Private Label International - Autumn 2009

Iceland Makes Comeback With Own Label Values

By Ian McGarrigle

Under the leadership of its reinstated chief executive, Malcolm Walker, leading frozen food retailer outperforms conventional supermarket operators in the UK.

The UK’s Iceland frozen food retailer is both a victim and a victor of the economic downturn that has affected the country. Its recent history has been one of a glorious recovery from the potential collapse in its business in the years immediately before 2005, only to find itself facing further financial uncertainty through the stake in the company held by the Icelandic investment group, Baugur.

It has brought a period of sharp contrast for its founder and newly reinstated chief executive, Malcolm Walker, who has had to keep the business away from the financial turmoil that has engulfed its investor and much of the banking system. Baugur in fact only owned 13.5 percent of Iceland’s shares as Malcolm Walker has pointed out exhaustively, preferring instead to refer to the enormous cash-generative qualities of the core business. In fact, Iceland by any description has to be seen as a classic victor of the recession that has descended on the UK. That fact is underlined not only by the profit and sales growth that Walker has restored to Iceland since 2005, but more by its market-beating sales and market share growth. Nielsen Co’s food sector sales analysis for the first 12 weeks of 2009 showed that Iceland grew its sales by an incredible 17%. Morrisons, the next best performer, grew sales by 8.2%.

As of January 2008, Iceland operated 682 locations in the United Kingdom and Republic of Ireland.

What lies behind this performance is a number of very basic factors – ranging from the renewed focus and energy in the business led by Malcolm Walker since the company bought itself out of its disastrous previous ownership, through to the simplified retail strategy of focussing on “ordinary” families by offering great value own label frozen food. In the four years since his return, this stability at the top of the business coupled with an obsessive attention to the needs of its core customers, Iceland’s growth has been restored. Malcolm Walker himself has been quoted as saying, before the economic downturn that: “recession won’t do Iceland any harm at all”. Much of that resilience to meet the recession has come from the company’s innovation and product development around private label.

Iceland has in effect returned to its roots. It has always been at its heart a simple business. Created in 1970, Iceland started life selling loose frozen foods. From 1975 it began to develop more fully into a frozen food supermarket just as deep freezer cabinets or large sized freezers became more common in homes. It found a specialist niche alongside the supermarkets and built its reputation on providing value. As it grew, the business increasingly came into conflict with its larger rival, Bejam. But under the entrepreneurial leadership of Malcolm Walker, by January 1989, Iceland was able to takeover Bejam and so creating a nationwide business of 465 stores. The growth continued and the business began to reflect the trends of the late 1990s with an emphasis on organic produce, introduced home delivery, internet ordering and fresh produce. By 2000 it had merged with cash and carry business Booker and the larger business was renamed The Big Food Group and shortly after Malcolm Walker left.

From 2000 to 2005, Iceland suffered badly, recording its first ever loss and declining sales. It was only in 2005 that a consortium came together, including Baugur, to buy Iceland out of The Big Food Group and reinstate Malcolm Walker. Head office costs were attacked immediately and morale restored at store level. The business’s core ranges were also streamlined and simplified and it has been returned to a frozen food business. In doing so, it has clearly met the mood of consumers. TNS research figures show that the UK retail frozen food market is now worth close to £5 billion (£4.8 billion) and saw annual growth of 5.8%.

In overall supermarket market share terms, it remains outside of the big hitters; Tesco, Asda, Sainsbury’s and Morrisons. It has an overall food market share of 1.7% - but this of course has been achieved with a far more limited range than its bigger rivals.

The frozen food market remains a divisive sector in the UK food market, a fact Walker is very conscious of and the company majors on the quality and reliability of frozen food. Many affluent shoppers shunned frozen food in favour of fresh. Frozen food lines were often characterised as being favoured only by families on a tight budget. Iceland unashamedly used the marketing slogan: “mum’s gone to Iceland” to play on its core family offering and has since adapted it to “that’s why mums go to Iceland”.

As part of the Walker-revival, much of the emphasis in its core product lines has been to emphasise value. The majority of its frozen products now fall into the £1, £2 and £3 price points – a fact that is proclaimed loudly black on bright yellow on all the in-store banners, freezer cabinets and product packs. This pricing strategy is called “Clear Cut Prices”.

There has also been product innovation in some key areas, particularly “party food” aimed at families catering for special occasions such as birthdays but the major focus is around Christmas catering. Iceland has for the last three years sponsored a celebrity reality TV programme, “I’m A Celebrity, Get me Out of Here” which gives it major advertising slots during this very popular show. All of the ads promote these party food lines and it has successfully positioned Iceland as a destination store for these products.

Store Tour

So strong is Iceland in the party food category that on entering a store, the first run of freezer cabinets are devoted entirely to these lines, all priced highly competitively such as £2 each or “3 for £5” offers. Party food lines include products such as mini hot dogs, pizza slices and chicken goujons.

Facing the party food freezer cabinets are a run of freezers displaying ready meals at £1 or £2 price points. Ready meals cover British and international cuisine such as Indian and Chinese. All play to their convenience for families or as “Friday night treats”.

Running after the party food is branded “Weight Watchers” from Heinz frozen products and then the freezers move into one of the biggest lines; pizza and pizza-related products. Chicago Town, Good Fellas and Findus pizza are included, but the majority of the range is Iceland own label all at £1 or £1.50.

In the store’s second aisle, pizza continues but then moves into frozen meat and fish. Meat joints such as leg of lamb or pork loin are all retailed at “rounded” prices such as £7 or £5.

The third aisle of freezers includes more ready meals, particularly fish-based meals such as fish cakes. The remaining cabinets are given over to core, basic product lines such as sausages, packs of prawns, beefburgers, pies and potato chips (fries).

At the end of each aisle are positioned cabinets displaying special offers, some branded as well as own brand.
The layout and merchandising is deliberately clear using the strong house colours of red and yellow for price points. As Malcolm Walker states: “It’s easy to shop here”. From the customer numbers, sales increases and profits recovery, his market clearly agrees with him.