Geoff Eaton is a glutton for punishment.
The Uniq CEO is in training for one of Britain’s most punishing endurance races, the Original Mountain Marathon, which will see the 52-year-old take on Scotland’s peaks around a 52-mile course in October. That takes guts, stamina and a masochistic streak.
So does being the boss of one of Britain’s largest own-label suppliers while saddled with vertiginous pension liabilities. It also takes ingenuity, as Eaton’s audacious feat of financial mountaineering to overcome the £436m deficit clearly shows. In a unique deal in every sense, 90% of Uniq’s shares were handed over to its pension fund in February. All Eaton needs to do now is to sell the business.
It should be a piece of cake. Uniq boasts an enviable relationship with Marks & Spencer, and its food to go, sandwich and salad businesses are performing well. It’s just won the sole salad supply contract to Pizza Hut. And last month, its Marks & Spencer Aberdeen Angus beef with red onion chutney sandwich was voted the sandwich of the year by the British Sandwich Association.
As a result, losses narrowed from £18.5m in 2009 to £11.2m. But the proof is in the pudding, as they say, and with its desserts business struggling due to soaring inflation and dwindling sales, can Uniq really survive in one piece?
Eaton certainly thinks so. “There’s been interest for all or part of the business but we’re convinced that most value can be found in the whole,” he says, pointing not only to Uniq’s partnership with M&S (which represents 60% of Uniq’s sales) but the substantial tax assets if Uniq is bought in its entirety.
City experts point to Greencore as a likely suitor it already lists Sainsbury’s as a key customer so the attractions of a complementary customer are obvious. It also clearly wants to do a deal after its failed bid for Northern Foods earlier this year. Samworth Brothers has also been tipped, but the philosophy of its CEO Brian Stein “heads down, keep overheads tight, provide excellent service and pick up the pieces when others fail” doesn’t sound like he’s exactly the ideal acquisition candidate.
The long-suffering desserts business is certainly a hurdle to overcome in the sale process. Divided into four sectors premium, everyday, branded and own-label yoghurts Uniq overhauled its loss-making everyday desserts business last year and invested significantly in the entire range, with different pack formats and new recipes. But over the course of a two-year period the cost of cream rocketed by 80% and with the company forced to hike its prices, many retailers walked.
“Some customers didn’t want to accept those increases and volumes were hit quite hard,” admits Eaton, explaining the £10m hit to dessert sales the company suffered last year. The news doesn’t appear to be getting any better, either: sales in this division slumped by a further 5.9% in the first 21 weeks of this year, and Eaton won’t rule out abandoning the market. “We’re making significant losses in everyday desserts and we can’t carry on doing that. One way of definitely stopping the losses is exiting. But that’s a decision we haven’t yet reached.”
Following the failures of own-label players Polestar and Loseley in the past year, Eaton is keen to find a different way of working with customers. “How many suppliers have to run into difficulties before someone a customer starts to think: ‘is this sustainable?’” he asks. “The market can be made to work better, but we can’t do that. It has to come from customers, and at the senior end. I can’t see it happening at the moment, but it may be that a different way of working together can emerge from the consolidation.”
In the meantime, Eaton is focusing on Uniq’s strengths. He points to the 11.2% year-on-year growth in food to go for the first 21 weeks of the year thanks to innovations such as the indulgent M&S ‘Ultimate’ sandwiches in a bag. A strategic review of the desserts business in February has also identified “significant” potential savings that are set to yield results in the particularly cost-sensitive everyday category in coming months.
And while everyday desserts are a challenge, the higher-margin premium end of the desserts market is delivering encouraging results, Eaton says, as it cashes in on the popularity of dine-in deals by developing innovative products such as mini-confectionery style dessert shots and ‘frappés’, which have rocketed of late. Who wouldn’t want the M&S premium dessert business, with an estimated retail sales value of £50m? With shoppers splashing out on indulgent and quality puddings, further innovation is on the cards, he adds.
Branded desserts will be another focus in coming months, adds Eaton. Talks are already under way with Cadbury and Müller Uniq’s partners about ramping up investment in innovation, marketing and promotions in this part of the business. Eaton adds that with this area having missed out in terms of investment in the past, it could now be the scene of the some interesting activity.
“We’d like to invest more behind the Cadbury business,” he says. “We have all the manufacturing in place. We have this fantastic record of innovation with M&S and I think the same approach could be very successful with Cadbury.
“Now we have resolved the pension deficit we have a very strong balance sheet. We’ve resolved all our legacy issues, we’ve got a good bank facility so there’s nothing to stop us from a financial point of view. But, of course, we don’t own the brand so we have to get agreement from the other companies involved Müller and Cadbury but watch this space.”
Geoff Eaton snapshot
Family: Married with four children
Career: Six years as CEO of Uniq; previously CEO of Isis Research, a market research agency serving the pharmaceutical industry; 13 years building Tomkins, an international industrial conglomerate, including roles as executive director of RHM and executive vice president of Gates Corporation based in Denver, Colorado; corporate finance at Hill Samuel; qualified as a chartered accountant with Arthur Andersen, including a period working for the commercial crime bureau of the Hong Kong police.