Why food companies are shuffling their brands

Food companies have been enjoying a feast of acquisition activity in recent months. Companies such as Premier Foods and Heinz have gobbled up new brands, although both are now looking to make disposals of their own.

Typhoo, the Premier-owned tea brand, is the latest brand likely to have a “for sale” sign hoisted over it. Premier is understood to have instructed Icelandic investment bank Islandsbanki to look into a sale, which it hopes will raise about a &£100m. It comes just weeks after Premier acquired Marlow Foods, owner of meat-free brand Quorn, from Montagu Private Equity for &£172m.

American food giant Heinz has also been getting in on the action, with the &£470m acquisition of sauce-maker HP Foods from French food group Danone announced last week. The deal comes in the middle of a strategic review of Heinz’s frozen food and seafood businesses in Europe, which may see brands such as Linda McCartney and John West sold.

This rush of activity in the grocery market, which also includes a mooted flotation of bread and bakery giant RHM, is due to changes in both the market conditions in the UK and corporate activity in the world food market. Investec analyst David Lang says that there has been a two-year bull market after the nadir of March 2003 and this has led to an increase in values. He explains: “In the food sector, there has been a rotation towards the grocery sector as the market background is more favourable.”

This has coincided with a period of consolidation in the market as multinational manufacturers have tidied up their portfolios by selling off periphery and secondary brands. Lang says pressure on profit margins has increased, which has led to companies offloading non-core brands.

Paul Cousins, founder of Catalyst Marketing Consultancy, says that even multinational food companies can only handle a finite number of brands. He says: “There are some excellent brands that just don’t get the management or investment that they deserve. If a brand is only worth &£10m, it just isn’t worth it for a major conglomerate.”

Premier is understood to be keen to sell off Typhoo, which is the third-biggest tea brand in the UK, so it can focus its attention on building its portfolio of classic English brands. It is understood to be keen to buy Marmite, although owner Unilever Food UK is not known to be actively trying to sell.

However, it is not clear where the Quorn brand fits into this strategy. For now, Premier plans to run it separately from its other brands, which include Ambrosia and Crosse & Blackwell.

Premier’s beverage division made a pre-tax profit of &£32m last year. Typhoo is understood to have contributed half with Cadbury hot chocolate drinks making up the rest.

But industry observers are not sure which companies would be interested in buying the tea brand. The tea market is not a growth sector and companies such as Unilever and Twinings, which already have a presence in the tea market, are unlikely to see it as a good fit. For this reason, venture capitalists are the likeliest buyers of Typhoo.

Caroline Parry

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