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COMMENT: Premier Foods - one brand in, one out?

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According to reports, Premier Foods is to sell its Typhoo tea brand. While the sale would fit in with the company's strategy of consolidation to focus on its leading brands, the UK tea market's restricted growth prospects could also be a key factor, and one potential buyers should note.

It is expected that the sale of Typhoo could net Premier up to GBP100m. Given that a cup of Typhoo is said to be drunk every 90 seconds within the UK, the brand will constitute an attractive proposition for many suitors. Several buyers have already reportedly made enquiries about the UK's third-biggest tea brand, which ranks behind Unilever's PG Tips and Tata Tea's Tetley in market share.

Like many of its FMCG counterparts, Premier wants to raise funds to add to its traditional core brands such as Gale's honey, Bird's custard and Ambrosia Creamed Rice. Equally important now is freeing up funds to facilitate additional investments required to maximise the profitable opportunity emanating from meat-free foods following its recent acquisition of Marlow Foods and its Quorn range.

Premier's drinks division made GBP32m in earnings before interest, tax, depreciation and amortization last year, with Typhoo contributing about half. However, irrespective of Typhoo's individual contribution, Premier's decision to offload the brand that "put the T in Britain" is likely to be related to a restrictive growth outlook for the saturated category. In 2004, the UK tea sector was valued at GBP1.31bn, but is expected to grow by just 3.8% overall to reach GBP1.36bn in 2009.

The sector's growth is being inhibited by two core factors: firstly, coffee has risen in popularity in the UK, especially with the growth of the coffee bar culture over recent years. Secondly, soft drinks such as bottled water and fruit juice are proving popular alternatives to health-conscious and image-asserting consumers, especially younger consumers. Recognising these threats will be crucial to any prospective Typhoo suitors.


Sectors: Soft drinks

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