UK biscuit barrel tempts foreign firms

The public regards them as cheap treats in tough times, and firms know they make good business sense. Laura Chesters reports

Ginger nuts, custard creams, Bourbon biscuits and Jammie Dodgers; there are biscuits for every time and every season. And they are big business.

The Chinese have been nibbling at United Biscuits, the UK's biggest manufacturer, while speculation is hotting up that there are predators stalking Burton's Foods, the country's second biggest biscuit-maker, as well Fox's Biscuits, part of Northern Foods. Interest first emerged earlier this year when Bright Foods, a Chinese manufacturer, began £2bn talks with private-equity-owned United Biscuits, which has around 30 per cent of the market. Its best-selling brands include Jaffa Cakes, Rich Tea and HobNobs.

But analysts believe mergers are on the cards. Conor Cahill, a partner and consumer goods expert at Deloitte, explains why: "Biscuits and snacks are seen as 'cheap treats' by consumers. Consumers have frugality fatigue. They want to occasionally treat themselves, so will spend on things like biscuits. The grocery market always outperforms during a recession."

That's why, Cahill predicts, there will be consolidation in the biscuit sector: "Scale is important, and some of the brands in the UK that could potentially be available would look great in a larger portfolio."

A recent survey in the US by KPMG found that 67 per cent of consumer goods executives in the food sector said they would be participating in merger activity over the next two years. The UK economy might be grappling with one of the most difficult consumer environments and toughest financial markets in decades, yet it is the perfect time for companies to go biscuit shopping.

United Biscuits' research shows that sales have grown 5 per cent for each of the past five years.

"Consumer goods businesses, particularly in the grocery sector, are good defensive stock in a recession," Cahill says.

Blackstone Group and France's PAI Partners, United Biscuit's private-equity owners, pulled a sale in the summer when a deal could not be reached, but word on the high street is that a new sale negotiation will start later this year. It seems likely that the biscuits and snacks arms will be sold off separately, so a buyer can choose Penguins, Jaffa Cakes and McVitie's biscuits or instead gobble up Hula Hoops and McCoy's crisps.

Consolidation could be driven by the big, established biscuit manufacturers snapping up single brands owned by a larger company with a mix of other investments.

A United spokesman says: "Concentrating on biscuits or, at least, snack foods, enables companies to focus on understanding consumers', shoppers' and retailers' needs and wants, as well as developing improved products and innovation, and communicating in an engaging way."

If this is right, the future of Fox's Biscuits could well come under the spotlight next. Ranjit Singh Boparan, the chicken entrepreneur who supplies processed poultry and ready meals to supermarkets, might be wondering why he needs shortcake rounds and Rocky Chocolate biscuit bars. His business, 2 Sisters group in the West Midlands, bought Northern Foods for £342m earlier this year and, in the process, Fox's as well as Goodfella's pizza to add to his Harry Ramsden's fish and chips chain.

An investment banker who specialises in consumer goods says: "Boparan used debt to secure the Northern Foods purchase. Fox's does not fit in as well with the rest of his empire. He may well entertain approaches."

Another candidate for sell-offs could be Premier Foods, which produces Mr Kipling cakes and Branston pickles. The group has had well-publicised problems after a profit slump this year. Mike Clarke, the new chief executive, will be taking a hard look at what his company should be focusing on.

Premier has nearly £1bn of debt and £3bn in pension liabilities. Further disposals – it has already sold a number of brands, such as Quorn – could be on the cards. Experts argue that such an established line as Mr Kipling would fetch a strong price from rivals looking to build positions in biscuits and cakes.

The potential buyers of British biscuits include some of the biggest US brands: Kellogg's, PepsiCo, and the Campbell Soup Company. A particularly mouth-watering opportunity could be the UK's second-biggest manufacturer, Burton's Foods, which counts Jammie Dodgers and Wagon Wheels among its more famous brands.

Burton's is owned by the Canadian Imperial Bank of Commerce and Apollo Global Management. They were among the backers for Duke Street Capital's purchase of Burton's in 2006, a deal that left the biscuit maker saddled with debt.

Duke Street had to give up control of the business in 2009 after struggling with that debt burden and now has only a small stake. After a number of deep cuts, including redundancies and a restructuring, the business is back in good shape and would fetch a decent sale price.

Even a potential downside – pressure from the Government and lobbying groups to lower obesity levels – has turned into an opportunity for the sector. Kraft Foods, the world's sixth biggest biscuit manufacturer and a potential buyer of others in the sector, launched its "healthy breakfast" biscuit Belvita last year.

If such ranges prove successful, there will be plenty of predators ready to take the biscuit.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?