Malcolm Walker is close to winning control of Iceland, the business he founded. He tells Alex Lawson he is as committed as ever to the frozen food retailer.

“I have the best job in the world,” rejoiced Malcolm Walker last week after all but completing a deal to buy the 77% stake that he does not already own in Iceland, the frozen food specialist.

Iceland and Walker seem destined to remain linked for a while yet after more than a year of speculation about the retailer’s future ownership.

Iceland’s strongest periods have always been with its founder at the helm, and a management buyout – when the business is booming – will come as welcome news to its 22,000 employees. 

An end to the sale process is good news too for the ebullient Walker, who jetted out to Mallorca last week after striking an exclusivity deal to pursue stake acquisitions from Icelandic banks Landsbanki and Glitnir.

“This has been dragging on for two years,” Walker says. “But a bankrupt bank has to pay off its debt to creditors at some point and this is it.”

Walker was sacked from his day job at Woolworths for starting Iceland, but the business has made him worth £166m according The Sunday Times Rich List, and he is confident of continued success.

“Very slowly, more and more people are shopping with us. People are spending a bit more with us so we’re just going to do more of the same,” he says.

At 66, Walker remains as committed to Iceland as ever and sees further growth potential. “We will keep opening shops, as many as we can – opening 15 a year is very doable,” he says.

Walker believes there is one simple key to Iceland’s success: its employees.  “The reason we are doing so well is staff morale,” he maintains. “Retailers always shout about products and prices, but when the staff are happy, the business does well.

“We have been raising salaries and building morale and we are on a roll. We took the managers to Florida two years ago and have lots of staff parties. A well-motivated staff is priceless.

“I have sent out memos to staff [regarding his imminent purchase of the business] and they are delighted.” Walker prides himself on being in touch with the shopfloor and even loads his Bentley with food from the store at the retailer’s Flintshire headquarters before he goes home at night.

Sealing the deal

Walker admits that the expected £1.4bn price tag was “a bit more than I wanted to pay”, 18 months after he first offered £1bn for Iceland. But he claims “it is a good deal for everybody involved as Landsbanki have given us a vendor loan at a very good rate”.

The equity value of the deal is £1.55bn, but the enterprise value is £1.4bn because there is £150m of cash on the retailer’s balance sheet. Walker has acquired the backing of a trio of partners to help him fund the bid.

It is understood Landmark Group, the Middle Eastern retailer controlled by Micky Jagtiani, will provide a significant proportion of the backing. DFS founder and Walker’s personal friend Lord Kirkham and South African private equity firm Brait will also provide funds.

Morrisons and Asda had also expressed an interest in buying Iceland, but the size of its estate is believed to have caused concerns over competition rules and strict restrictions on some sites’ use as frozen food premises. Bain Capital and BC Partners, the private equity firms which bid for the retailer, were likely to have been attracted by Iceland’s strong cash flow.

Performance has been strong in the six years since Walker returned to run Iceland. Like-for-like sales have increased by more than 50% and profitability has been restored. Net profit in the financial year to March 2011 climbed by 14.8% to £155.5m and EBITDA reached a record £187.9m.

Last week, Nielsen data revealed the retailer delivered a 7.5% increase in sales by value in the 12 weeks to February 4, when its strong party food range is likely to have proved key in winning festive spend. The retailer is attracting around 5 million customers a week. So what are the reasons for its success?

Industry observers believe that Iceland is chiming well with consumers in the current climate. Oriel analyst Jonathan Pritchard says: “Iceland understands its customer perfectly. They are at the value end of life and Iceland’s quality versus price balance is perfectly pitched.

“I expect more of the same from them. Industry conditions are very helpful and look like they will continue. Convenience is growing, the discounters are growing, so it is working in favour of Iceland.”

Shore Capital analyst Clive Black believes that Iceland represents “a square peg in a square hole” with the economic climate pushing shoppers towards a value offer.

Pritchard adds: “They are not trying to be anything that they are not.

The first rule of retail is know your customer and Malcolm Walker knows his well.”

Fit for the times

Iceland is also benefiting from a consumer trend towards reducing waste in austere times. “Frozen food retail has been performing strongly over the past two years,” says Planet Retail analyst David Gray.

“Food volume sales are going down because people are reducing the amount of food they throw away and frozen food, with a three-month shelf life, offers a good option.”

Bryan Roberts, retail insights director at Kantar Retail, says Iceland has benefited from strong buying power which has fed through to its “very, very impressive” private-label offer.

He says: “Its initiatives around pricing, marketing and merchandising convey a strong value message. It has done some impressive mimicry of fast food offers including McDonald’s and Subway as well as world cuisine. Iceland has an unjustified, undeserved reputation for being poor quality because its range expands beyond just frozen.

“There is still a large number of people who would never set foot in there due to its down-market perception, but they do have a good shopper base.”

The ‘little and often’ food shopping trend is also playing into the hands of Iceland which has an average 4,000 sq ft store size and offers little parking.

While it is possible to do a full shop at the retailer, non-frozen ranges are narrow and a large proportion of its shoppers are estimated to combine weekly spend with fresh food buying from the big four’s high street stores. 

Although competition from larger supermarkets’ own frozen foods ranges is tough, notably from Asda where work has been done on its ethnic frozen foods offer, Iceland is the stand-out player in the specialist market.

“Farmfoods has exponentially improved its marketing, ranging and store design from where it was a decade ago. Heron is very back to basics and not dissimilar to how Farmfoods was 10 years ago,” explains Roberts who believes Iceland can “happily co-exist with the big four” in competitive locations.

Meanwhile, the growth of Aldi and Lidl continues unabated and could potentially eat into Iceland’s market share if they decide to give more space over to discount frozen food.

Marketing nous

The Celebrity Mum of the Year campaign with Stacey Solomon has strengthened the retailer’s position on the high street.

The Celebrity Mum of the Year campaign with Stacey Solomon has strengthened the retailer’s position on the high street.

However, Iceland’s marketing has always been strong and campaigns such as Celebrity Mum of the Year – at present featuring celebrity Stacey Solomon – have proved a hit with customers.

Walker is also in a privileged position in that he does not have to answer to the City. As such the “more of the same” approach is perfectly acceptable in a grocery market dominated by larger, mainly quoted players who must satisfy investors with constant promises to grow by rolling out new store formats or expanding internationally.

Of course, Walker’s reign has not been without its upsets. In 2001, he stepped down from the business after the controversial sale of £13.5m of shares just weeks before a profit warning, although he was later cleared of any wrongdoing.

Walker also had to sack former Atomic Kitten star Kerry Katona from Iceland’s adverts after she was pictured in the national press snorting cocaine in 2009, damaging the retailer’s image in the process.

On the shopfloor, he decided to make its vegetable range 100% organic in 2000, a move which was understandable given the wider trend towards organic, but served only to confuse its value-focused customers over what Iceland was trying to be.

And there must be questions about whether he can continue to work his magic indefinitely.

Black says: “We wonder whether it’s got as good as it’s going to get for Iceland. We do not see the future being easy for Malcolm Walker, although he is the right guy to do it. The competition is going to get stronger and its comparatives will be challenging against this climate.”

Question marks also hang over the retailer’s organic growth potential. Iceland has 740 stores, and Black believes the retailer will open a further 30 to 40 stores before it reaches its optimum level. Overseas, operations are progressing at varying rates. Iceland has just extended its reach in Iberia with its first stores in Portugal, to add to 12 existing shops in Spain.

However, Iceland stated in 2009 that it would open 40 stores in conjunction with wholesaler and retailer Aim in the Republic of Ireland by 2012 and so far it has opened just four.

But Walker is confident that Iceland can still thrive. Asked where he sees himself in 10 year’s time, he replies “still here”. It seems he is determined to hold on to Iceland for a long time to come.

Iceland - what next?



While Iceland is performing well in the current climate, there remain areas of development it could consider. A report from strategy consultants OC&C to potential bidders in November suggested the business could branch into lingerie and homewares. However, the retailer struggled to shift non-food items when its range was expanded under former chief executive Bill Grimsey, and the fierce conditions in the electricals market is unlikely to entice the retailer back in. Perhaps more likely is the possibility of online expansion.

Iceland does not have a transactional website, but uses its site to promote its home delivery service. To qualify for home delivery, customers have to be pre-registered, spend over £25 and use their Iceland Bonus Card at the checkout.

Retail Week Knowledge Bank estimates the proportion of sales through this channel was likely to be between £350m and £400m in 2010/11.