There is no reason the sight of Prince Charles and Mark Price deep in conversation at a recent event should have aroused suspicion. After all, it was only in June that Price kicked off a speech on sustainable fishing at the CIES World Food Business Summit in New York with a taped presentation from the prince. So they're clearly on more than first name terms with each other.
But the revelation that Waitrose is now in talks to bail out Duchy Originals suggests that fish isn't the only thing the pair have been discussing. Questions will inevitably be asked about what the two sides hope to achieve from the tie up, which it is understood will lead to Waitrose taking on the £4m operational costs of Duchy and paying a lump sum into The Prince's Charities Foundation in return for exclusive supply.
For a retailer to take a stake in a supplier is by no means a new phenomenon in grocery. Morrisons owns a significant chunk of its supply chain, for instance, but the businesses involved are almost exclusively own-label, commodity-based manufacturers that fit with its strategy of vertical integration.
It's highly unusual for a retailer to take on a branded supplier and a royal one at that. Both Waitrose and Duchy are still coy over the full details, but Waitrose could gradually fold all the functions of Duchy into its own business and close Duchy's office in Richmond, Surrey, according to a senior industry source.
From Duchy's perspective, the benefits of a link-up with a major retailer are fairly clear. It's in financial trouble. Accounts for the year to 31 March 2008 show Duchy's profits fell 80% to £151,717. Sales, meanwhile, fell £802,000 between 2007 and 2008 as SKUs were rationalised. Another problem, says the source, is that it has "lost distribution, lost sales and stopped promotion" in recent years.
"It has got rid of its sales force and the producers are themselves selling and marketing their products to the retailers," he says. "But the problem is that many of these producers also sell own-label products so they have little vested interest in the brand."
A straight purchase of Duchy by Waitrose would be difficult because Duchy is committed to donating all its profits to charity. Despite this, Duchy accounts show no donations have been made since 2007, which is why a hefty donation by Waitrose could appeal.
Bob Farrand, director of the Guild of Fine Foods, believes the arrangement would throw a lifeline to Duchy, which started life as a fine food brand before its expansion into the multiples. "Duchy lost the allegiance of the delis and then reverted from controlling production into a brand-licensing organisation. It now has precious little control over quality. While I am unsure what Waitrose will get out of the deal, it may mean the Duchy brand will survive."
Waitrose's rationale is not quite as simple to understand. With 45 SKUs, Waitrose already stocks far more Duchy lines that any other retailer (Sainsbury's is closest with 14) and it has long been rumoured to be interested in doing a deal with Duchy because of the close alignment of the two brands.
But the proliferation of Duchy products during organic's happier times has left the business "bleeding money" according to the source. There is also the question of what sort of message taking on a premium niche brand such as Duchy sends out to consumers. Waitrose has spent the past year trying to broaden its appeal by launching Essential Waitrose and pushing its value credentials.
"I question Waitrose's strategic thinking in taking it on," says industry consultant Kevin Hawkins. "Duchy does nothing to reinforce the value message in a market that is going to be even more value-driven over the next few years as incomes are squeezed by higher taxes and unemployment."
However, Shore Capital analyst Clive Black argues that Duchy's premium positioning works in its favour. "It's a cosy brand that sells all sorts of quintessentially English products," he says.
Duchy has strong brand recognition, thanks to its link with the Crown, and resonates with Waitrose's core demographic. These consumers remain vital, despite the recent push to establish a mass market proposition, he adds.
With Waitrose accounting for about 40% of Duchy's business, an exclusivity arrangement would guarantee distribution, says the industry source. But it could lead to a seriously scaled down version of Duchy moving forward. "Whether Duchy could trade exclusively with Waitrose and deliver enough volume as a subsidiary is questionable," says Black.
While retailers won't feel the effect as much as they would have before Duchy started rationalising its range, they are unlikely to be happy about the loss of core lines such as bacon, sausages and tea. However, Tesco, which stocks nine Duchy lines, says it does not think the impact of losing Duchy would be significant. "It's not McVitie's," says a spokesman.
Even if an exclusivity deal is not agreed and Duchy continues to be supplied to other retailers, there will be concerns about confidential information falling into Waitrose's hands. "Other retailers might baulk at the prospect of Duchy being owned by Waitrose," says Black. "I think the retailers would be concerned at how much information they want to give about their procurement processes to a manufacturer that could then be passed on to Waitrose. It could restrict sales of Duchy into other retailers if Waitrose did take over."
What Waitrose will need to do, Black suggests, is take a serious look at Duchy's cost structure. "Anyone that takes over a struggling business is going to look at the cost base, operation and organisation, they're going to look at the central overheads, how they buy stuff, the production costs, the distribution costs and what the brand stands for."
In essence, Waitrose would end up running Duchy as a tertiary brand, albeit a premium one. But any agreement is unlikely to open the floodgates to similar relationships, experts say.
"Smaller speciality food producers control quality better and shouldn't need to enter into arrangements like this," says Farrand. Morrisons aside, the long-term trend for retailers distancing themselves from manufacturing is unlikely to reverse, Black adds.
"I'd be surprised if there's much acquisition activity in this area. Over the years both Sainsbury's and Tesco have got out of manufacturing and I don't see this as the start of a trend."
Not for the first time this year, Waitrose is doing the unexpected. But whereas the Essential range has so far proved an unmitigated success, making Duchy fit for a king could prove a tougher ask.
But the revelation that Waitrose is now in talks to bail out Duchy Originals suggests that fish isn't the only thing the pair have been discussing. Questions will inevitably be asked about what the two sides hope to achieve from the tie up, which it is understood will lead to Waitrose taking on the £4m operational costs of Duchy and paying a lump sum into The Prince's Charities Foundation in return for exclusive supply.
For a retailer to take a stake in a supplier is by no means a new phenomenon in grocery. Morrisons owns a significant chunk of its supply chain, for instance, but the businesses involved are almost exclusively own-label, commodity-based manufacturers that fit with its strategy of vertical integration.
It's highly unusual for a retailer to take on a branded supplier and a royal one at that. Both Waitrose and Duchy are still coy over the full details, but Waitrose could gradually fold all the functions of Duchy into its own business and close Duchy's office in Richmond, Surrey, according to a senior industry source.
From Duchy's perspective, the benefits of a link-up with a major retailer are fairly clear. It's in financial trouble. Accounts for the year to 31 March 2008 show Duchy's profits fell 80% to £151,717. Sales, meanwhile, fell £802,000 between 2007 and 2008 as SKUs were rationalised. Another problem, says the source, is that it has "lost distribution, lost sales and stopped promotion" in recent years.
"It has got rid of its sales force and the producers are themselves selling and marketing their products to the retailers," he says. "But the problem is that many of these producers also sell own-label products so they have little vested interest in the brand."
A straight purchase of Duchy by Waitrose would be difficult because Duchy is committed to donating all its profits to charity. Despite this, Duchy accounts show no donations have been made since 2007, which is why a hefty donation by Waitrose could appeal.
Bob Farrand, director of the Guild of Fine Foods, believes the arrangement would throw a lifeline to Duchy, which started life as a fine food brand before its expansion into the multiples. "Duchy lost the allegiance of the delis and then reverted from controlling production into a brand-licensing organisation. It now has precious little control over quality. While I am unsure what Waitrose will get out of the deal, it may mean the Duchy brand will survive."
Waitrose's rationale is not quite as simple to understand. With 45 SKUs, Waitrose already stocks far more Duchy lines that any other retailer (Sainsbury's is closest with 14) and it has long been rumoured to be interested in doing a deal with Duchy because of the close alignment of the two brands.
But the proliferation of Duchy products during organic's happier times has left the business "bleeding money" according to the source. There is also the question of what sort of message taking on a premium niche brand such as Duchy sends out to consumers. Waitrose has spent the past year trying to broaden its appeal by launching Essential Waitrose and pushing its value credentials.
"I question Waitrose's strategic thinking in taking it on," says industry consultant Kevin Hawkins. "Duchy does nothing to reinforce the value message in a market that is going to be even more value-driven over the next few years as incomes are squeezed by higher taxes and unemployment."
However, Shore Capital analyst Clive Black argues that Duchy's premium positioning works in its favour. "It's a cosy brand that sells all sorts of quintessentially English products," he says.
Duchy has strong brand recognition, thanks to its link with the Crown, and resonates with Waitrose's core demographic. These consumers remain vital, despite the recent push to establish a mass market proposition, he adds.
With Waitrose accounting for about 40% of Duchy's business, an exclusivity arrangement would guarantee distribution, says the industry source. But it could lead to a seriously scaled down version of Duchy moving forward. "Whether Duchy could trade exclusively with Waitrose and deliver enough volume as a subsidiary is questionable," says Black.
While retailers won't feel the effect as much as they would have before Duchy started rationalising its range, they are unlikely to be happy about the loss of core lines such as bacon, sausages and tea. However, Tesco, which stocks nine Duchy lines, says it does not think the impact of losing Duchy would be significant. "It's not McVitie's," says a spokesman.
Even if an exclusivity deal is not agreed and Duchy continues to be supplied to other retailers, there will be concerns about confidential information falling into Waitrose's hands. "Other retailers might baulk at the prospect of Duchy being owned by Waitrose," says Black. "I think the retailers would be concerned at how much information they want to give about their procurement processes to a manufacturer that could then be passed on to Waitrose. It could restrict sales of Duchy into other retailers if Waitrose did take over."
What Waitrose will need to do, Black suggests, is take a serious look at Duchy's cost structure. "Anyone that takes over a struggling business is going to look at the cost base, operation and organisation, they're going to look at the central overheads, how they buy stuff, the production costs, the distribution costs and what the brand stands for."
In essence, Waitrose would end up running Duchy as a tertiary brand, albeit a premium one. But any agreement is unlikely to open the floodgates to similar relationships, experts say.
"Smaller speciality food producers control quality better and shouldn't need to enter into arrangements like this," says Farrand. Morrisons aside, the long-term trend for retailers distancing themselves from manufacturing is unlikely to reverse, Black adds.
"I'd be surprised if there's much acquisition activity in this area. Over the years both Sainsbury's and Tesco have got out of manufacturing and I don't see this as the start of a trend."
Not for the first time this year, Waitrose is doing the unexpected. But whereas the Essential range has so far proved an unmitigated success, making Duchy fit for a king could prove a tougher ask.
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