Wednesday 24 October 2012

Premier Foods - joining up the dots in retrospect...

As you may remember, as long ago as the 5th October 2012, KamBlog analysed Premier Foods options and advised you to watch this space to see the dots joining up in retrospect… (Steve Jobs warned that you can't connect the dots in life by going forwards, it's only in retrospect that you begin to make sense of the bigger picture..)

Walking away from a £75m bread contract
Premier Foods’ decision not to renew their £75m own label bread contract with one of the major mults is all part of a move to reassess each part of its business and sell/walk-away when the figures don’t add up. This in turn is driven by a need to drive up the share price by improving its Return On Capital Employed (see KamBlog – Premier Foods).

Next moves
In a low margin, high overhead category, Premier now have to place the £75m with another mult on better terms, or suffer an increased overhead burden, probably resulting in sell-off of bread-related assets to restore profitability.

Meanwhile, by demonstrating  their willingness to walk away from unprofitable deals with retailers, Premier have done a favour for other suppliers, besides causing their share price to rise 4¾ - 6pc - to 83½p, yesterday.. voila!

Going back to the future
The key idea here is that these moves were obvious on the 5th October, to those NAMs that were prepared to explore the greater business context, and then attempt to anticipate the implications for their category and customer relationship. Running the what-if numbers then reveals the urgency…

As Steve Jobs proved many times, by using historical dot-joining to establish the big picture (including the numbers) he was able to anticipate future consumer needs and design accordingly…

Apple’s resulting output provides the evidence all around you...

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