A £4m managers conference might seem excessive, but Iceland chief Malcolm Walker thinks it’s worth every penny. Jennifer Creevy reports from Florida.
The idea of spending £4m on an annual managers’ conference is unlikely to get signed off by any retail board in the present economic climate. But Iceland chief executive Malcolm Walker doesn’t have to worry about that.
Iceland’s 800 store, area and regional managers were last week flown to Walt Disney World Resort in Florida in what, for most, was the trip of a lifetime.
Aside from visits to the Disney theme parks and adjacent attractions such as Universal Studios and the Kennedy Space Center, Iceland’s staff were also treated to an exclusive Lion King performance, spectacular fireworks display and evening events, when some of the park’s rides were open just for them. But beneath the frivolity there was a serious message.
On the first morning, Walker voiced what every one of his managers must have been thinking. “This really is a holiday,” he said to huge cheers. “I’m not apologising for that. You’re here to have a good time, and having fun has been a key factor in driving what we’ve achieved together in four years.”
How then can Iceland justify taking its store managers on a week’s holiday? Yes, the frozen food retailer is showing good growth – but even retailers who are performing strongly are cutting costs in the recession.
But by the end of the week, Walker was convinced it has been worthwhile. Speaking to Retail Week, he said: “If anyone questioned this investment, the reaction of our staff should justify everything. It may be intangible, but I just know it has been worth it.”
The conference may have been billed from the start as a holiday, but Walker was careful to spell out the serious underlying message. And that began with the choice of destination.
Disney, said Walker, is “world class in customer service”. And he believes that as the big four grocers have started nipping at his business, customer service is key to Iceland’s continued growth.
“We’re exposing our staff to world-class customer service, and if just 10% of it transfers back home, it will be worth every penny,” he said. “I’m always banging on about morale, and the difference between motivated and unmotivated staff is so big it can’t be measured.
“Others [grocers] may copy our products, or our round-pound pricing strategy, but they can’t copy our customer service. None of the other retailers will do a conference like this.”
Since Walker returned to Iceland four years ago – after a controversial spell when now-Focus chief executive Bill Grimsey was at the helm and Iceland plunged into a £120m loss – he said staff motivation has changed beyond recognition, but “it can be doubled and doubled again”.
In those four years, Walker saved Iceland from collapse and he said motivation was at the heart of the strategy.
“I was nervous coming back because I didn’t know if the company could be saved. There wasn’t one single part of the business that hadn’t been screwed up,” he said.
He recounted how, after the harsh reality of redundancies, Iceland started investing again, beginning with a £400,000 refurbishment of the head office staff restaurant. “As a private company we could do things like this and immediately, staff started to see we were going to invest in what mattered.”
Florida is “a huge reward for four years’ hard work”, said Walker, but he also hopes some of the “Disney magic” will rub off on his managers and be replicated in his shops.
He explained this “magic” to his managers on the first day. He said attention to detail is paramount, and defied them to find a flower that was past its best in one of the Disney parks, or a lightbulb that needed changing. “Disney’s customer service comes from an amazing staff culture. And their equivalent of Tesco and Asda is competition such as Universal Studios or Sea World, so the examples here can translate to us,” he said.
A talk from a Walt Disney executive also explained how this “magic” played out in reality. He explained that guests may go on £100m rides but when they get home, they talk about the little things – for example, a bellhop using his luggage carrier as a “magic carpet” to entertain children while they queued to check in. “It’s the small things we do that make a difference. And customers don’t necessarily notice, until we stop doing them,” he said.
Iceland managers sampled the Disney way of doing things throughout the week, including a behind-the-scenes tour of the staff areas under the theme parks, to show how the company rewards and recognises its staff.
But while the trip was a great payback for four years of double-digit like-for-like growth – for the year to March 27 like-for-like sales jumped 16% – Walker also warned against complacency in the tough economic climate.
“In 2005 our customers responded immediately to the changes we made to the business, but now the competition has woken up and they are copying what we do,” he cautioned.
Iceland managing director Andy Pritchard said the retailer has started the new financial year on a strong footing, with a mammoth 70 store openings slated, including 51 former Woolworths shops and four stores given to it by Marks & Spencer – Iceland sold a package of 28 shops to M&S in 2006 and M&S has since handed back four free.
“Next year we’ll add another 20 to 30 shops, meaning Iceland will open 100 stores in two years, which is our fastest rate of growth since we bought Bejam in 1989,” said Pritchard.
But Pritchard said the big four supermarkets have all changed their trading and marketing strategies to “play their game in our back yard”. Iceland’s sales growth has slowed from 10% in April to 3% last month.
He explained how Iceland had so far reacted to the tough economic environment. The retailer started the year with a 75p price-buster campaign, invested £10m in its milk, bread and eggs pricing, and reinforced its value position with a back to basics campaign.
“We showed customers that our round-pound pricing has always been there for them, and it’s not simply a promotion,” said Pritchard.
He added: “Our rate of growth had to slow at some point and for the first time in four years we are under heavy direct fire from our competition but, with enough focus, we can generate plenty more growth.”
Iceland will also enter its key Christmas period without its celebrity ad star Kerry Katona, after Iceland fired her following a drugs scandal. Marketing director Nick Canning said Katona had been a success, but the retailer was “unable to stand up and justify the use of Kerry any longer”.
He said: “I have often defended her ability to connect with our customers, as she encompassed fame and celebrity in a down to earth way. But we struggled to gloss over her actions this time.”
Canning said the Christmas ad campaign had to be reshot to take Katona out of the scenes, leaving remaining celebrities Coleen Nolan and Jason Donovan centre stage. The premise of the ads – which launch on November 15 – remains the same, said Canning, “focusing on good food at great value, with a spinning pound coin to reinforce our round-pound pricing”.
Iceland will also sponsor reality TV show I’m a Celebrity… Get Me Out Of Here! for the fourth year running, which Canning said is a more popular programme with its customers than either X-Factor or Britain’s Got Talent.
Canning said it was too early to say if Iceland will sign a new celebrity to replace Katona, despite Paddy Power running a book on those most likely, ranging from Charlotte Church and Kym Marsh to Victoria Beckham at 500/1.
The ads will promote some of Iceland’s Christmas range, 40% of which is new this year. Its Christmas success has drawn the beady eye of rivals – one grocer is claimed to have taken some of Iceland’s packaging from last year’s Christmas range to the Far East to ask a supplier to make the same.
Iceland’s managers have no excuse not to step up their game because they have never had it so good. Stores director Iain Williams explained that before Walker rescued the business in 2005 the average store manager was on £23,000 a year and “overworked”, and their teams were on the minimum wage.
Now, Williams said, store managers are on an average £33,000; senior supervisors have had their pay increased by 40% since 2005 and this year shopfloor staff are getting a 5% increase. The rises make Iceland’s pay comparable to the big four grocers, and the 5% increase is ahead of what most retailers are giving this year.
Williams said that while mystery shop scores are up, Iceland cannot afford to let standards fall. “Over the summer out of 140 shops I visited, there were only seven managers on the shopfloor,” he said. “What is more important than customers?”
He warned store managers need to be on the shopfloor to ensure service remains “our number one priority”.
While store managers knew it would be hard work in the run-up to Christmas, for the week they were caught up in Disney magic. At the end, many told stories of the excellent customer service they witnessed.
At the gala evening on the final night the entrepreneur received a standing ovation when he took to the stage. Hundreds of managers wanted their photos taken with the boss who not only rescued the business, but made them feel part of the turnaround.
Walker hopes that with “managers so wound up” and the 5% pay rise to the rest of the shop staff, it will “all come together” back home. “I wish I could bring 19,000 staff here but I can’t, so it’s now up to the managers to give their staff a great area conference when they get back, and bring some of this magic to them,” he said.
He has also created a recruitment DVD managers give to prospective staff before interviews to show what Iceland expects in the way of personal appearance and standards. “We need to be more selective on recruitment and this will hopefully put off some of those who don’t want to work for Iceland straight away.”
This year the managers’ conference was a departure from the norm – since Walker regained control of the company four years ago the conference has moved from Birmingham to Euro Disney to Liverpool – and he is clear the Florida show, created by Cascade Productions, won’t happen every year. “For the last four years we have gone bigger and better with our conferences but sales have matched that. Staff know next year will be tougher but who knows, we may be able to do this again in another four years.”
For Walker, the Florida conference was a highlight of his career. “This is the best time because I have got the best team,” he said. “Being a private company we don’t have any outside pressure, and we don’t need to take short term action if sales start to flag. The management team at Iceland are long-term greedy, not short-term, and that makes a big difference.”
Walker is also adamant he will not be retiring any time soon. “I tried it once and I didn’t like it,” he says. “And my team allow me to go on holiday a lot, so it works well.”
He is also certain that things won’t change following the collapse of Baugur – which had a minority stake in Iceland – because its shares are now owned by two Icelandic banks.
He said there will be no ownership change in the short term, and is unsure whether he will make a bid for full control if the banks want to sell their stake. “The management are so well motivated, and everyone enjoys the job – I wouldn’t want to change anything at the moment. And as a private company we’re not going to be cutting hours or costs if growth slows – I’m proud of all my staff and they are all on top form.”
As Iceland gears up for its 40th anniversary next year, it is clear that even if sales slow, the business is in good form and staff are more motivated than ever.
But as Pritchard warns: “This isn’t a fairytale; it’s very real. And there is still a long way to go.” Walker’s thoughts exactly – there’s always room for improvement, and a sprinkling of Disney magic will help pave the way.
Iceland in numbers
Sales in the year to March 27 – an increase of 16%
EBITDA in the year to March 27 – an increase of 36%
Like-for-like sales increase in the year to March 27
New stores to open over the next two years, including 51 ex-Woolworths shops
Annual pay rise all shopfloor staff will receive this year
Voted in The Sunday Times 2009 Best Big Companies to Work For. Chief executive Malcolm Walker said he won’t be happy “until
we’re number one”
Iceland will celebrate its 40th birthday next year