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
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders