After a prolonged bidding war, Malcolm Walker is back on top at Iceland. He talks candidly to The Grocer about the deal, why he wasn’t to blame for DBC’s failure - and his plans for the future
Dining with Malcolm Walker in the Iceland staff canteen is an eye opener.
Today’s special, at a heavily subsidised £1.80, features succulent fillets of halibut, served on a lobster tail surrounded by lobster bisque, topped with micro herbs. Last week, staff all enjoyed Chateaubriand. Clearly, this is not your average staff canteen. But then again, Walker is not your average boss.
On the one hand, he can splash the cash, throwing legendary fundraising parties, and packing thousands of key employees off to ‘conferences’ in far-flung destinations. He’s even found time to take part in outlandish expeditions to the North Pole and Mount Everest.
On the other hand, ever since he started out, in 1970, the no-nonsense Yorkshireman has shown an uncanny knack for sourcing and selling often high quality food at rock-bottom prices. And you know what? After 42 years, it’s still working for him.
In June, Walker led Iceland to its seventh consecutive set of record results since his return in 2005. Pre-tax profits were up 18.5%. Like-for-like sales increased by 6%. In the meantime, he’s wrested back control of his business. So how did he do it, and why? At 67, how’s he going to pay back £1.1bn worth of debt? And what next? Five months after completing the deal, The Grocer caught up with an ebullient Walker to find out.
The seeds were sewn in December 2004, when the floundering plc that had dismissed him three years earlier over share dealing irregularities was picked up by Icelandic investment group Baugur.
Parachuted in, a typically bullish Walker told The Grocer it would be a “piece of piss” sorting out the mess. “Morale was on the floor,” he recalls. Walker stripped the business down, firing then MD Andy Clarke “on my first day back” before cleaning it up, “starting with the toilets.”
It was purring again within six months, with record sales, profits and cash following, and in 2007, shareholders divvied up a £300m dividend as part of a refinancing deal.
But it was the recession of 2008, and the implosion of Baugur, that gave Walker his chance to seize control again. When the two banks, Landsbanki and Glitnir, decided to sell Baugur’s shares in 2010, Walker offered a cool £1bn to buy the business back. But others wanted it too, and a two-year bidding war began. Asda, now led by Clarke, and Morrisons, were keen to get their hands on the Iceland estate. But both had dropped out by round two. “Maybe they were never serious,” says Walker.
Private equity groups remained very much in the mix, however, attracted by Iceland’s cash generation and EBITDA and, with “cash to burn and nowhere to spend it,” suitors BC Partners, Bain and Blackstone tried to sweet-talk Walker into working with them on a deal.
“‘We’re different to the rest, we like working with management, we’ll give you control,’” they told me. “It’s all bollocks. They get in, hollow out the business, cut costs and sell it on in three to five years.”
With his contractual right to match any offer, as well as his genius as a frozen food retailer, Walker looked to hold all the aces, but after two years of “wading through treacle” Walker admits it was only a last-minute £250m vendor loan from Landsbanki that enabled Walker to strike a deal.
“That loan transformed everything it made the deal do-able. Yes, we overpaid,” he says, of the extra £450m he was forced to stump up, but it was “the best deal in the world” bringing an end to a two-year saga with “everybody happy”.
“Landsbanki are happy because they picked up Iceland as a bad debt,” says Walker. “We created all that value for them.” But the relationship between the two has always been good, he says - and Landsbanki made the “low-cost loan because they felt we couldn’t afford to buy the business back without their help.” Of course, there are set targets to pay Landsbanki back, but Walker is relaxed about hitting them. “We are a phenomenal cash generator,” he adds.
Also happy are the three investors who joined up with Walker. South African Brait, the Dubai-based Landmark Group and former DFS billionaire Lord Kirkham have each invested £85m - “petty cash for them” - in exchange for an evenly split 57% of the equity. “They are happy to leave us alone and let us get on with things,” says Walker. How can he be so sure?
“We will have four board meetings a year,” he shrugs. “But they are fine. They want us to be in control. Put it this way, I’ve been trying to get hold of Lord Kirkham for weeks!” And there is a “cast-iron shareholders agreement”, Walker adds, that guarantees his team control of the board, which helped him over the “psychological hurdle” of owning only 43%.
The 23,000 staff are happy too - the happiest in the UK, according to The Sunday Times, and little wonder. As well as the staff canteen, Walker’s staff parties are legendary, where cars are given away, Girls Aloud sing and Peter Kay tells the jokes. “It’s really important to party,” says Walker. “It boosts morale, which puts cash in the till.”
But looking after his workforce isn’t the only secret to Walker’s success. He believes there are three key ingredients to a successful business. “One, focus, two, simplicity and three, accept reality. I can’t add to that as a better philosophy for running a business.”
In terms of focus, Walker says “we don’t over analyse. Retail is simple, with only a few basics. And the most basic thing of all is understanding what your customers like and don’t like. Iceland customers don’t want newspapers and cigarettes, they come to use because they like us and they like our products.”
Iceland’s simplicity is best represented in its round-pound pricing, which Walker introduced on his return. Though the big four supermarkets have copied Walker’s innovation, none has placed more faith in the mechanic than Walker’s Iceland.
“We had round pound to ourselves for two years,” he says. “I didn’t think it was possible that anyone could copy it, but they have. I think we can take full credit for changing the price points in Britain from 99p to a pound. Other retailers should pay us a consultancy on that!”
As to reality, here’s Walker on sales projections. “Flat. That’s what we told the banks during the auction. That is what we tell everyone. If you forecast 3% for next year, where do you even pluck that figure from? And the last couple of months actually have been flat for us. These are the worst conditions I can remember.”
So how can he be so confident in the future? “We’ve increased sales for 36 years through boom and bust,” he reasons. “Besides, for the last six years we haven’t given a toss what the numbers are. If we make £150m or £130m so what? It’s still a lot of money, so who’s bothered? With that mind-set we can plan for the long term.”
Those long-term plans include a revamped Bonus card, online shopping early in the new year, expansion into Eastern Europe (if the new Czech Republic store pays off) and more brand love-ins like the “fantastic” Greggs frozen range. UK expansion is also ahead of schedule. Walker forecasts Iceland will open 30 shops this year against a target of 15.
“For the last six years we haven’t given a toss what the numbers are. If we make £150m or £130m, so what? It’s still a lot of money, so who’s bothered?”
But not everyone, it seems, is happy. Shortly after the auction concluded, Walker came under attack when foodservice wholesaler DBC collapsed. A £3m investor, Walker was blasted by suppliers who lost cash, as well as ex-employees who suggested he could have stepped in to save their jobs. Accusations flew thick and fast that Walker avoided getting involved to avoid any controversy scuppering the Iceland deal. He’s stayed silent so far, but it’s clear Walker feels he’s being held responsible when others should be taking the flak.
“The first thing to understand is that I was an investor,” he says. “I didn’t run it, I wasn’t involved with it, I’ve never been to head office, never been to a board meeting. If people assume because my name is on it there is an unwritten guarantee from Iceland then they are mistaken. Credit insurance was pulled six months before the end, and if suppliers chose to keep supplying when there was no insurance, that’s their choice. It’s unfortunate it went bust, and my name is bandied around, but I lost money like everybody else. DBC was a basket case. We tried to give it support but it didn’t work.”
Could he have done more? “Perhaps we could have stuck another £3m in and lost that as well. Or let it go bust three years ago before we put cash in originally?”
Walker also denies the DBC mess was put on the backburner in case it derailed the Iceland deal. “It didn’t make a blind bit of difference,” says Walker. “We did that deal with our three mates.”
Those mates have delivered Walker his dream: to wrest back control again. And despite his 67 years, he’s in no mood to give it up. “I’m not going to retire. That’s a great way to grow old suddenly. I’m hands on, and I’m key to the business,” he says. And together with finance director Tarsem Dhaliwal, buying director Nigel Broadhurst and executive director Nick Canning, Walker runs the show “on intuition and gut feeling. Our plans change every Monday morning when we see the weekly sales figures.”
But shorn of the accountability he finds so tiring, vindicated in terms of his moral integrity, and with his credentials as a legendary entrepreneur assured, Iceland is back to being a family business. And that level of agility has attracted Walker’s property developer son Richard, 31, to join the business - although he’ll start off stacking shelves. Walker says it was “entirely Richard’s choice” but the “worst thing is for the boss’s son to come into the business in a privileged position”.
Is a natural succession plan emerging? Walker admits it would be “nice” if Richard ended up running the business, but he says there is “no predetermined endgame. I’ll do this as long as I’m able. And the way things are, I’ve got the best job in the world.”
Malcolm Walker snapshot
Job: Iceland founder, CEO and chairman
Born: 11 Feb 1946
Marital Status: Married with three children
Education: Mirfield Grammar, West Yorkshire
Career: Dance promoter turned trainee manager at Woolworths. Fired after he started up Iceland Foods in Shropshire in 1970. Took the company public in 1984. Fired again in 2001 after a share sales scandal of which he was fully cleared. Returned in 2005 when Iceland was acquired by new owners. Bought the company back in 2012
Hobbies: “Sailing. Or skiing. I’m the only man in Britain who doesn’t follow any games with a ball. Cricket, golf, rugby, forget it. It’s an interruption to sales. If there is a football match being played on a Saturday afternoon, the restaurant business is f***ed!”
Cameron or Clegg? “Cameron. No, wait. Thatcher. She’s my hero. It’s fashionable to denigrate her nowadays but she saved this country. I remember scouting around for new shops in the 1970s and they were lit by candlelight!”
Business or pleasure? “Oh, it’s all pleasure!”