Iceland Group plc

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Iceland Group plc

Second Avenue
Deeside Industrial Park
Deeside, Flintshire CH5 2NW
United Kingdom
Telephone: ( + 44) 1244 830-100
Fax: ( + 44) 1244814-531
Web site: http://www.iceland.co.uk

Public Company
Incorporated: 1970
Employees: 20,618
Sales: £1.74 billion (US$2.89 billion) (1998)
Stock Exchanges: London
NAIC: 445110 Grocery Stores; 492210 Grocery Delivery Services; 422420 Frozen Foods, Packaged (Except Dairy Products), Wholesaling; 421620 Kitchen Appliances, Household-Type, Electric, Wholesaling

“Revolutionary Family Food Company” Iceland Group plc is one of the United Kingdom’s leading frozen food retailers, with more than 750 retail stores featuring both frozen and fresh foods under the Iceland and other brand names. Once considered a down-market grocer among the U.K.’s class-conscious consumers, Iceland continues to offer competitively priced foods while emphasizing a strong service component as well. In addition to traditional in-store shopping, Iceland customers can place orders by telephone or through the Internet and receive free home delivery. As the company has faced growing pressure from the U.K.’s giant supermarket chains, such as Tesco and Wal-Mart-owned ASDA, which began adding their own frozen foods while also entering the Internet and home delivery sector, Iceland has carved a new niche for itself as one of the U.K.’s foremost health-conscious grocers. In 1998, the company gained nationwide attention when it announced its intention to remove all genetically modified ingredients from its own-brand products—which account for the majority of products in its stores. In October 1999, the company went even further, guaranteeing that all of its products would be free from artificial colorings, and, where possible, preservatives as well. In keeping with its growing “green” image, Iceland also sells its own line of Kyoto refrigerators and freezers (named after the Kyoto environmental summit of 1997). Meanwhile, Iceland has begun to expand its store concept, rolling out a growing number of Iceland Extra stores, featuring a wider variety of traditional grocery and fresh foods items, in addition to its frozen foods selection. In January 2000, Iceland reached an agreement with Storehouse to sell Iceland food products in a number of Storehouse’s BHS stores. While boosting its supermarket operations, Iceland has also been growing its food service component, Woodward Foodservice. Iceland continues to be led by co-founder, chairman, and CEO Malcolm Walker.

From Roadside to High Street in the 1970s

Malcolm Walker and Peter Hinchcliffe were in their 20s when they began selling strawberries from the North Wales roadside. Frustrated with their jobs as management trainees with retailer Wool worths, Walker and Hinchcliffe had begun looking toward starting their own business. Buying up the stock of strawberries from another roadside vendor, the pair set up a stall on the road near Llangollen, selling to passing tourists. While modestly successful, Walker and Hinchcliffe did not see their long-term future in roadside sales. Instead, the pair turned to retail, paying £60 for one month’s rent of a storefront in Oswestry, North Wales. Walker and Hinchcliffe filled their small shop with freezers and stock bought on credit, and opened for business in November 1970.

Soon to become known as Iceland, the shop offered customers loose frozen foods, rather than packaged foods. The store’s foods were displayed on freezer trays, and customers could take as much or as little as they wanted. The shop soon built up a steady clientele, attracted by the store’s low prices. Walker’s and Hinchcliffe’s employers, however, were less impressed with their moonlighting activity and fired them both. The two had no choice but to decide to expand their store concept, creating the new retail food niche of loose frozen food.

From its first shop, Iceland began to expand to new locations, keeping to the North Wales region. After acquiring a second shop and a 20,000-square-foot cold storage facility in Rhyl in 1973, Walker and Hinchcliffe put the Iceland concept into high gear. By 1975, the pair operated a chain of 18 stores, and had come a long way toward developing the Iceland look: clean, bright shops featuring a blue and white motif.

The next step in Iceland’s evolution was the move away from loose foods to prepackaged frozen foods. As Iceland continued to make acquisitions of other frozen foods shops, struggling in the recession of the mid-1970s, the company also prepared the launch of the first “mature” Iceland shop, opened in Arndale Centre, in Manchester, England, in 1977. This was the first Iceland store to abandon loose foods altogether, in favor of prepackaged food items. By 1978, the company had begun to expand into a national food store chain, with 28 stores under the Iceland name. As its stores were also growing in size, ranging from 2,000 to 3,000 square feet, Iceland opened a 300,000-square-foot cold store facility in Deeside, Flintshire, in North Wales, where it also moved its headquarters.

Iceland was gaining a reputation among consumers as a low-priced alternative to the major supermarket chains. The company’s low prices contributed to a somewhat down-market image, which dogged the company into the 1990s. Nevertheless, Iceland continued its rapid growth, boosting its number of stores to 42 by the beginning of the 1980s, while also introducing selected chilled and grocery items for the first time. In 1981, Walker and Hinchcliffe began preparing the next phase of expansion by selling a 16 percent share of the company to the British Rail Pension Fund, giving Iceland a £1.6 million war chest for further growth. The following year, Iceland rolled out its own brand label, the Iceland line of prepackaged frozen foods, which became the basis of the company’s success in the 1980s. The large majority of frozen food items sold in the Iceland stores soon featured its own brand. In order to meet the rising demand for the highly successful Iceland brand, the company opened a new one million-square-foot cold store facility at its Deeside location.

Growth in the 1980s

In 1983, the company made its first major acquisition when it bought up the failing 18-store chain of St. Catherine frozen food centers. Iceland was able to turn around the St. Catherine stores and integrate them under the Iceland signage within months. At the same time, Iceland began converting its stores to a new image, abandoning the somewhat chilly blue-and-white color scheme for a warmer red-grey-beige combination. Iceland began looking for more shops to rent and other acquisitions.

Going public in 1984 provided the funding for stepped-up expansion. The company’s listing was oversubscribed some 116 times—giving the company the momentum to develop into a nationwide chain. The increase in capital allowed Iceland to continue to expand its stores, and also develop its own label lines of chilled foods and grocery items. At the same time, Iceland found it easier to acquire leases for its stores, as landlords were more comfortable renting to a public company. Two years after its IPO, Iceland was able to complete its national expansion, moving into southern England with the acquisition of Orchard Frozen Foods. That acquisition had pitted Iceland against larger rival Bejam Group.

Bejam, two-and-a-half times larger than Iceland and in increasing competition as the two chain’s operations began to overlap, became Walker and Hinchcliffe’s next target. Joining the takeover wars that marked the mid-1980s, Iceland, which had seen its initial acquisition offers rebuffed, turned hostile and launched a takeover battle that lasted some three months. In the end, Iceland won, barely, gaining 50.09 percent of Bejam’s shares in 1988. Integrating Bejam’s stores, which doubled the Iceland chain to some 275 stores, proved as difficult as acquiring the larger company, especially due to management conflicts. Bejam’s operations were moved to Iceland’s headquarters, and Bejam storefronts were converted to the Iceland signage. By the start of the 1990s, the integration had largely been achieved. In addition to expanding Iceland’s chain of stores, the Bejam purchase also brought the company into home appliance sales for the first time.

From Iceland to “Green”-land in the 1990s

The faltering economy, with consumers battered by a recession and soaring jobless rates, slowed Iceland’s growth at the start of the 1990s. In 1993, however, the company returned to its expansion program, winning an agreement to take over the food halls of the Littlewoods department store chain. The first of the “Iceland at Littlewoods” stores was rolled out in 1993. At the same time, Iceland moved into the Irish market, opening its first stores in Northern Ireland. That year, Iceland attempted a European expansion, buying up the Au Gel chain of frozen foods retail shops in France. That purchase proved untimely, and the company was forced to shut down the Au Gel subsidiary within a year. Efforts to export the Iceland brand’s frozen food products were more successful, and the company built a £30 million depot in Swindon to support its domestic business and growing export sales. In 1994, cofounder Hinchcliffe retired to a nonexecutive position with the company, and Walker took over as chairman and CEO.

Company Perspectives:

“A breath of fresh air in the stuffy world of British food retailing.” Iceland has a commitment to protect the environment and preserve the quality of life. We care about the planet, natural resources, family life, fair practices and community issues, and in all Company business give them due consideration. The cornerstone to our success is, and will continue to be, linking efficiency with a social conscience and profitability with good business ethics.

After the collapse of the Au Gel subsidiary, Iceland refocused on its core U.K. market. During the mid-1990s, the company stepped up its store opening program, adding some 50 new stores—now with an average store size of more than 4,000 square feet—per year. Nevertheless, Iceland’s per-store sales growth—and share price—were affected by the sluggish economy and increasing competition from the major, full-line supermarkets. Iceland turned to expanded services to make the difference. In 1996, the company added home telephone sales and home delivery; while only a small part of the company’s sales, these new services nonetheless were quickly profitable.

While the company rebuilt its retail sales momentum, it also began to diversify, purchasing Woodward Frozen Foods, the third largest foodservice provider to the U.K. catering and restaurant markets. Iceland quickly expanded its foodservice division, adding Cold Move, in 1997. In that year, the company renamed its Woodward operations as Wood Foodservice. Within two years, Iceland had built up its food service division to some £50 million in sales per year; Walker made no secret of his plans to extend Woodward’s share of the U.K. foodservice market, and especially a targeted doubling of Woodward’s sales by the end of 2000.

As Iceland faced ever-growing competition from the giant supermarket chains—which were rapidly introducing their own frozen food selections—Iceland sought new ways not only to differentiate itself from its competitors, but also to improve its image among consumers. In 1998, catching the spirit of growing public resistance to genetically modified foods (GM foods), Iceland announced its intention to remove all GM food products from its Iceland-branded foods. The move proved highly successful with British consumers, who were becoming more and more fearful of the possible harmful effects of the so-called “Frankenstein foods.” The company further boosted its newfound “green” image by introducing its own line of environmentally friendly refrigerators and freezers, replacing freon and other harmful cooling agents with hydrocarbon based systems. The new appliance line was named “Kyoto” after the 1997 environmental summit in Kyoto, Japan. Later that year, Iceland teamed up with U.K. retailer J. Sainsbury to offer home appliances through Sainsbury’s DIY (do-it-yourself) superstore subsidiary, Homebase House & Garden Centre.

After boosting its foodservice division in 1999 with the acquisitions of Rossfish and Deep Freeze supplies, which strengthened Iceland’s foodservice component in southwestern and northeastern England, and brought the company into Scotland, Iceland beefed up its service component, becoming one of the first U.K. grocers to offer free Internet shopping services. On the physical front, Iceland also rolled out a new store concept, Iceland Extra, which offered an extended range of fresh and grocery items, as well as convenience products such as tobacco and newspapers. By mid-1999, the Iceland Extra format began showing its promise—the first eight Extra stores, operating in the London area, had increased their sales by some 40 percent. Iceland began making plans to roll out an additional 20 Extra stores nationwide, and saw the potential to convert perhaps 70 more stores of the entire chain’s more than 700 Iceland stores to the expanded format.

In 1999, Iceland found a new bandwagon from which to trumpet its health-conscious message. In October of that year, the company made headlines by promising to remove all artificial colors from its branded foods, as well as reducing where possible preservatives and other additives. With more and more studies linking food colorings and other additives to a series of health problems and disorders such as hyperactivity, Iceland’s “clean food” image continued to impress the British consumer. Iceland had also impressed other retailers: in January 2000, Iceland announced its agreement with Storehouse to create a special line of Iceland products, particularly chilled and fresh food products, for the Storehouse BHS department store chain. The move by BHS to add food products was made to enable that chain to compete head-to-head with rival Marks and Spencer. After a successful prototype run in BHS’s Birmingham store, the Iceland-Storehouse agreement called for a rollout of Iceland products in another ten BHS stores, with a possible extension to an additional 90 stores by the end of 2001.

From a roadside strawberries stand to a national chain of more than 750 retail stores, Iceland expected to continue its successful growth into the new century.

Principal Subsidiaries

Bejam Group PLC; Burgundy Limited; Iceland Foods (Ireland) Limited; Iceland Foodstores Limited; Iceland Frozen Foods plc; Trans European Insurance Limited; Woodward Foodservice Limited.

Principal Competitors

ALDI Group; Marks & Spencer p.I.e.; ASDA Group plc; Safeway plc; Booker PLC; Somerfield; Dixons Group plc; Tesco PLC; J Sainsbury plc; Wm. Morrison Supermarkets PLC; John Lewis Partnership plc.

Key Dates:

1970:: Malcolm Walker and Peter Hinchcliffe open first frozen foods store.
1973:: Second retail store opens; company purchases 20,000-square-foot cold storage facility.
1975:: 15 Iceland stores are in operation.
1978:: Company opens 300,000-square-foot cold store in Deeside.
1981:: Company sells 16 percent share to British Rail Pension Fund for £1.6 million.
1982:: Iceland brand frozen foods line rolls out.
1984:: Company completes IPO on London Stock Exchange.
1988:: Hostile takeover of Bejam Group is effected.
1993:: Roll out of “Iceland at Littlewoods” takes place.
2000:: Company reaches agreement with Storehouse to sell Iceland-brand food products in BHS department stores.