s 16% and has prompted analysts to suggest that the deal could spark an ice cream war this summer.
With so many brands on the chopping block there will be many opportunities for smaller, expansion-minded companies, as well as giants like Nestlé, to pick up well-established products at reasonable prices. But Uniq’s lesson cannot be ignored: no matter how much you sell off, you won’t last long in today’s food market if your brands can’t make money.
By David Robertson, just-food.com correspondent
