Analysis: Permira aims to make Birds Eye cooler than chilled

After months of speculation, there is a new captain at the helm of Birds Eye. Unilever, the world’s second-biggest food and detergent company, hived off the bulk of its frozen-food division to Permira for £1.2bn last week, although it has reta

After months of speculation, there is a new captain at the helm of Birds Eye. Unilever, the world’s second-biggest food and detergent company, hived off the bulk of its frozen-food division to Permira for &£1.2bn last week, although it has retained the brand’s Italian arm and Wall’s ice cream.

Birds Eye (known as Iglo in various European markets) attracted interest from many quarters after Unilever announced its intention to sell in February. Contenders included a consortium initially headed by former PepsiCo UK president Martin Glenn, comprising CapVest, the owner of Findus in Norway, Sweden and France, and Young’s Bluecrest Seafood in the UK. For CapVest the acquisition would have added another frozen-food brand to an already extensive portfolio.

Unilever had been determined to rid itself of Birds Eye as it sought to streamline its business and focus on other areas, but Permira has snapped up a brand that continues to make money. In the UK, Birds Eye is the number-one food brand, with a turnover of &£500m a year and profits of around &£50m. It is also the UK’s second-biggest supermarket brand after Walkers. But despite healthy returns, Unilever struggled to build the brand further.

Frozen food’s image problem

Frozen food and frozen ready meals have suffered in recent times, explains David Hallam, analyst at William de Broe. He says: “Unilever tried to develop this area of its business, but it is a sector with many pitfalls. While Birds Eye was very profitable it was not growing. UK consumers’ perception of frozen food is not good. Historically, there has been a downward spiral in price, matched by a fall in the quality of frozen-food products.”

Hallam says consumers recognised that quality was being compromised to facilitate price cuts and turned their backs on frozen food in favour of chilled, which they perceive to be healthier. He says this situation has been compounded by aggressive promotion of chilled food products by retailers.

“Supermarkets ploughed major investment into chilled foods, investing in aisle space and own-label ranges. They achieve healthy margins on chilled products and have a vested interest in promoting chilled foods above frozen,” adds Hallam.

Indeed, the migration from frozen products to chilled shows no sign of slowing – frozen food sales dipped 13% last year to &£603m according to Mintel. While the Birds Eye brand remains strong, analysts say Permira must work hard to build the business. Some observers comment that a recent &£21m umbrella campaign focused too much on the brand as opposed to products themselves. “If Unilever struggled, how will Permira manage?” asks one.

Opportunity knocks

Hallam sardonically suggests that Permira must “have a unique insight into the market” yet he does concede there is opportunity for growth. As a venture capitalist, Permira is of course hoping to make money, and like Hicks, Muse, Tate & Furst (now HM Partners), which bought Weetabix in 2003, it has spied an opportunity in food.

Breakfast cereals, like frozen food, is a stagnant if not declining market, and in an attempt to build its brands HM Partners has moved into healthier options and new product innovation – a strategy that Permira must also adopt if it is to succeed, according to analysts.

Permira’s acquisition of Bird Eye is likely to prompt further consolidation in the sector and City analysts foresee Permira making an approach to CapVest. Most of all, however, Permira must rely on innovation to make frozen food’s image “cooler” than chilled.

Nathalie Kilby

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