Northern Foods plc - Company Profile, Information, Business Description, History, Background Information on Northern Foods plc

Beverley House
St. Stephen's Square
Hull HU1 3XG
United Kingdom

Company Perspectives:

Northern Foods is a leading U.K. food producer. We operate in eight core product areas which benefit from long term demographic and lifestyle trends favouring high quality foods that are convenient to eat.

Our focus is on serving the leading retailers and we have strong market positions in the supply of high quality chilled foods under their retail names. We also have successful brands in biscuits, frozen food and savoury products.

History of Northern Foods plc

Northern Foods plc is one of the United Kingdom's leading manufacturers of high-quality fresh foods, supplying the country's preeminent retail outlets with both private-label and branded products. Nearly three-quarters of its revenues are derived from private-label deals with five big U.K. food retailers: Marks and Spencer p.l.c., J Sainsbury plc, Safeway plc, Tesco PLC, and ASDA Group Limited. Northern Foods specializes particularly in fresh-chilled prepared foods, including a wide variety of ethnic entree dishes, quiches, sandwiches, pizza, and dairy products. Other food products produced by its 17 mostly independently run operating companies include desserts, baked goods, cookies, baked beans, canned vegetables, and frozen pizza. The NFT Distribution Limited subsidiary distributes nationally the chilled food products of Northern Foods and other food makers. Northern Foods has the reputation of being one of the most adventurous, idiosyncratic, and successful companies in the United Kingdom, with a track record of steady, respectable growth.

Establishing a Retail Dairy Business: Mid-20th Century

In 1932 Alec Horsley joined his father's condensed milk business, Pape and Co., Ltd., a small Hull-based concern importing Dutch condensed milk for wholesale. From the beginning, however, Horsley was convinced that strength lay in size; he was eager to expand and saw his opportunity in 1936. Amid the growing threat of war and rumors that new import duties might affect their business, Horsley, with his father's support, determined to change the focus of the business to production of their own supply. To that end he convened a meeting with six other small dairy firms in Hull, suggesting that they should merge for their mutual benefit. Only one of the six proved interested: Southwick's Dairies, a wholesale and manufacturing concern. The two entered into a partnership with the object of building their own condensery. Foreshadowing the energy and determination that were to characterize the growth of Northern Foods, Horsley and his partner managed to choose the site, prepare the plant, and build the factory in only four and a half months. By October 1937 the new factory at Holme-on-Spalding-Moor was up and running.

The onset of the war radically altered the face of the dairy trade in Britain. The need to change to meet wartime conditions proved fatal to many small dairies, but Horsley, a reformer at heart and quick to see opportunity in adversity, eagerly adapted to and profited from the altered circumstances. Because of wartime shortages, the Ministry of Food discouraged the use of cans and sugar--necessary in the making of condensed milk--and supported the sale of liquid milk. Horsley, therefore, saw the need to move into retail, a shift he had long wanted to make but that had been resisted by his partner George Southwick.

The prewar system of doorstep delivery had been haphazard and circuitous. A dozen small dairies might service different addresses on the same street, then each travel separately to another neighborhood to make more deliveries. The wartime shortages of labor and material, particularly gasoline, made this complicated network of delivery routes unacceptable. The government suspended free competition and insisted upon "rationalization" of dairy delivery. Established routes were disrupted, sometimes drastically altered; in many cases small dairies were forced to completely swap their customers with other businesses.

Recognizing that the time of the small dairyman was over, Horsley embarked upon an energetic and ambitious campaign of expansion, acquiring other dairies one by one. The larger the business grew, the more attractive it became to small firms beset by the bombing (Hull was very hard hit during the war), the chronic shortages, and the difficulties of adapting to rationalization. As the firm expanded it actually became more efficient with each new addition, as Horsley chose the best dairies and plants when consolidating operations. By 1942 Horsley controlled a considerable network of retail and wholesale businesses scattered throughout Humberside and Yorkshire, and the retail end of the company was renamed Northern Dairies to reflect this (although the wholesale operations continued to be known by their individual names).

As the war progressed, Northern Dairies found itself in the enviable position of having to decline to take over several businesses because of the sheer volume of the requests for amalgamation. Horsley and his associates decreed that three of four conditions must be met before they could consider acquiring a business: (1) the town in which it was situated must be flat for ease of delivery; (2) the proposed firm had to be near enough to another of Northern Dairies' depots to allow for convenient exchange of plant or vehicles, or to act as a shadow dairy in areas where bombing was a problem; (3) there was to be no other sizable dairy in the area with the exception of the Co-operative; and (4) there had to be the possibility of future expansion in the area.

The wartime strategies that had proved so advantageous to Northern Dairies were equally successful after the war. Indeed, to a considerable extent the exigencies of wartime business provided the bedrock of the company's future corporate philosophy, particularly the importance of acquisition as well as organic growth and the significance of the concept of rationalization. Horsley established principles of rationalization with other large dairy concerns--in 1950 alone, for example, Northern Dairies sold its Sutherland trade to Craven Dairies in part exchange for its Middlesborough trade, struck a deal to avoid overlapping trade in County Durham, and exchanged Huddersfield and Barnsley for Mansfield in an agreement with Express Dairies. Northern Dairies' amalgamation with the Hull- and Bridlington-based Riley/Granger dairy group also happened in 1950.

Ironically, Riley/Granger, then two separate entities, had attended Horsley's meeting in 1936, when they had both declined to merge with Pape and Co. Riley's had at that time been the market leader in Hull. When it finally joined Northern Dairies in 1950 it was half the size of the company it had once rejected. This amalgamation, significant to Northern Dairies because of the size of the parties involved, was also important in that it brought the center of the company's operations, grown rather dispersed, back to its origins in Hull.

Expansion of product line was a natural corollary of Northern Dairies' growth; in 1946 it had entered the ice cream market through the acquisition of Kingston Ices and Harmers Ices, and soon expanded into cheese, curd, whey, and chocolate crumb. Nevertheless, the firm's original product of condensed milk was not neglected. As soon as the government allowed it after the war, Northern Dairies moved back into milk processing, expanding its condensing operations at Holme-on-Spalding-Moor, and in 1950 established another, more modern plant, able to condense 20,000 gallons per day as compared with the original plant's 8,000.

Northern Dairies had been registered as a private company in 1949, and then it became a public company in 1956. Its expansion continued, making its name a misnomer as the company moved into the Midlands and Northern Ireland. Northern Dairies expanded throughout the dairy trade, and its profits surpassed the one million mark by 1970. In that year Horsley retired as chairman and was succeeded by his son Nicholas. Under second-generation leadership, Northern Dairies began its rapid expansion into new and lucrative fields of business. Cream cakes, yogurts, desserts, sandwiches, recipe dishes, pizza, pasta, meat, fish, soups, hors d'oeuvres, cheeses, fresh produce: throughout the 1970s and 1980s the product line continually expanded.

Development of Relationship with Marks and Spencer: 1970s

The year 1970 was a watershed for Northern Dairies in another highly significant way: a chance meeting sent the company onto a new and phenomenally successful path. Christopher Haskins--Alec Horsley's son-in-law, later to become chairman of Northern Foods after Nicholas Horsley stepped down--found himself sitting next to an executive from Marks and Spencer (the ubiquitous and well-respected department store with a high-quality, upmarket grocery division) on a plane; from their chat was built a successful and mutually rewarding business relationship.

Throughout the 1970s the relationship with Marks and Spencer was a major focus for the company, which was renamed Northern Foods plc in 1972 to reflect the expanding nature of its business. From its relatively humble beginnings as manufacturer of the St. Michael (Marks and Spencer's own brand) trifle, Northern Foods grew to become Marks and Spencer's biggest supplier, employing its typical enthusiastic blend of acquisition and innovation. As part of this two-pronged approach, Northern Foods set out on a policy of acquiring existing suppliers to Marks and Spencer wherever it could (witness, for example, its purchase of Park Cakes in 1972 and Fox's Biscuits in 1977). Equally, the company concentrated on creating new products for its favored customer: by 1988 Northern Foods was producing a range of 250 products for Marks and Spencer. Key acquisitions in the 1980s included Bowyers, maker of meat products (1985); Elkes Biscuits, a private-label producer (1985); Batchelors, producer of baked beans, canned vegetables, and fruit juices (1986); and Evesham Foods, maker of hot and cold pies and sausage rolls (1987).

Northern Foods' unique business relationship with Marks and Spencer is best illustrated in the construction of the sophisticated Fenland Foods factory in 1986. As a gesture of its goodwill and enthusiasm, Northern Foods built this Marks and Spencer dedicated plant--at a cost of £8 million--before it had yet been established what products were to be made there. Echoing Alec Horsley's 1937 achievement with his first milk processing plant, Fenland Foods, which was hailed as Europe's most advanced food factory, was built in 40 weeks--and was selling to Marks and Spencer three weeks later.

Northern Foods' rise was not uniformly smooth; it had its share of well publicized (and ruefully admitted) fiascoes. Some of its forays into new lines of business proved unwise. Its move into consumer finance with the purchase of British Credit Trust was initially profitable (at one point it accounted for 40 percent of the company's profits), but in the banking crisis of the mid-1970s it lost all its deposits and nearly went under, which came as "a bloody shock," according to Chairman Chris Haskins. The company sold the British Credit Trust in 1978. A failed attempt to move into the brewing industry in 1972 strengthened the firm's subsequent resolve to stay within its bounds as a food company.

Particularly embarrassing, however, was Northern Foods' attempt to enter the American market with the acquisition of Bluebird Inc. and Keystone Foods Corporation in 1980 and 1982, respectively. Legal problems with the former and philosophical differences with the latter prompted Northern Foods to withdraw from the U.S. market quickly. With characteristic forthrightness, Chris Haskins referred to the experience as Northern Foods' "American cock-up." A sortie into the chicken market with the 1986 acquisition of Mayhew Foods was equally unfortunate, preceding the first recorded falling-off of chicken consumption in the United Kingdom. The venture, Haskins admitted, "has been a disaster. ... We will probably have to get rid of it." Northern Foods finally completed its exit from the poultry sector in 1994.

Continued Growth in the Early to Mid-1990s

Northern Foods continued its dual policy of aggressive acquisition and organic growth into the 1990s, concentrating on its four main areas: dairy, convenience foods, meat products, and groceries. In a clear sign that it meant to stay true to its roots, the company acquired the dairy company Express in 1992, consolidating its position as the United Kingdom's leading liquid milk company, and holding 24 percent of the market in England and Wales. Doorstep delivery, although an anachronism in the modern world, remained a staple with Northern Foods, which served some three million households throughout the country. Hedging its bets, the company was also the leading supplier of milk to U.K. supermarkets. Also acquired in 1992 was Eden Vale, producer of fresh-chilled dairy products for both Marks and Spencer and Safeway.

Rationalization remained a priority for Northern Foods in the 1990s, as the company sought to simplify and consolidate wherever possible, concentrating on the aggressive rationalization policies that made its fortune in the first place. The company invested heavily in new facilities and technologies, and as a sideline of its main business Northern Foods--through its NFT Distribution subsidiary--operated its own chilled distribution service, for itself and for other food manufacturers, including a dedicated transport operation for Sainsbury's. Bread products were one new focus for the future, as the company made several acquisitions in this area in the early 1990s: Kara Foods, Grain D'Or Bakeries, and Fletchers Bakeries (a 24 percent interest in the latter, which became wholly owned in 1999). Through these businesses, Northern Foods began producing fresh and frozen buns, baguettes, doughnuts, muffins, and other specialty baked goods.

Governmental deregulation of the milk market in 1994, coupled with the steady shift from home delivery of milk to consumer purchasing at supermarkets, roiled Northern Foods' dairy operations. In March 1995 the company launched a £91 million restructuring that entailed slashing 3,450 jobs from the workforce of about 27,000. Plant closures reduced dairy bottling capacity by 40 percent. On the prepared foods side, the increasing dominance of supermarkets led to a 75 percent cut in the firm's fleet of vans that supplied small shops. Meantime, in June 1995 the company gained majority control of Green Isle, an Irish producer of branded and private-label frozen foods, including pizzas, pastries, and fish products.

After a couple of years of declining profits, Northern Foods returned to profit growth during the second half of the 1996 fiscal year, but it then had a bit of a setback stemming from the crisis in British agriculture over worries about bovine spongiform encephalopathy (BSE) in cattle and its link to so-called mad cow disease in humans who eat beef from infected cows. Sales of prepared foods that contained beef fell, and Northern Foods moved quickly to produce for its supermarket customers a large number of new nonbeef entrees, such as lamb curry and chicken chow mein.

Late 1990s and Beyond: Focusing Solely on Prepared Foods

The dairy side of the company continued to suffer as the industry continued to be wracked by overcapacity. To give that business a freer hand in participating in an anticipated industrywide consolidation drive, Northern Foods in 1998 engineered a demerger. The dairy and prepared foods businesses had been run separately since 1994, and the 1998 demerger formalized this split. The company's entire dairy business, except for the Eden Vale fresh-chilled dairy product unit, was spun off to shareholders as Express Dairies plc in March 1998. At that time, Haskins became nonexecutive chairman of Northern Foods, which was now fully focused on value-added prepared and convenience foods. The head of the prepared foods operations, Jo Stewart, was named company chief executive. Also in 1998, Northern Foods completed two acquisitions, adding Cavaghan and Gray, producer of a wide range of chilled foods for both Marks and Spencer and Safeway; and the confectionary brands of James Finlay, consisting of Poppets and Just Brazils, as well as the Lift instant tea business. The latter marked Northern Foods' entrance into the confectionery market and was seen as an extension of its biscuits and cakes operation.

During 1999, in addition to taking full ownership of Fletchers Bakeries, Northern Foods announced that it would join a growing number of U.K. food producers and distributors and stop using genetically modified ingredients in its products. Late in the year, the company announced a restructuring of its pizza and quiche operations involving the closure of two plants in Rotherham and Carlisle. Early the following year, Northern Foods bought a 40 percent stake in Solway Foods for £16 million; Solway, which had factories in Northamptonshire and Nottinghamshire, supplied Tesco with chilled foods, including sandwiches, sushi, and salads. Later in 2000, Irish subsidiary Green Isle divested its foodservice and frozen food distribution unit in order to concentrate on its frozen foods brands. Green Isle acquired Lacemont Ltd., producer of frozen pizza and breads, during 2001.

Continuing to adjust its product portfolio, Northern Foods acquired from Nestlé UK Limited the Fox's confectionery business, which included Fox's Glacier Mints and Fruits sweets as well as XXX Mints. On the divestment side, the Lift tea brand was divested in 2001, and then in early 2002, in a £145 million deal, Northern Foods sold its Ski yogurt and Munch Bunch fromage frais brands as well as a yogurt factory in Cuddington, Cheshire, to Nestlé UK. The latter deal, which helped the company slash its heavy debt load, left Northern Foods with just one dairy-related operation, that of dairy dessert maker Eden Vale. In February 2002, four decades after joining the firm, Haskins retired. Taking over as chairman was Peter Blackburn, who until June 2001 was the head of Nestlé UK.

In mid-2003 Northern Foods acquired the 60 percent of Solway Foods it did not already own for £26.7 million. Early in September of that year, Stewart was ousted from his position as chief executive after the company for the third time in 18 months had to issue a warning that its profits would fall below expectations. Blackburn took over on an interim basis while a search for an outside replacement was conducted. Shortly after this development, Northern Foods sold its Fox's Confectionery business to a management buyout group; included were the Fox's Glacier Mints and Fruits, Paynes Poppets, Just Brazils, and XXX Mints brands.

This marked the beginning of a new divestment program as the company was now ready to follow the advice that analysts had been promulgating for some time: the firm needed to make large cuts in a product portfolio that had grown too large and unwieldy. Northern Foods aimed to overhaul its portfolio to concentrate on the fastest growing food sectors. This meant focusing on such company specialties as cakes, puddings, bread, frozen foods, biscuits, and recipe dishes. Late in 2003 Northern Foods announced that it planned to divest three noncore businesses: the NFT Distribution operation, Smiths Flour Mills, and the Batchelors canning unit in Ireland. In a cost-saving move, the company reorganized its biscuit business by merging its Fox's and Elkes biscuit operations.

Principal Subsidiaries: Convenience Foods Limited; F W Farnsworth Limited; Fletchers Bakeries Limited; Northern Foods Grocery Group Limited; NFT Distribution Limited; Batchelors Limited (Ireland); Green Isle Food Group Limited (Ireland); Cavaghan & Gray Group Limited; Cavaghan & Gray Limited.

Principal Competitors: United Biscuits Finance plc; Uniq plc; Geest PLC; Brake Bros plc; Nestlé S.A.; Unilever; Kraft Foods International, Inc.


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