Every FMCG marketing director knows that where food staples are concerned, a bit of cleverly evoked nostalgia can often do the trick. The title of last year's ad campaign to relaunch Hovis, the country's best-known bread brand, was 'Go on, lad', but the same cry could just as easily be applied to the City's view of Premier Foods, Hovis' owner, during the past 12 months.
Even as its sales performance has shown impressive resilience in a deteriorating economy, its share price has been going down faster than a bowlful of Angel Delight at a children's party.
It is an apparent paradox that should worry those who believe in investing in brand-building, particularly at publicly quoted companies, where the pressure on executives to cut discretionary spending on marketing is only going to intensify as the recession worsens.
Superficially, there are sound reasons why City investors have been jittery about Premier Foods. In 2006, Robert Schofield, its chief executive, decided to buy RHM, in the process acquiring Hovis and several other leading brands.
However, the £1.8bn of debt he racked up in his attempt to become the King of the British larder has acted as a millstone around Premier Foods' neck. After years of encouraging public companies to act like private-equity firms, leverage-laden corporate balance sheets are now deeply unfashionable.
Last week's deal to raise £400m from private-equity firm Warburg Pincus and existing shareholders will help Premier address that problem, even if some of the latter have been unhappy about Schofield's unwillingness to countenance the idea of offloading the Mr Kipling and Sharwood's brands, in which potential buyers have recently expressed interest.
He has also faced the twin obstacles of soaring wheat prices and the volatile cost of energy. These have forced him to put prices up and given the appearance of an improved Hovis performance by boosting sales from £535m in 2007 to more than £750m last year.
In volume terms, the relaunch worked. Hovis' share of the branded bread market grew to almost a quarter in the six months to January, its highest level for 16 months, according to Premier Foods. But at least part of that growth was generated by promotional discounting. There is nothing wrong with that, so long as long-term brand-building activity does not suffer as a result, but at many companies, the short-term need to drive sales growth through tactical marketing is acting as a substitute for, rather than a supplement to, the principle of building brands.
So it is to Schofield's credit that he has pledged to continue supporting Hovis with real dough, even as he wrestles with the need to further reduce Premier's debt. To a degree, he has little choice. Premier depends on the success of its brands; if he stops investing in marketing, packaging, distribution and NPD, he might as well give up.
Convincing City investors who do not understand the metrics of his business is another matter. Premier is far from the most critical of companies to the big institutional investors, which account for a giant chunk of stock-market ownership, but by standing firm and defending his portfolio of brands, Schofield can act as a flag-bearer for others in a similar position.
Hovis' relaunch campaign was all about reminding consumers of the way things used to be and getting them to buy several slices of it. Schofield's nostalgia for the days when the stock market acknowledged the real value of Premier's portfolio of brands is understandable, and they will return only if he continues spending serious money on marketing it.
Mark Kleinman is City editor of The Sunday Telegraph
30 seconds on Premier Foods
- Premier Foods came into being 10 years ago, when Hillsdown Holdings was acquired and renamed by private-equity firm Hicks, Muse, Tate & Furst, which embarked on a strategy of buying British brands.
- The company acquired Nestlé's ambient food business in 2002, adding brands including Branston, Sarson's and Sun-Pat to its portfolio in the process.
- Having floated on the Stock Exchange in 2004, Premier went on to acquire brands including Angel Delight and Quorn and Campbell's UK and Ireland business before its takeover of RHM in 2007.
- Premier claims its top 10 brands - Hovis, Mr Kipling, Quorn, Sharwood's, Cadbury (under licence), Bisto, Branston, Ambrosia, Loyd Grossman and Batchelors - have a retail value of £1.2bn.
- Chief executive Robert Schofield joined Premier Foods in 2001, overseeing the group's branded business before taking the helm in 2002. He was previously managing director of United Biscuits UK.