Premier Foods expresses confidence in ‘really strong toolbox’ to drive volume growth
Increased prices have played a significant role in Premier Foods’ sales growth in recent years. This boost is now fading, but the business is confident in its formula of brand investment and innovation to drive continued success.
Premier Foods will use a “really strong toolbox” of levers, which includes price promotion, brand investment and new product development, to drive volume growth as the impact of inflation begins to ease.
The business, which owns brands including Bisto, Mr Kipling and Batchelors, has, like the majority of other FMCG businesses, been leaning on price increases as a major lever of growth during the recent period of high inflation.
Speaking to investors today (23 January) on its results for the three months ended 30 December, CEO Alex Whitehouse admitted that the benefit to the company’s sales from higher pricing is easing. It expects this impact will have completely faded as it enters its next financial year in April.
“Pricing will have dropped out as we go into next year, but I think we’ve got a really strong toolbox and would expect to still perform well,” Whitehouse said.
He added that the company expects to “transition” from a time when value of sales (driven by increased pricing) has been fuelling growth to volume growth.
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That “toolbox” to drive volume growth is otherwise known as Premier Foods’ “branded growth model”, which has been used by the business since before the pandemic. It sees the business focus on its “market-leading brands” to introduce “highly relevant product innovation”, advertising and in-store activations in partnership with retailers.
“This brand-building model is actually very similar to that used by the large cap, multinational branded food businesses. And, in fact, we actually see ourselves as a much smaller version of one of those multinationals,” Whitehouse stated.
Brand investment is “key” to this model, he added, with the company having “upweighted” ad spend for many of its major brands such as Bisto, Ambrosia and Mr Kipling in the run-up to Christmas. In-store displays showcasing Premier Foods have also helped drive growth for its brands, it says.
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Innovation is another central pillar of the business’s branded growth model, with new products delivering incremental sales in the most recent quarter.
The company’s strategy appears to be paying off, with sales rising 14.4% to £352.7m in the three months to the end of December versus the same period in 2022 – although pricing did play a significant role too. The company’s total market share increased 121 basis points versus the prior year.
Whitehouse stressed his confidence that even without the impact of increased prices, the branded growth model has proven that it can deliver success for the business, having been in place since before the pandemic began.
‘Scientific’ approach to price promotion
In November, Premier Foods outlined that it would be deploying price promotion to drive volumes in its next quarter.
Having implemented that promotional activity in quarter three, Whitehouse said the company had seen “really strong responses”, in terms of driving volume from the pricing mechanism.
He indicated that, going forward, Premier Foods will look to continue to step up its use of price promotion to drive volumes.
Price promotion can be seen as something of a dangerous strategy for businesses to pursue. While this is normally a fruitful strategy in driving volumes in the short term, price promotion can risk damaging brand equity and profitability if businesses become over-reliant on it. Indeed, Marketing Week columnist Mark Ritson likens price promotions to a drug, given how addictive they can become.
What we haven’t done is sacrifice gross margins in order to fund promotions.
Alex Whitehouse, Premier Foods
Speaking to investors, Whitehouse was keen to stress that Premier Foods is taking a “scientific” approach to price promotion. It is “constantly optimising” its promotions, he said, using econometric modelling to do this.
“We see ourselves as being quite scientific and analytical in the way we do these things,” he said. “They’re not judgment-based. They’re very much hardcore math-based.”
The business has been deploying price promotions specifically in the areas where it sees the most risk for elasticities, meaning only in the spaces where consumers are likely to not buy its products due to price.
Discounting and price promotions can risk eating into margins, if businesses lower prices to create less profitable sales.
Seven steps to kicking your price-promotion addiction
Premier Foods has been seeking to increase marketing spend through expanded margins, as a key part of its growth strategy. The increased rate of promotional activity will not impact marketing spend funded through margins, Whitehouse stressed.
“What we haven’t done is sacrifice gross margins in order to fund promotions,” he said.
Instead, he talked about only introducing price promotions in the areas where the company has the “space” to do so, meaning where commodities have come down and those savings can be reinvested into the area.
