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UK’s Premier Foods takes on Tesco and Marks & Spencer – and loses

The UK’s Premier Foods is a minnow in the global brands world but the company was a darling of the stock exchange for years as it picked up a string of unwanted brands from other food companies and revived them. Its most famous are probably Mr Kipling cakes and Hovis bread.

It also built a thriving business making products for own labels.

But the recession hit Premier hard (it had accumulated nearly £2bn of debt) and rampaging global food prices are giving the company another hammering (as is the stock exchange).

Earlier this year it tried to pass on a 14 per cent rise in prices to major retailers including the mighty Tesco, itself under pressure as far as its UK sales are concerned, despite a 30 per cent market share.

Tesco, as retailers do, told Premier where to get off and delisted many of its brands. The result is likely to be a near 50 per cent fall in Premier’s first half profits from £94m in the first half of 2010 to £65m this year. Yesterday its shares fell 22 per cent to just over 19p.

It also announced that it had lost a lucrative contract to make pies for Marks & Spencer, possibly also a pricing issue.

Premier now says it has resolved matters with Tesco and the likes of Mr Kipling and Hovis are once again available, but, presumably at a price to Tesco’s liking rather than Premier’s.

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Tesco buyers are the bane of many brand companies’ lives, they’re not just aggressive and inflexible the brand companies say, but don’t know that much about the categories they represent either. Be that as it may, the system works for Tesco and even mighty operators like Procter & Gamble and Unilever are used to taking a beating every now and then.

But the much smaller, and more specialised, Premier hasn’t just taken a beating, it’s on the ropes.

Premier’s Mr Kipling is one of the first clients at Phil Rumbol’s new ad agency 101. Rumbol, a former marketing director of Cadbury in the UK, will be more than familiar with tussles between brands and retailers.

But he won’t be quite as familiar with the life of an agency manager who sees his client’s budget disappear in a hurry. Welcome to the agency world Phil.

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