Grand Met clears out the pantry

Grand Metropolitan has begun a clear-out of its lesser known European food brands in order to concentrate on market leaders such as Pillsbury, Haagen-Dazs, Old El Paso and Green Giant.

The company sold its Erasco food business in Germany yesterday to the Campbell Soup company of the US for pounds 140m. It has also hung the "for sale" sign over a raft of under-performing names which include Shippams pastes, Memory Lane cakes, Fleurs de Lys in the UK and Brassard in France and Germany. These businesses are expected to fetch an additional pounds 80m-pounds 100m though some analysts say they could yield as much as pounds 150m.

GrandMet Foods Europe will be renamed Pillsbury Europe from the beginning of October and its headquarters will be relocated from Paris to Uxbridge.

The move is part of a strategic review of the group's European foods business by Paul Walsh, chief executive of the Pillsbury division. A shake- up has been long anticipated as it has been among Grand Met's worst performing divisions.

The group was losing money until a couple of years ago and last year recorded operating profits of just pounds 23m on sales of pounds 600m. In the six months to March it made profits of pounds 7m on sales of almost pounds 400m.

Grand Met, whose chairman is George Bull, said it expected to sell most of the businesses along with the Pearle opticians division by the time of its full-year results in December. Pearle is forecast to raise around pounds 130m-pounds 140m.

Erasco, which is the market leader in canned and ready-made soups in Germany, made operating profits of pounds 14m last year on sales of pounds 150m. The food disposals will require a goodwill write-off of pounds 220m.

Grand Met finance director Gerald Corbett said the businesses were being sold as they were lower-margin businesses that were not market leaders in their sectors. "We decided we should free up resources to focus on our major brands," he said.

"The European food industry is extremely competitive and not very profitable. By comparison, the US food industry has higher margins, less own-label penetration and less powerful retailers."

Mr Corbett said the group had already received several expressions of interest for the food businesses.

The funds raised are likely to be used to pay down Grand Met's pounds 2.9bn debt pile though, it will also be able to concentrate marketing spending behind its major brands. Mr Corbett ruled out a significant acquisition.

The streamlining of the Grand Met portfolio met with approval in the City. John Spicer of SBC Warburg said: "It is not a big surprise but we are happy that they are doing it. It [the European food business] was really a conglomeration of small, national businesses. They haven't really gone anywhere for the last few years and it would have been difficult for them to expand."

The disposals would leave only Burger King as the one remaining candidate for sale. Though the company insists there are no plans to sell the business, there has been consistent speculation that a spin-off is likely. Grand Met shares rose 2.5p to 471.5p.