Jón Scheving has a £100m war chest to invest. Anne Bruce probes his intentions

Baugur overseas investments MD, Jón Scheving, is marauding through a tin of Tesco Finest biscuits. Cue a discourse on Tesco’s pricing policy.

“Not really cheap”, says Scheving, betraying his hard discounting roots.

The retailer is on a flying visit from his native Iceland to Baugur’s new, and as yet unfurnished, headquarters in London’s Bond Street. He has been busy getting up to speed on his EDLP and high:low players because, as he reveals to The Grocer, he has a £100m investment war chest to spend. And, he continues, he could well spend it on another food retailer.

Baugur burst onto the UK grocery scene with the purchase of a stake in Big Food Group last November (The Grocer, November 2, 2002).

The move gave rise to speculation that Baugur planned a hostile takeover of BFG in conjunction with former Booker chief executive officer Charles Wilson, who would then lead an MBO of Booker. Scheving and Wilson had worked together in 2000 on the failed Arcadia bid.

After the BFG takeover Baugur would then use Iceland’s 700-plus sites to introduce its Bonus general merchandise format to the UK, suggested analysts.

Baugur has put all food deals on hold until it has completed its radical internal restructure and exit from the US and the Safeway saga has concluded.

Baugur’s three operating divisions are being amalgamated into the Baugur Group, focused on the “bullish” UK market.

However, there could be some dramatic developments on the cards once these two situations are resolved. Scheving says that BFG and Somerfield could merge if both parties felt it was in their best interest. But, he adds: “You don’t want to mix oil and water,” alluding to the widely acknowledged disastrous Somerfield-Kwik Save merger as an example.

“Buying synergies is only one aspect of the business,” he says.

BFG was the first of Baugur’s big strategic deals and it now has a 22.5% stake, as well as 3.5% in Somerfield.

Scheving says: “These companies have been doing a lot better on the stock market over the past year, at least since we’ve been investing in them, and both companies’ performances are improving. A major overhaul is going on in both businesses.”

Initially Baugur, with its hard discount background, had reservations over chief executive Bill Grimsey’s plans to reformat Iceland stores and move them upmarket.

It soon changed its opinion, says Scheving. “You look at the capital investment of Tesco and the
refurbishments and what people are doing. Some of Iceland’s new stores are great so we think it is on the right track.

“It’s interesting to watch… BFG probably had a cracking summer. Booker is probably the second biggest buyer of Coca-Cola in this country.”

As soon as he gets the green light, Scheving will look for further investments in the two areas it knows best - food and fashion.

Baugur is weighing up two new strategic opportunities in the UK, says Scheving. He won’t divulge what they are but, he says, Baugur will be involved in the development of these companies, pushing for any changes it thinks are necessary for the direction of the businesses.

It also wants to create a portfolio of interests in smaller undervalued independent companies as medium-term investments and, says Scheving, it would be prepared to take a back seat with those stocks.

Big Food Group falls into the strategic category - although Baugur has not exercised its legal right to a seat on the board.

However, “vulture” capitalists, as Scheving describes them, who might be expecting to do a quick deal can forget it. Baugur usually takes three to six months to decide whether to pursue an investment opportunity.

Scheving says: “Each time we make a purchase we take a long look around. We do like to walk around the stores… I’ve lost count of how many Iceland stores we went into.” He adds: “We only work on two projects at one time, moving slowly but surely. We are not going to splash it around.”

So would Baugur consider bringing Bonus, its flagship hard discount format, to the UK? Scheving says: “We feel that maybe the British public might want more hard discounters - even harder than Asda - like Aldi. Netto, Aldi and Lidl are doing well here but they are private companies, so you wouldn’t really know. The only problem is that they are not getting any property.”

Baugur has, in fact, started to invest privately in retail property development companies - 20% of its new-look business will be tied up in retail development.

That way it can get a feel for what rivals are doing and for underlying trends... “from who wants better store lighting, to who is aggressively expanding”.

Scheving is planning a long hard look at the UK’s comparatively upmarket retail scene and insists he won’t be rushed into anything. “We’ll look for the right opportunity and try to understand where retail is going. It’s a strange market, we don’t have to hurry.”

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