Despite a tough six months, Iceland founder Malcolm Walker insists the frozen food retailer can excel and explains why staff should think of him as Father Christmas.
It’s 6.04pm. Iceland founder Malcolm Walker has just delivered a closing speech to 1,000 of his store managers, during which he took to the stage in a New York yellow taxi and referred to himself as “Father Christmas”.
Walking out of the Dublin Convention Centre, Walker is greeted by a cluster of his managers, dressed in Viking helmets in a longboat on wheels, chanting “Malcolm! Malcolm! Malcolm!” This is a retailer like no other.
The ebullient Walker, 66, has created an organisation that befits his personality – no nonsense and hard-working, but upbeat and fun. Iceland’s founder sees the annual store managers’ conference as a chance to both express his gratitude to, and receive the feedback from, those on the shopfloor across his 757-store chain.
This year’s £2.3m conference, which follows events in Florida, Paris and Manchester in previous years, has extra spice. It is Walker’s first since he led a buyout of the 77% of the retailer he did not already own from Icelandic bank Landsbanki in March.
Fellow investors Brait, which owns the African retail businesses Shoprite and Pepco, Micky Jagtiani’s Landmark, and DFS founder Lord Kirkham, collectively joined Walker in raising the £1.55bn needed to take full control of the business he founded in 1971.
The rigours of the two-year sale process are evident when speaking to the Iceland management team, which fended off interest from rival retailers Asda, Farmfoods and Morrisons as well as interest from private equity firms Bain Capital and BC Partners.
“This one could’ve been so different,” Walker tells mangers at the Irish conference. “It could have been a Morrisons or Asda conference with Dalton Philips or Andy Clarke talking about going into convenience.
Even worse, it could have been private equity – it would’ve been a half-day conference with no free bar. Instead, you’ve got me, Father Christmas.”
Walker refers to himself as “Father Christmas” because he believes he is the polar opposite of other food chief executives, and he gives generous bonuses and incentives. The best-performing manager at Christmas this year will win a trip to New York. Walker’s generosity aims to acknowledge the enthusiasm and hard work of his staff on the ground who run Iceland, which he was sacked from Woolworths for setting up all those years ago.
Walker has consistently attributed Iceland’s success since his return in 2005 – Iceland has generated record profits every year since – to staff morale. He takes pride in The Sunday Times Best Big Company to Work For award won earlier this year, and recently promoted people director Helen Tindle will lead the charge to become the first company ever to win the gong consecutively.
However, not everything has been positive. Like-for-like sales at the frozen food specialist were down 0.2% in the six months to the end of September – behind a budgeted full-year target of a rise of 3% and well behind the 6% like-for-like growth in the 53 weeks to the end of March. Its full-year target is now for flat like-for-likes.
EBITDA is likely to fall from £230.2m last year to between £215m and £220m in 2012/13, the first time profits have fallen under Walker’s stewardship since 1996. The retailer did struggle between 2001 and 2005 under the leadership of chief executive Bill Grimsey in a period Walker dubs “The Dark Ages”.
Iceland has blamed the recent slowdown on the extent to which money-off coupons are being used in grocery – Morrisons last week reintroduced its £5 off £40 offer – as well as round-pound pricing by rivals including Asda and “extremely strong” comparatives for Iceland the previous year, which included an extra week.
In a speech at last week’s conference entitled Reality Check, chief financial officer Tarsem Dhaliwal was not complacent. He said: “You could blame the weather, the Olympics, the relentless money-off vouchers from our competitors – I think our sales suffered because Manchester City won the Premiership. We have to look at ourselves. Did we do enough? Did we fall asleep? Did we think it would be easy?”
The probability is that this combination of factors has added to what remains a relentlessly tough economy, and hit Iceland’s performance. Additionally, the expansion of value retailers such as Poundland, Poundstretcher, B&M Bargains and 99p Stores and their growing food offer means another level of competition.
At the conference, Walker played good cop to Dhaliwal’s bad cop and took a wider view. He said: “This year I do not give a shit if our profits are down. I care about this business as a business. I care about our customers, staff and products,” he told those present.
“I care about giving value for money, market share and being the best employer in Britain. We have done so well for six years and it’s important to have a happy workforce. A lot of retailers say it, but whether they believe it is another matter – we really believe it.” He maintains that investors are “comfortable” with less profit. “They bought into Iceland entirely on the fact we are not going to grow,” he says. “This is not a growth story, we are a cash cow.”
However, Iceland is not about to give up the fight. Like-for-likes have been running at between 1% and 3% up in recent weeks and the response to Iceland’s coupon-at-till offer and new Bonus Card roll-out has been positive.
The retailer’s core offer remains strong, it offers a constant flow of own-brand new product development and claims to be 5% cheaper than Asda, 8% cheaper than Tesco, 15% cheaper than Sainsbury’s and 25% cheaper than high street rival The Co-operative.
Buying director Nigel Broadhurst said that Iceland is bolstering its point-of-sale materials to emphasise round-pound deals and will maintain its focus on long-term low prices. “We will not get tricksy and pretend products have been at high prices and [we] have lowered them,” he says.
The retailer is also benefiting from its exclusive partnership with Greggs and is talking to crisp manufacturers to negotiate further branded tie-ups on frozen potato products.
Kantar Retail insights director Bryan Roberts says: “A lot of the majors have invested heavily into frozen – Asda has refreshed its offer and Tesco has piled in with its Everyday Value frozen ready meals. Also, 99p Stores has put in some freezers so this will have been creating a headwind for Iceland.
Iceland should not be discouraged though – it is in a good position.”
The retailer has also flicked the switch on a number of projects after the management buyout. After selling 54 Cooltrader stores to rival Heron Foods in September, Walker believes Iceland has focus and can push forward.
The appointment of former Aldi UK managing director Paul Foley as Iceland’s first international business director is a big signal of overseas expansion ambitions. Foley, who joins Iceland in January, will be tasked with extending the retailer’s reach beyond its existing franchise stores in southern Ireland and Spain.
Early signs are promising. The retailer’s joint venture with Czech Frost in the Czech Republic began earlier this year with a single store in Pilsen and will be extended to four further stores in Prague.
And retailer Johannes Jónsson, the father of controversial former Baugur boss Jón Ásgeir Jóhannesson, opened an Iceland franchise store in Reykjavik last month that is generating sales of £200,000 a week. Walker is confident that Iceland’s ventures in new territories will pay off. “There are really no boundaries, we just have to find the right shops,” he says.
The retailer is also leveraging its new links with Brait Capital to export to Shoprite in South Africa through its ITEX wholesale arm, which made £5m profit last year.
Return to online
At home in the UK, Walker has upped store targets. This year, Iceland will open 37 shops instead of the original plan for 15, under the leadership of property director Tim Yates.
Perhaps Iceland’s most interesting initiative is that it will begin selling online again next April after a seven-year absence. Walker believes the retailer, which does offer home delivery, was a “pioneer” when it launched its service in 1997 and the profitable business was only canned in 2005 because he wanted to focus on the core business after his return.
“We are suffering less than most from the internet revolution,” says Walker. “Home deliveries are 17.5% of our business. We do 180,000 deliveries a week – more than Ocado. All the facilities are there. We have 800 picking centres [stores] and 1,200 delivery vehicles – the only thing missing is the front end. I’m really excited, it will be big and we are serious.” Walker believes that while the service is unlikely to bring extra sales to the business, it will prevent shoppers leaving to buy from online rivals. Iceland has also launched an online Bingo site to draw shoppers in.
The retailer has made a number of key appointments to support expansion. Supply chain director John Mackie has been promoted to head ecommerce and former southern stores controller Richard Broadbent is now head of retail, joining Foley and Tindle on the board. However, IT director Mark Pearson left last month, following long-term managing director Andy Pritchard, who departed after the buyout.
Roberts is confident of Iceland’s continued success. He says: “There is still plenty of growth opportunity. Proximity is both a virtue and a necessity for Iceland as it’s not a destination store. It is in a sweet spot with value, convenience, proximity and the stores are very easy to shop in.”
With no plans to retire, Walker will continue to add flair and character to a unique business.
Christmas rush - retaining customers
Christmas is of course the most important time of the year for the frozen food retailer and its own-label party food is a key footfall driver.
Executive director Nick Canning expects this year to be hard-fought. “We are about to go into the most fiercely contested Christmas for two decades,” he says.
Canning emphasised to staff the importance of retaining shoppers who might visit the store once a year at Christmas, and Iceland will deploy a number of tactics to draw custom. They include direct mailings, increased marketing efforts and new products. “I have a marketing spend of £15m, I have to make that cut through against the £100m budgets of the big four,” says Canning.
The retailer has also decided to steer away from celebrities in this year’s TV advertising. Iceland has ended its partnership with X Factor star Stacey Solomon in favour of a series of nine adverts that showcase products.