Michael Clarke, until recently the head of Kraft’s European operations, has chosen to accept one of the toughest assignments in FMCG. His mission: to turn around Premier Foods. Can he pull it off?

As a boy, Michael Clarke wanted to be a surfer.

And parachuted in to turn around the fortunes of Premier Foods, he’ll have to negotiate some enormous waves over the coming months as he attempts to turn around the company’s disastrous trading, breathe new life into its heritage brands, tackle its yawning pensions deficit and build bridges with disenchanted staff, customers and shareholders.

So is this an impossible job, as many have suggested? What can he do? And is the new chief executive up to the challenge?

He’s certainly not hanging around. He started at Premier on August 16, two weeks ahead of schedule, and has already appointed former Coca-Cola Enterprises sales supremo Ian Deste as new group sales director, replacing Ian York.

Like many of his Kraft peers most recently as president of Kraft’s North West Europe and Nordics business unit Clarke, 47, operated below the radar. But his reputation internally was very positive. A former colleague recalls: “He’s not as reflective as you’d expect a Kraft man to be. He’s an instinct guy, a passion guy. And that’s all the more surprising because he is an accountant. In fact, to understand him, it’s more helpful to think of him as ex-Coke than ex-Kraft.”

Clarke’s talents were certainly well known to Premier chairman Ronnie Bell, who spent 30 years at Kraft. But while some shareholders may be concerned at the potential cosiness of the relationship between the chairman and CEO, Clarke’s first task will be his team. “He’s certain to want to bring in some of his own people,” says the former Kraft colleague, “but he’s good at leading the troops, spotting where people are in conflict. He’s a leader, and provides no ambiguity.”

Industry insiders suggest chief operating officer Tim Kelly has had his nose put out of joint by the external hire of a new CEO. The recent tragic death of group technical and innovation director Paul Kitchener is another setback for the company, which flagged NPD as a key focus for its revamped marketing strategy in May this year.

And while some believe Premier’s streamlined conglomerate structure meant senior management was unable to provide the category teams with the focus that a single-category player such as a Warburtons or Samworth Brothers might offer, a senior source at Premier believes “the alleged big hitters” - divisional heads Mark Tyldesley in savoury; Simon Devereux in bread; Matthew Hunt in cakes; and David Atkinson in challenger and non-drive - will also be under pressure to perform. “The business has got to bring more innovation to the table. We rely on those people to deliver.”

Structural change may also be required. With innovation and marketing key, the source finds it “odd” that group marketing director Jon Goldstone has zero direct reports. “He’s a minister without portfolio,” he says.

Michael Clarke: the new agent

Age: 47

Family: Wife and two children

Born: Cape Town, South Africa

Career: Bachelor of commerce degree from the University of Cape Town in his native South Africa. Started career in accountancy with Deloitte. Previously with Reebok International in finance and operations in the Asia Pacific, then MD of Reebok South Africa. Assumed responsibility for Africa and Middle East region; later appointed vice-president of the South Asia/Pacific region.

Joined Coca-Cola in 1996 as group director, Europe, for The Minute Maid Company and worked up to senior vice-president of the international arm before being appointed president of Coca-Cola South Pacific and Korea division in 2000.

Appointed division president, North West Europe, in 2005 and assumed extra responsibility for the Nordic region in 2007. More than two years as executive vice-president and president, Kraft Foods Europe, leading the European business, based in Zurich, Switzerland.

Hobbies: Surfing, snowboarding

Clarke will also need to restore relations with Premier’s key customers. In July, The Grocer’s investigation into a £10m pricing row with Tesco, which led the retailer to temporarily delist a quarter of Premier’s treasured branded products, and the loss of a £10m M&S pie contract to its already struggling Brookes Avana business (which supplies own-label chilled ready meals and bakery products to the major multiples), forced Premier to issue a shock profit warning to the market.

And while fierce competition and soaring cost inflation provide the context, sources suggest Premier’s aggressive pricing tactics and poor timing have been primarily to blame. “Premier hasn’t sought to learn from the issues it has had in the past,” says one industry insider. “It’s played hardball, and lost,” he says. And a leading buyer adds: “Why would an ambient specialist pick a battle with Tesco at the start of the summer?”

Deste’s appointment is expected to smoothe some ruffled customer feathers. His record at CCE was impeccable, as the soft drinks giant repeatedly scored strongly in The Grocer and other supplier surveys. But sales negotiation and relationship expertise alone are no good if they are not supported by telling NPD and strong marketing, says the Premier source.

“Retailers are whores. It isn’t just about relationships. The biggest issue is we haven’t got a lot to talk about. If we’re not doing anything to drive customers’ category sales, we are not in a strong position to negotiate commodity-based price increases. “It’s all quite simple for Michael,” the source adds. “He’s got a manufacturing base to die for. It’s very much the commercial end of the business that needs fixing. He’s got to make choices and get behind them with strong marketing and innovation.”

And the CEO of a leading wholesaler believes Premier hasn’t been focused enough on consumer insight. “How they could have missed cous cous as a trend is beyond me,” he says. “It’s been left to the likes of Symington’s to just get on and do stuff. Premier is by no means alone in terms of its lack of entrepreneurialism a lot of manufacturers are shuffling the deckchairs and doing it the way they’ve done it for 15 years. But as the UK’s biggest manufacturer, its very public failure under Robert Schofield stands out.”

The Premier source acknowledges that Schofield’s strengths “on his crashing and banging of businesses together, he has no equal” were offset by a lack of brand expertise and people management. “Running the business, growing it organically, that was where Schofield was weak.” But as a “brand man” according to Premier, Clarke is ideally placed to address these issues, he adds. “That’s where Clarke can come in. He’s got to look at the cost base, decide the priorities and make cost savings to create the funds.”

CFO Jim Smart is also likely to pay a pivotal role. Smart has strengthened the balance sheet by restructuring loss-making derivatives acquired when the company bought Hovis maker RHM in 2007, closed the final salary pension scheme and sold off Premier’s meat-free and canning businesses to reduce debt to £972m.

“But recent events show they’ve still got a good chance of being broken up,” says one rival. “Commodity inflation is challenging they’re tackling their debt, but they’ve still not got much cash to invest. And then there’s the pension.”

The pension may yet prove the biggest obstacle to Clarke, says a City source. With the stockmarket tanking, and gilts falling, Premier’s declining market cap (£313.4m as The Grocer went to press) puts it in a weak position when set against its pension scheme obligations (£3bn at the end of last year). “Premier Foods could be another Uniq. Clarke’s hands may be tied by the pension trustees.”

“He’s going to have to make some big decisions, but he won’t know until a year down the road or longer whether they were the right ones,” adds David Bor, JLT Pension Capital Strategies consultant and actuary.

Certainly the prospect of another dilutive rights issue to ease the net debt weighing on Premier’s balance sheet is a key concern for investors. Smart has already poured scorn on the idea, and such a move is likely to be met cautiously by the City, says Panmure Gordon & Co analyst Graham Jones. “Most potential investors don’t seem willing to get involved until they have heard new CEO Michael Clarke’s views. That is probably sensible.”

But Bor believes a rights issue is not enough. “He needs to take the volatility out of the pension scheme and to do that will have to buy out the pensioners or do a transfer value exercise to get deferred members out.” And he points to the “stash of cash” held at the end of last by Premier as a signal that it is planning something.

Besides, with governments in crisis management mode and global markets volatile, the timing of a bond issue is tricky. The obvious way for Clarke to raise cash fast would be to divest non-key assets as quickly as his predecessor snapped them up but, in the current climate, experts warn that’s easier said than done.

“Clarke would want to offload more businesses as they’ve got lots of mature operations. They’d probably like to exit own label and sell the Brookes Avana business, which is haemorrhaging money, but that’s not an easy deal,” says one source. This is particularly the case now Greencore is tied up with buying Uniq. And even if they pull off a sale, it’s unlikely to significantly deleverage the company, he adds. “Clarke will be looking to see what else he can offload and where they can take cost out while still growing a business that is currently going backwards.”

So: Clarke’s mission requires some tough calls, nerves of steel, superb motivational skills, a City charm offensive and a cunning plan for the pension. A mission impossible. Well, his favourite mantra is ‘don’t admire the problem; work the solution’. With the clock ticking, he’s started at pace. The one thing you can be sure of is that, right now, he won’t be twiddling his thumbs. 

Other impossible missions… and lengthy delays

While the top job at Premier has been filled after a 10-month hiatus, it’s taking longer and longer to find suitable candidates for top jobs. The Weetabix CEO role was secured after an eight-month search. In the meantime, at Kellogg’s, there’s still no permanent replacement following the departure of Greg Peterson in January. The current acting UK MD, Flemming Sundoe, is an interim management appointment, brought in to steady the ship as the cereals category weathers an unprecedented decline in sales and to prepare the ground for a new MD.

What’s the holdup? After all, with so much consolidation, there shouldn’t be a shortage of candidates. Is this an impossible mission? One rival believes the task is “extraordinarily difficult”.

“From a consumer perspective, Kellogg’s has been well managed. But they’ve upped the promotional ante to the extent that they’re taking value out of the market. To get out of the hole they’ve created will be extraordinarily difficult.” A leading headhunter fears the time it takes to recruit for senior positions will only lengthen, however.

“Kellogg’s is a big job in the UK,” she says. And the problem is as much systemic as it is specific, as the restructuring of the UK fmcg market along functional lines Unilever, Coca-Cola and Diageo are among recent notable examples may be having a negative impact.

“There are not enough candidates with P+L experience,” she says. “With the consolidation of the market and the fact a lot of businesses have restructured along international lines, the result is fewer and fewer people trained in P+L management. We are developing marketing and finance supremos, but no general management.”