Here’s a ‘Great Little Idea’ for you.
Buy a bunch of tired old brands. Pay a premium for them. Add a ton of debt to the balance sheet. Take on heaps of additional pension liabilities. And then, thanks to your premier size, squeeze extra profits out of a so-called ‘stronger negotiating position’ with your customers to pay for it all.
The flaws in this argument on which Premier Foods was built have been apparent for some time. Any savings made through efficiencies have been used to pay down debt. And while its lean management structure stripped out cost, as a conglomerate, management was unable to offer focus.
In the latest example, seeing the speed with which private equity group Exponent has revitalised Quorn following its acquisition of the meat substitute brand - in terms of advertising and NPD - has been almost embarrassing.
But The Grocer’s investigation into a massive trading dispute with Tesco this week, which prompted Premier to issue a profit warning as we were going to press, throws fresh light on the folly of its strategy.
Instead of pushing Tesco around, thanks to its size and bulk, Tesco has run rings round the flabby conglomerate, delisting as many as a quarter of its SKUs across every Premier category to teach it a lesson. “Yes, you can put your prices up,” it has effectively said, “but the total SKU count will be dealt with accordingly.”
Conversations like this have been happening with suppliers of every size in recent months. But none appears to have handled the situation quite as badly as Premier. And while both parties insist the dispute is resolved, at a cost of £10m at least, the more frightening thought is that Tesco is meanwhile looking to both reduce its supply and embrace new venture brands, and roll out new own-label brands from its other international operations.
