Running the AA brand on empty

While it’s untrue the City believes Tim Parker walks on water, he has certainly established a reputation for turning around tired or fuddy-duddy businesses. Witness Kenwood and C&J Clark. The jury is still out on Kwik Fit – some would say his exit was very timely – but it certainly fits the genre.

In that respect, the Automobile Association – of which Parker is now chief executive – is a move out of character. For this is no struggling company seeking to achieve, as they say in marketing circles, ‘contemporary relevance’, but a highly successful, high-profile brand, that fell foul of someone else’s misconceived corporate strategy (Centrica’s). As it happens, the AA expanded and prospered under Centrica tutelage.

Parker said as much when his financial backers, CVC Capital Partners and Permira Advisers, acquired the operation last July: ‘It’s an iconic brand which commands a premium. We would not have done the deal unless we believed we could extract more value from the business.’ This belief was reflected in the price paid, which, at &£1.75bn, was up to &£500m above analysts’ expectations.

To be sure, private equity investors exist for one purpose only, to maximise returns on their investment. And in paying such a premium price they might reasonably be expected to squeeze more out of the independent business than a few Centrica overheads.

Even so, their draconian purge of the entire senior marketing team, including AA Financial Services managing director Clare Salmon and AA marketing director Emma Kenny, comes as something of a shock. There is more. It appears the new regime does not favour a centralised marketing strategy and wants the AA’s operations, which are principally roadside assistance, insurance and personal loans, to be run as independent businesses. This, in turn, has created seismic ripples on the marketing services side. Fairly or not, the rumour is abroad that the massive AA promotional budget (over &£70m), which is arguably an integral part of being a household name, is to be cut to ribbons.

While there may be eminent short-term financial sense in this new direction, we can only guess at what longer-term damage to the AA’s ‘iconic’ status as a trusted brand will ensue.

Of course, the exact exit strategy the new owners have in mind is still conjecture. It appears to be a stock market flotation a couple of years down the line. In which case cutting the managerial rudder off and undermining brand value, by poleaxing marketing communications, sounds pretty suicidal. This does not, incidentally, exclude a rapid sell-off of the bits that fail to make an immediate profit. If that is the plan, the brand will also be a truncated asset, partly in the hands of brand licensees – with unpredictable results.

As it stands, the AA is a strong brand which is being treated as a distress purchase. Sooner or later something of the new owners’ cavalier financial ruthlessness will percolate down to the people who really matter – the customers – in the form of staff demoralisation, poor communications and abridged services. Sweated assets can leave a nasty smell. Caveat emptor.

Stuart Smith, Editor

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