Public lost taste for food brands
Premier Foods may have spent a lot of dough on Hovis but it has proved to be a major drag on the firm’s profits. Its 2007 purchase of arch-rival Rank Hovis McDougall, the then-owner of the iconic bread brand, for £1.2bn in a debt-laden transaction, now seems typical of the overly-optimistic deals that preceded the credit crunch and have left the firm struggling to meet bank repayments.
But at the time there seemed no grounds for worry. That year Premier shares hit 288p – more expensive than a jar of the firm’s Loyd Grossman sauce; today they were trading for under 12p, barely enough for an Oxo cube.
What went wrong? Reduced consumer spending has caused the marketplace to change beyond recognition in recent years as shoppers turn to supermarket own-brand lines, which now compete on quality as well as price.
Premier has not always helped itself in this regard, last year souring its relationship with supermarkets in a botched attempt to pass on a 14 per cent rise in costs to customers. But most importantly, the cost of servicing debt means that it has failed to invest in its main asset: its brands.