Slimline Grandmet seeks Euro growth

Grand Metropolitan is slimming its European operation after failing to build a food empire. The Pillsbury brand will spearhead the new, leaner business. But can the twice-failed brand succeed this time?

International food and drinks giant Grand Metropolitan is taking the axe to its European food operation in two weeks time, slashing projected sales by more than half and throwing all its weight behind only four international food brands.

The company is switching investment to Häagen-Dazs, Pillsbury, Green Giant and Old El Paso, signalling an end to its hopes of a European food empire.

The intention is to make the company leaner, with more resources to put behind four major brands and more potential to increase profits. About 10m is being invested in a UK marketing push this year while the division is to be renamed Pillsbury Europe, reflecting the changes. How much extra is being invested in the European markets is unknown.

The clear-out in GrandMet’s worst performing division had been expected for some time, and has been widely welcomed in the City. One analyst says: “It’s good for group strategy to get out of those areas. These were low growth businesses that didn’t add anything to the development of the group.”

GrandMet’s whole European food business makes only operating 23m profit – a morsel compared with the 1bn profit made by the group as a whole worldwide.

Observers question the company’s long-term future in the mature European food industry, which is extremely competitive and not very profitable. It is already serviced by giants such as Unilever and Nestlé, and compared with the US food industry, margins are smaller, retailers are more power-ful and there is higher own-label penetration.

But Andy Milligan, director of brand identity at consultancy Interbrand, says: “Europe is a market GrandMet has to be in. The company has to be successfully placed in the big Western markets to get into the booming markets of the future.

“Western brands are very aspirational and desirable. GrandMet’s big brands will be the key arms with which to reach into those new markets.”

Earlier this month GrandMet announced it had sold Erasco, the market leader in canned ready meals and soups in Germany to the Campbell Soup Company for 140m. The remaining national food businesses (including Shippams, Peter’s Savoury Products, Fleur de Lys and Memory Lane Cakes in the UK) are now up for sale.

Once these small and under-performing businesses are disposed of, GrandMet can concentrate growth where it can get reasonable returns, such as in the US, Latin America and the Far East, and it can push for increased profitability in Europe.

A GrandMet spokesman says: “Last year’s sales for the whole of Europe were $1.2bn (1.9bn). Following the disposals it will be about $450m to $500m. This is a smaller, leaner operation but one capable of giving a better return.”

He says the funds raised will be used to pay off some of GrandMet’s debt and denies there are any plans for major acquisitions, except for small businesses which could be added to the Pillsbury or IDV structure.

He says that in the US the Pillsbury division, which makes up 86 per cent of the group’s sales compared with four per cent in Europe, incorporates more brands than GrandMet envisages in Europe, such as the Italian food brand Progresso, but that some may cross the Atlantic in time.

Martin Jamieson, former commercial director of the UK operation, takes over as managing director of Pillsbury UK, replacing Ian McMahon who becomes managing director of Pillsbury Europe. And in a further cost-cutting move, the headquarters of the slimmed down company is moving from Paris to Uxbridge, the headquarters of the old GrandMet Foods UK.

Jamieson is about to announce who will control sales and marketing of the company’s four international brands, as well as Jus-Rol, the pastry brand sold only in the UK.

He bears responsibility for resurrecting the Pillsbury name in this country (MW May 17) – seen as a precursor to a European roll-out – following the failure of the US-style dough products under the Pillsbury label.

Leading the Pillsbury UK push is the new frozen pastry snack Toaster Pockets, backed by advertising through Lowe Howard-Spink and it is likely to be followed by a number of related launches.

Observers question GrandMet’s wisdom in launching the Pillsbury brand with what is apparently a weak product, given that Findus Toasties is already in the market.

But Jamieson says: “I wouldn’t be doing this if I didn’t think Toaster Pockets were strong enough to lead the charge. Our retailer listings underscore my confidence.”

A sweet Pillsbury product, known as Toaster Strudel, has already been a success in the US, stealing share from Kellogg’s Pop-Tarts and reaching sales of nearly $100m (156m).

In the UK, Green Giant and Old El Paso are poised to return to TV advertising for the first time in more than a year. For the Mexican food brand, the planned campaign through Leo Burnett will run across Europe and will support GrandMet’s first new product under that brand since it was purchased as part of Pet in 1995.

Advertising for Green Giant, the vegetable brand with a 36 per cent share of the 39m canned sweetcorn market (Taylor Nelson AGB), goes on TV in the autumn, with a Leo Burnett campaign last shown a year ago. Häagen-Dazs, the luxury ice-cream brand with annual value sales of 19.5m (IRI InfoScan), will continue to be supported with advertising through Bartle Bogle Hegarty. Jamieson stresses it is market leader in the premium sector, despite increasing competition from own-label copycats such as Sainsbury’s Indulgence range.

Jamieson says: “Between now and the year 2000 there will be heavy investment in these international brands. There is the money and the inclination from Pillsbury Minneapolis, our US parent. You could not wish for better brands than these in your food stable.”

GrandMet has pledged to improve shareholder returns and the drastic surgery at Pillsbury Europe makes perfect sense, leaving it capable of producing better profits in the long term.

Analysts praise the company’s management team as the best in its recent history, and this month US securities house Merrill Lynch’s recommendation changed to “accumulate” from “hold”. But a sizeable proportion of the group’s success in the UK rides on the reintroduction of its namesake – the Pillsbury brand – after two failed attempts. GrandMet is renowned for its track record in marketing and advertising. This autumn that reputation faces a searching test.

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