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High margins lead to new directions for Britain's freezer centre sector.

High Margins Lead to New Directions For Britain's Freezer Centre Sector Iceland Frozen Foods makes unfriendly 248.6 million pounds offer to acquire Bejam in case of nimble entrepreneurial chain going after a bigger competitor.

It was once speculated in this column that somebody would make a buck or two by opening shops selling nothing else but frozen foods. John Apthorp, the founder of Britain's first freezer centre chain, Bejam, later told this reporter that he read my articles, which only goes to show that you make a lot more money putting ideas into practice than writing about them in the first place!

To be precise, you make an operating profit of 26,722 million Pounds on sales of 528,660 million pounds in 1988, which is not good enough, according to the City analysts, but enough for Iceland Frozen Foods, the entrepreneurial retailer headed by Malcolm Walker, who has just launched a hostile 248.6 million pounds bid for Bejam.

Iceland's average earnings growth has been running at over 25% a year since 1985, but the managers of this 183 store chain have been more nimble than Bejam in keeping up with shifts in eating habits.

"We're outperforming Bejam in all the high-growth sectors," claimed Walker, Iceland's ebullient chairman who founded the company with Peter Hinchcliffe, the present deputy chairman, in 1970.

Bejam's founding Apthorp family controls 30% of that company and, according to Walker, the two outfits have twice sat down at the negotiating table. The approach had come from John Apthorp, the Bejam chairman.

Initial talks took place in mid-1986 but fell apart over price. Walker said he received a second approach 18 months ago, when a price was agreed upon. But the deal collapsed because senior directors at Bejam, worried about their future in the combined group, voted against the merger.

"The price then was not a million miles away from what it is now," said Walker.

Walker's weapon in the frozen food war is to argue that Bejam's 267 stores are still stuck in the 1970s in their product mix, their store design and in merchandising. Most of them are in the south whereas Iceland is mainly in the north of the country.

Strongest growth in the sector is coming from value-added products rather than commodities sold in bulk, such as frozen vegetables or sides of meat.

Iceland, along with rivals such as Tesco and Marks and Spencer, has proved an innovator in producing frozen ready meals designed to appeal to `grazers' (the marketing industry's term for consumers who no longer eat as families but need fast, healthy, individual meals). Commentators in general in the U.K. award the plaudits to the companies who have successfully entered this sector.

Bejam, on the other hand, has remained more dependent on the sales of commodity items which boomed in the 1970s and early 1980s, when home freezer ownership was growing rapidly.

Now that freezer sales are approaching the saturation point with about 70% of households owning one, the sales of commodity frozen goods have hit a plateau.

Not that you would have come to that conclusion in the wake of the 1988 pea harvest in Europe. Nearly every carpetbagger in the business has been scouring Europe for peas to make up the shortfall caused by the U.S. mid-west drought which hit the canned pea crop there, causing buyers to fill the gap with bulk-packed frozen peas.

This is the sort of environment in which traders like John Apthorp thrive and which the new breed of market-led entrepreneurs like Walker like to dismiss. Both are right but at different points in the marketing cycle.

Margins on commodities such as peas are slim, and you have to sell a heck of a lot to make any real money. Margins on added-value recipe dishes or cakes are bigger and there's more room for them in the freezer centres anyway, so Walker could be right.

John Apthorp was the entrepreneur who built Bejam and started the fashion in Britain, but the front man for many years was Bill Perry, the marketing director, whose last major appearance before the industry was at the 1982 World Frozen Food Congress in Copenhagen, where he was one of the star speakers.

It is by no means certain at the time of this writing that the Iceland bid will be accepted, but most commentators think it will be. One wonders what Bill would have thought about it all?

Or about the fast-developing snack food sector, born out of the same impulse that leads people to `graze' rather than sit down for a family meal. One of the old guard packers, Birds Eye Wall's, has moved into this sector now with the launch of what it claims is the first-ever frozen snack.

Called Snack Shots, the new range of six products is a result of recent massive expansion in the 8 billion pounds U.K. snack market.

Snack Shots brand manager, Liam O'Rourke, said this is the first `less-than-a-meal' microwaveable frozen food on the market, and aims to exploit the highly fragmented eating habits of the British consumer.

The range, comprising Chinese Chicken, Chicken Curry, Vegetable Bolognese, Potato Brunch, Pasta Italienne and Burger-in-a-Bun, is being launched by a 1.2 million pounds TV campaign.

Currently, more than 39% of U.K. households own a microwave oven, a four percent increase in just five months.

Birds Eye launched its new range in the North two months before the January release throughout the rest of the country.

"In the north east there is a 46% penetration of sales compared with 33% in London, and we expect a massive take-up there," said O'Rourke.

Birds Eye has also designed a reusable microwave container. All Snack Shots are priced under 1 pound.

The buoyancy of the U.K. market has not only led to a proliferation of new products and a lot of new activity in the retail sector. It has also encouraged some of the big companies outside frozen foods but with big brands elsewhere to come in and join the throng.

Ranks Hovis McDougal, for example, whose Mr Kipling cakes have been the cause of some memorable advertising, with the often-repeated catch-line: "Mr Kipling makes exceedingly good cakes." The initial thrust is in the hot pudding and desserts sector, but cakes are not ruled out and more developments are likely early next year.

The ambient cake market is fairly static and, despite numerous brands and suppliers in the market, Mr Kipling has held its own with 36% of the market. Said Nigel Kingston, managing director of Manor Foods (a specialist sales company which produces the brand as part of RHM): "When you have a lot of players in the market it becomes more difficult to get bigger." The company also markets Cadbury cakes which has around 7% of the market.

Production is through Heinzel which RHM bought some while ago and has invested over 400,000 pounds in its Doncaster plant. Said Kingston, "We are prepared to invest heavily into the frozen sector and will not detract from the concept advertising for Mr Kipling cakes."

The hot desserts market, worth between 10 million pounds and 15 million pounds, last year saw growth of about 15% and is likely to see further expansion. Ross and McVities brands are strong in puddings and crumbles. The frozen cake market has a number of brands including Sara Lee, McVities and Birds Eye.

Added Kingston, "We carried out consumer research and the move has been well received -- we are still in the baked area -- it's not like moving into a completely different sector."

The range comprises six varieties -- Spotted Dick, Rich Jam Roly Poly, Golden Syrup Sponge Pudding, Bramley Apple Crumb, and Bramley Apple and Blackcurrant Crumble -- all of which may be baked from frozen. The suet and sponge puddings may also be microwaved.

"The increase in microwave oven ownership, coupled with the continued requirement by housewives for convenience, has clearly stimulated demand for foods needing minimal preparation," said Kingston.

"The combination of these factors and the stimulus provided by the Mr Kipling name gives us confidence that the hot dessert sector is on target for value growth in excess of 20% over the next 12 months."

The collection of six puddings is in line with the Mr Kipling strategy of providing a comprehensive range to give the brand an immediately strong presence in the freezer case.

What each of these events illustrated is the enormous power of the retailer now in British food marketing and its impact on product development. Before the supermarkets reacted to Bejam and the freezer centre movement, frozen food trading in this country was mainly about commodity battles...and price. Some the industry's original executives were stuck on the battleground and forgot to look to the right and left of them where new battles were starting up as more freezer space became available in the freezer centres and later in the supermarkets.

In the 10 years or less, Sainsbury's, Tesco and Marks and Spencer have become major-league players in the frozen food struggle and have brought new brands into play Sainsbury's, Tesco and St Michael (Marks and Spencer)! The spectacle has attracted new players from this country and abroad, leading to a wave of bids, acquisitions and mergers. (It will not have gone unnoticed, moreover, that M & S has now embarked on a policy of overseas development -- Europe, North America and the Far East -- and that their mastery of chill distribution is also exportable.)

In the circumstances, it is sometimes difficult to remember who owns, whom, but let's give it a shot.

Birds Eye is still owned by Unilever but an internal acquisition added the Wall's ice cream company to make up Birds Eye Wall's Ltd. Speculation about Unilever divesting itself of Birds Eye Wall's in order to concentrate on core businesses in soaps and detergents is thought to be ill-founded.

Ross Youngs finally ends up in the United Biscuits camp after a brief trip through Hanson. But Sir Hector Laing now has to show us what he intends to do with the merged Ross Youngs and UB Frozen Foods.

Findus remains the Nestle frozen food brand in Britain, but the company's main visibility in the cabinets is through Lean Cuisine and now Dinner Supreme. It is thought likely that the Buitoni name they have acquired will be developed here.

Freshbake has fallen to Campbell's and we wait to see whose philosophy will prevail here...that of Campbell President R. Gordon McGovern, or that of former Freshbake Chairman Ken Manley, who emerges as chairman of Campbell's Europe.

Pillsbury is hardly a major force in the U.K. frozen food market, and has even sold off the Fiesta ice cream business which it bought only a few years ago. Now that the Grand Met takeover bid has succeeded it will be interesting to see what they will do with the Pillsbury name in Europe.

Another big brand which is now a target for bids is Kraft. In the U.K., Kraft owns Brains.

RHM (Ranks Hovis McDougall) owns Tiffany's, Sharwood and Heinzel. Tiffany Sharwood's frozen foods portfolio is headed by the range of six Tiffany Uppercrust pies, and eight Sharwood's Indian and Chinese meals.

There are now even regional mergers in the U.K. West Country Frozen Foods, launced in April as a division of Northern Foods, has brought together Bowyers Frozen Foods and Dorset Foods frozen brands in a 25 million pounds marketing and sales operation. Founded in 1967 as a frozen pastry manufacturing operation, Dorset is now established in the savoury flan and quality desserts market.

International brands in the cabinets include Bonduelle of France who have captured a sector of the vegetable market without the massive advertising and promotion that accompanies other people's efforts. The company, whose vegetables are mainly supplied from France, has just announced that contracts for several vegetables are now to be placed with Lincolnshire growers. Processing and freezing will be undertaken by Christian Salvesen with whom Bonduelle have also introduced a U.K. depot and redistribution service.
COPYRIGHT 1989 E.W. Williams Publications, Inc.
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Title Annotation:Iceland Frozen Foods takes over Bejam
Author:Kemp, Graham
Publication:Quick Frozen Foods International
Date:Jan 1, 1989
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