Orphan brands: Cash from cast-offs
Acquiring unwanted brands can mean big profits for firms prepared to give them the requisite attention.
All that some brands need is a good home, so the theory goes, and the frequent reports of brand acquisitions in recent months suggest this is being put to the test as never before.
As the dominant multinationals streamline their brand portfolios by shedding weaker performers, a growing band of acquisition-led companies are circling around these orphan brands. The strategic view is that a slimmer, more flexible business can restore value to a brand that has become neglected within a larger corporation.
The strategy adopted by these new parents of orphan brands is contrary to the standard marketing text that FMCG firms have been following since the late-90s. Among the golden rules being flouted are: a brand must be number one or two in the market; it is worth having only if it can be rolled out globally; it is only worth owning mega-brands with similarly huge sales; and slow-growth categories should be left behind.
Such is the growth in brand adoption that these acquisition-led companies are becoming sizeable players in their own right. For example, Premier Foods last month agreed to pay £460m for some of Campbell's brands in the UK including Oxo, Batchelors and Fray Bentos. The firm, a collector of long-standing British brands such as Smash, is also eyeing up United Biscuits.
On the face of it, the huge resources available to global entities with which to back their top brands, and their blanket retail distribution capabilities, would make them the best home for any brand. But these new owners of cast-off brands have their own advantages.
A key trait of these companies is that brand and marketing managers have the full attention of the board and work in a bureaucracy-light environment, meaning that decisions can be made quickly. The business model puts marketing at the heart of the organisation so brands get more attention and therefore the ability to move quickly - a world away from the red-tape approach employed by multinationals, which are too big to react immediately to changes in the market.
Marketers say they feel revitalised in this entrepreneurial environment. Angela Pirrier, brands director at Charteredbrands, which both buys and invests in brands, believes the approach harks back to a time when marketers had more control.
'It is more like the original brand manager model that was established by Procter & Gamble and Unilever, which prevailed in the industry until the 80s. Then, the brand manager had responsibility for profit and took charge of everything that was required by the brand. Today, most brand managers just tweak the advertising copy. There is not enough bottom-line responsibility.'
It is a view shared by Debbie Epstein, marketing manager of Lornamead, which has acquired neglected brands since 1998. 'As a marketer of an adopted brand, you get autonomy over it,' she says. 'You are the brand guardian and get to do the full mix, which is rare these days.'
Compared with their bigger counterparts, these firms run lean operations, with lower headcounts and outsourced manufacturing and logistics, so resources are freed up for promotional activity. 'The multinationals feel they need to concentrate resources,' says Charteredbrands' Pirrier. 'As the cost of media escalates, they see no point in having a big portfolio. Also, they don't see the logic of having a brand manager working on a brand that they don't feel has a long-term future.'
Andrew Leek worked for venture capitalist Alchemy Partners for five years before joining brand revival firm Saatchinvest. He argues that there is logic in multinationals neglecting smaller brands. 'Growth of 1% for a Mars- or Snickers-sized brand is worth hundreds of per cent growth for a small brand,' says Leek, who is managing director of Saatchinvest's first venture, Complan Food, which manages the convalescence supplement Complan in Europe and the Americas, previously run by Heinz.
There are two main types of group that buy orphan brands, although there is some crossover between them. First, there are private equity firms run by financial experts who aim to turn brands around in three to five years, before either selling the company or floating it on the stock market.
Doughty Hanson, for example, bought food group RHM in 2000, building up to flotation last year. Similarly, US group Hicks, Muse, Tate & Furst bought Premier Foods in 1999 and floated it in 2004; today, it has annual sales of £790m.
A further illustration is Lion Capital. In February, it tied with equity firm Blackstone Group to pay EUR1.85bn (£1.25bn) for the European beverages arm of Cadbury Schweppes.
Similarly, in 2002, CapVest bought Young's Bluecrest, and its £200m seafood brand Young's. Earlier this year it acquired Swedish frozen-foods brand Findus and is now eyeing up Birds Eye.
Private equity firms such as these tend to focus on food and drink brands because they provide the healthy stream of cash needed to repay the loans taken out to fund their acquisition.
The second group of orphan brand buyers, to which Premier Foods now belongs, are companies making a long-term business of building brands. The main reason they are able to revive orphan brands is focus. 'It is not that the previous owners weren't able to do it, it is just that they didn't want to,' explains Epstein. 'Their key brands are their top priority and other brands are left to slowly fall into decline.'
Orphan brands tend not only to be starved of money, but also attention. Saatchinvest's Leek says that when Heinz owned Complan, the brand probably received only 20% of the time of one product manager. Today, it has a dedicated managing director, marketing manager, and sales manager, and weekly meetings are held with its ad agency parent. Another advantage is that these organisations are often marketing heavy, in terms of experience; nine of Charteredbrands' 30 employees are marketers by background, as are seven of the 40 staff at Lornamead.
In some cases, success can come from residual brand awareness which, when combined with market research, new product development, updated packaging and advertising support, can be enough to set a brand on the road to recovery. Economic considerations also play a part. 'For us, buying orphan brands provides a much more cost-effective way of entering a market. The brand already exists in the marketplace, along with brand awareness and distribution channels, which means we avoid the cost of launching a brand from scratch, which is very expensive these days,' says Epstein.
This does not mean, however, that because consumers remember a brand name, it is still relevant to them - not all orphan brands can be revived. A strong brand heritage can have its downsides, too. Complan, for example, which now has a turnover of £5.6m, has been successfully repackaged, and has expanded its range with the launch of a chocolate bar and cereal, but it had to pull an energy drink targeting people in their 50s. 'Sometimes the history defines where you can go with a brand,' says Leek. 'We were trying to stretch Complan too far.'
Another challenge for the owners of orphan brands is obtaining listings from retailers. 'It is not easy, though not impossible. It requires experience and infrastructure,' says Epstein. On the upside, buyers are willing to listen to firms that can offer true innovation, especially to smaller companies, something that is not always the case with multinationals.
There is another approach besides outright acquisition. Some firms offer an outsourcing service to parent firms for the marketing and management of orphan brands. The parent retains a stake in the business, so it shares in the profit when the brands are revived. Saatchinvest, for example, holds a 51% majority stake in Complan globally, but Heinz has retained a 34% share.
Charteredbrands started out with a full acquisition strategy for orphan brands, but now takes only minority stakes in them. It is also in the business of outsourced brand value management - taking charge of branding and communications, and outsourcing manufacturing, logistics and sales. 'It is an evolved partnership model,' says Pirrier. 'We take risks, inject cash, manage the process and share the benefits with the owners.'
Outsourcing marketing can make sense for both parties. First, the small firm does not need to worry about the seller refocusing on a category. Second, the multinational does not sire a new competitor, as was the case with Plymouth Gin, which former Interbrand chairman John Murphy and three others bought from Allied-Domecq in 1996. By the time they sold it in 2004 to V&S Absolut Spirits, they had bolstered the brand's annual sales from just 3000 cases to become the UK's third biggest-selling gin.
Orphan brands acquired: Sqezy (Unilever, 2002)
Brands managed: Glist, Limelite, Frish (Henkel, 2004)
CASE STUDY: Charteredbrands has managed Henkel's dishwasher detergent Glist since 2004. Last year, it was the fastest-growing brand in the sector, with sales up 86% since 2003 to £13m, while its market share grew 4.7% to 7.6%.
Orphan brands acquired: Napolina (Unilever, 2001), Crisp 'n Dry, Cookeen, Mazola (Unilever, 2005)
CASE STUDY: Princes bought tinned tomato and olive oil brand Napolina from Unilever in 2001 for £8.3m and repositioned it as an Italian ingredients offering. Sales of the olive oil range have grown from £1.4m in 2002 to £3.4m in 2004; up 142%. It has a market share of 3.5%, ahead of Unilever's Bertolli at 3.1%.
Orphan brands acquired: Oxo, Batchelors, Homepride, Fray Bentos (£240m, Campbell Soup, 2006); Quorn (£172m, Marlow Foods, 2005), Ambrosia and Brown & Polson (Unilever, 2003), Crosse & Blackwell (Nestle, 2002), Bird's Custard, Angel Delight, Dream Topping (£70m, Kraft, 2004)
CASE STUDY: Premier Foods bought Ambrosia in 2003, and relaunched it in 2005. Sales went up 12% year on year and brand share rose 8%.
Orphan brands acquired: Young's Bluecrest (£137m, Legal & General Ventures Limited, 2002), Findus (EQT, 2006)
CASE STUDY: Between 2000 and 2005 Young's Bluecrest's sales doubled from £100m to £200m, according to TNS Superpanel. The frozen-food brand's products receive regular TV advertising support.
Orphan brands acquired: Harmony (Unilever, 1998), Yardley, Vosene (P&G, 2005), Finesse, Aqua Net (Unilever, 2006)
CASE STUDY: Last year Lornamead bought the 236-year-old English luxury toiletries brand Yardley from P&G, where it had been starved of attention. The market trend toward premium products fits perfectly with Yardley's core attributes, which offers products including scented bath and showercare products.
Orphan brands acquired/managed: Complan (Heinz, 2002)
CASE STUDY: Since acquiring the nutritional food and drink brand Complan in 2002, Saatchinvest has repackaged the products and highlighted the brand's emotional benefits in advertising. It has also successfully launched a chocolate bar and a cereal variant, increasing sales by 15% to about £5.6m in 2005.
This article was first published on marketingmagazine.co.uk
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