Premier Foods’ switch to a more category-focussed approach has effectively spelt the end of its ‘power brands’ strategy.
Premier has previously reported sales in terms of a combined figure for eight ‘power brands’ - including Mr Kipling and Sharwood’s – and a separate figure for smaller brands such as Homepride, Paxo and Cadbury cakes. It will now report a single figure for its total branded sales.
In its last annual results using the old brands split [year ending 4 April 2015], power brand sales were down 4.6% year on year to £504.5m and support brands down 2.5% to £179.2m. In Q4 of the year, support brand sales grew 4.5% versus a 1.6% drop in power brands.
The power brands strategy was introduced by then-chief executive Michael Clarke in 2011 to turn around the business. Shortly after he replaced Clarke in 2013, current Premier CEO Gavin Darby said he was keen to grow the company’s second-string brands while maintaining the power brand strategy.
At the time he said he was looking at the grocery market from a category perspective rather than a brand one.
“A category focus enables us to leverage our entire portfolio rather than just focus on our key brands,” he told The Grocer two years ago. “Many of our brands aren’t playing for the first team - and some probably never will - but they have a place in the business,” he added. “They are still very strong brands - many rivals would kill to have a brand like Cadbury Cakes in its portfolio.”
Writing in Premier’s annual report, which was published today (9 June), Darby said the distinction between power and support brands was helpful in the early days of the company’s recovery to illustrate its focus on the brands with the biggest near-term opportunities.
Last September, Premier restructured its operation into three Strategic Business Units: Grocery, Sweet Treats and International, last September. Premier said the move offered a more agile ways of working that was aligned with how our retail customers did business.
“As our strategy evolved to a broader approach of driving category growth, we’ve been successfully investing more in the wider portfolio, including brands such as Homepride cooking sauces and Cadbury cakes,” added Darby in today’s report. “These are brands with significant potential given the right support. Our reporting will therefore change to focus on total branded sales which are a better measure of the success of our strategy.”
Describing the change in the retail landscape and growth of the discounters as offering “many opportunities”, Darby said Premier had been using former support brands such as Paxo and Bird’s to offer products in formats suited to high street discounters.
Darby added there were also growth opportunities for its brands beyond the UK, and that he was investing in strengthening his international team.
“I think we’re only scratching the surface at the moment,” he said. “Our longer-term strategic focus is on scale markets such as China, the US and Australia. But there are plenty of near-term opportunities in other markets. For instance we are successfully building a stronger business in Ireland.”
Meanwhile, the annual report revealed that Darby’s annual bonus grew by 40% during the period to £307k – equivalent to 35% of his £875k salary (700k per annum). The bonus, based on financial, strategic and personal targets, was 23.4% of the maximum available after a tough year for Premier’s share price.
The shares have recovered to 41.75p from October lows of 26.1p, but remain almost 75% down from the level they were trading at in March 2014 before the supermarket price war hit its trading.
Darby, who declined an annual base pay increase for next year, took home £1.73m during the year including long-term share incentives. This was up on the £1.4m package from the previous year, but down on a pro-rata basis as Premier Foods’ most recent financial period was 15 months to 4 April, compared to the 12 months to 31 December 2013. Darby’s share-based awards fell from £447k to £342k despite the longer financial period.
Premier Foods’ executive directors will receive a 1% pay increase for the forthcoming year, in line with “all employees not involved in collective bargaining” and approximately 450 management grade staff. Darby’s salary will remain unchanged.