United Biscuits is on its way back, after years of being beset by problems and castigated by the City.
But its capacity to be a real international force is going to depend on what is largely uncharted territory – the ability to build successful international biscuit brands.
The international biscuit market is wide open. There are no supremely dominant players, unlike in the snack sector where the global might of PepsiCo has relentlessly undermined UB’s efforts.
If UB can seize this opportunity to reinvent itself as a focused international biscuit business, it might finally silence the critics of UB group chief executive Eric Nicoli, who masterminded the company’s worldwide restructure announced last week.
The reorganisation is the culmination of a policy of retrenchment and “fixing” of UB’s under-performing businesses. Under the leadership of Malcolm Little – the UK chief executive who is due to retire later this year – the domestic company was split into business units for crisps, snacks and nuts two years ago, to concentrate on specific areas of expertise. Insiders say Little is tough financially, and that he clamped down on spend on any brand with a turnover below 50m a year, but that he is also innovative. In his former role as head of Ross Foods he had a track-record of developing major brand launches .
Overseas, UB has pulled out of markets and food sectors where it has proved unequal to the competition. Most notable was its tactical (and lucrative) withdrawal from the Australian snacks market in November, in an asset swap with PepsiCo.
It sold its Smiths Snack Food operation in Australia and a French snack outfit, together with a manufacturing plant in Belgium. As part of the deal, it took over Biscuiterie Nantaise, PepsiCo’s French biscuit business. This followed a painful exit from the US, after the sale of the Keebler biscuit business, and from Spain: the result was a 110m loss in 1995.
Nicoli’s latest plan involves changing the organisation of UB from a regional structure (in the UK, Continental Europe and Asia Pacific) into two divisions: McVitie’s Group, the international biscuit business with sales of almost 1bn for 1998, including McVitie’s UK; and UK Foods, which includes the remaining snack and prepared food operations, with sales of 700m a year. This division groups together KP Foods (crisps, snacks and nuts) and UB frozen and chilled foods operations: McVitie’s Prepared Foods (pizzas, desserts, Linda McCartney’s vegetarian foods and sandwiches) and Young’s (seafood and potato products).
The company hopes the new organisation – and indeed the very name McVitie’s – will create a platform for international expansion and send a clear message about UB’s future direction.
One observer says: “For too long no one has been able to look at UB and say: ‘That’s its strategy.’ At last it is giving a reason to invest in it.” He compares the new structure to an “L” shape, with UK Foods as the horizontal base. It makes foods which generally deliver significantly higher margins and generate cash to build the vertical part of the “L”, the international biscuit business. The new organisation has also led to speculation that a struggling unit such as KP crisps will be a lot easier to sell, a suggestion which UB denies.
But this policy of retrenchment, fixing the under-performing businesses and then driving for growth sounds all too familiar to the sceptics.
One City food analyst says: “It has reinvented itself so many times. The markets are expecting better things from this company.
“It has got to take bigger bets on bigger brand promotions. It has got to come up with some new products. UB’s UK exposure has increased by getting rid of overseas businesses; about 80 per cent of it is now in the UK and 20 per cent in Continental Europe.
“It has to rescue the brand image of biscuits and promote added-value biscuit propositions. We want some bigger bets in the snack-type area and some innovation in pack sizes, packaging and product variation – but under the McVitie’s umbrella. It needs to cross the boundaries between snacks, biscuits and confectionery.
“Its biggest rival is competition within the shopping basket – from other food areas, not just from own-label and other biscuit manufacturers. Biscuits are in long-term decline. UB needs added-value products that appeal to the retailers and can be eaten on the move.”
In the UK, the company is pushing its biscuit brands beyond the grocery shelves and into the impulse market, trying to cross the boundaries between biscuits and confectionery. For example, its “Penguin Pick-Up Packs” compete directly with Nestlé-Rowntree’s Kit-Kat, or the Go Ahead fat-free range which encompassses cakes, cookies and snacks.
But in terms of expansion, can UB turn its local brands into international ones? It has recently beefed up its marketing muscle with the appointment of ex-Procter & Gamble marketer Clare Flynn to the newly-created post of international marketing director (MW January 8).
She takes on some of the responsibilities of Frazer Smith, the managing director for development operations in the new McVitie’s Group. Under the new structure he has responsibility for exploiting selected biscuit brands around the world, directing new product development resources and speeding up the development of specific export markets.
It will face executional problems – for example in exporting British brand names such as Go Ahead or Penguin, which may have to be tweaked or axed altogether – but more significantly in catering for local tastes. The biscuit market is not one that lends itself to international brands. As with Cadbury’s chocolate, the popularity of UB biscuit brands on its home turf is not a guarantee of success overseas against local favourites. For example UB’s newly-acquired market leader in France, the brand Le BN, is a sandwich biscuit which in the UK is traditionally associated with more downmarket products such as Jammy Dodgers and Custard Creams.
UB will have to transfer its expertise in research and development and lever its strong brands in various Continental countries, particularly in northern Europe. It will have to bring new skills to local sensitivities about tastes that don’t as yet exist in the biscuit market, and it will have to make a cultural shift in its thinking from local to international.