Unigate spreads its yellow fat interests

With butter making a comeback with consumers, Unigate seems to have picked a bad time to buy Kraft’s margarine business and invest in a static sector. Or maybe the move is more logical than it seems.

Unigate chairman Ian Martin once told a reporter: “I have become a bit of an adrenaline junkie. I like the excitement and the fun of business. If it’s not fun, don’t do it.” Buying into a static market and acquiring two brands with falling market share sounds anything but fun, however this is exactly what Unigate and Martin have just done (MW July 12).

The company is buying Kraft’s European margarines and spreads business for 77.25m, adding Vitalite and Golden Churn to its existing UK brands Gold Light, Utterly Butterly and Mono, plus Kraft’s Valle and Valle Grangusto brands in Italy.

With butter making something of a resurgence, as consumers react to years of eating tasteless margarine, Unigate would appear to have a tough job on its hands. The figures make grim reading.

Within the mature yellow fats market, Vitalite value share has dropped by 6.8 per cent and Golden Churn’s share has plummeted by 17.5 per cent – comparing the moving annual total (MAT) on June 16 1996 with the MAT on June 18 1995 (IRI InfoScan).

The figures have prompted questions as to whether Unigate, in its enthusiasm to expand its core areas of European food and distribution, has made a mistake. Kraft wanted to off-load. It has no interest in the margarine market, instead wanting to concentrate on its core categories of coffee, cheese, confectionery and packaged desserts.

The Vitalite brand would appear doubly unattractive, positioned as it is in the “healthy” sector of the market, which has been looking decidedly off-colour recently.

What Unigate immediately gains from its purchase is clout in the market. Unilever’s Van den Bergh Foods, manufacturer of Flora and I Can’t Believe It’s Not Butter, has an uncomfortably large value share of 27.57 per cent in the yellow fats market – which includes butter – and 44.9 per cent in the margarines and spreads market. St Ivel, Unigate’s chilled foods division in the UK, now has a 24.7 per cent share excluding butter, pushing Dairy Crest into third place.

“This more than doubles Unigate’s share and should raise the competitive stakes,” says one analyst. “The move makes a lot of sense for Unigate. Kraft’s brands need a little bit of revitalising but Unigate knows that and is prepared to invest. It knows the market and how competitive and crowded shelf space is.

“Unigate’s chairman Ian Martin is ex-Grand Met and very brand-oriented. This acquisition could be a reflection of his influence. The company is moving deeper into a better quality branded area.”

Sales of the Vitalite brand may be flagging, but importantly it is a polyunsaturate spread which St Ivel needs in order to compete against Flora, the giant in the margarine market.

Adrian Cox, St Ivel marketing director, says: “Vitalite completes the big gap in our portfolio. It is the jewel in the crown. We have got to be in that sector.”

Flora holds the generic “health” platform and is easily market leader, but lost ground last year as consumers switched to butter and the more tasty spreads, such as St Ivel’s Utterly Butterly and Van den Bergh’s own US import I Can’t Believe It’s Not Butter.

This year, Unilever has had to act and is relaunching Flora with a 16m marketing budget to fight off the yellow fats “taste” products. With their light-hearted advertising and emphasis on enjoyment rather than health, these spreads have reinvigorated the market – the value of which grew by 13.6 per cent last year.

Cox says Golden Churn, the former Kraft dairy spread which is also marketed on its taste, will be repositioned as a premium product so that it does not cannibalise St Ivel’s Utterly Butterly.

For both Vitalite and Golden Churn, the marketing priority is growth through leverage into other sectors, as Anchor Foods has done in cheese and aerosol cream.

Cox refuses to reveal which areas Vitalite or Golden Churn will expand into, but he says: “Whenever you have a strong brand you will always look at levering it. The Kraft team already has some very clear ideas. We need to see where the brands can be stretched, and I can certainly see us putting resources behind this.

“At the end of the day, both Vitalite and Golden Churn are famous brands and very successful and we plan to invest in them. It is a great morale booster for our business,” he says.

The purchase also gives Unigate a foothold in the Italian market, after it dipped its toe in the continental water last year and bought the Prodipal and Vedial dairy businesses in France. Lacking the distribution network and brand equity of Kraft on the continent, Unigate will continue to use the Kraft name in Italy.

With the transfer of UK brands to Europe unlikely, because of cultural differences, Unigate is expected to grow piecemeal by buying more local businesses. Over the past five years, 600m has been raised from the sale of non-core operations as diverse as a motor company, a furniture removal and delivery company, an animal feed business, the Black Eyed Pea restaurant chain in the US and a stake in the baby food group Nutricia.

Now the City expects a large-scale acquisition, with analysts convinced the next deal could be either a bolt-on to Unigate’s Wincanton distribution business, or a major continental food manufacturer. Dairy Crest has even been touted as a possible acquisition because of its obvious synergies in distribution and plant – but with the company about to float this looks unlikely.

The Kraft acquisition marks another logical step in Unigate’s investment in European food and distribution companies, cutting its dependence on the declining door-step delivery business. But Unigate has an estimated 250m still available for acquisition as it continues its transformation into a major continental player.

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