Iceland’s Dark Ages began after it made a recommended offer in 2000 for Booker, the UK’s largest cash-and-carry operator, with the aim of exploiting buying and other synergies between the two businesses. Booker’s top manager Stuart Rose was appointed chief executive of the enlarged group, while Iceland’s Malcolm Walker was scheduled to become non-executive chairman. But shortly after the deal was completed, Stuart Rose left to head the Arcadia fashion chain, where he made a fortune before moving on to Marks & Spencer.
Into this management vacuum stepped new chief executive Bill Grimsey, who had built his City reputation at the Wickes DIY chain following the departure of its previous management team as the result of a financial scandal. Within weeks of joining Iceland, he and his new finance director Bill Hoskins – also from Wickes – claimed to have identified massive problems. These plunged the business into a £120 million loss after an amazing £145 million of exceptional items – an extraordinary reversal of fortunes for a group operating in inherently stable industries, which had recorded a profit of £32 million in the first six months of that financial year. Malcolm Walker and many of the senior managers who had built the Iceland business were forced to leave the company.
Renamed The Big Food Group in February 2002, the combined Iceland-Booker business struggled under its new management, despite the launch of a grandiose recovery plan. (Click here to read the saga of ‘The one, two, three, four, five year recovery plan’.) For Iceland, the declared ambition was ‘to dominate high street food retailing through a renewed focus on core customers and frozen food’. The reality was a steady decline in customer numbers and sales link to market share slide, while costs – including senior management rewards – escalated. Profits never recovered to historic levels and were supported only by the release of provisions made in 2001. (Click here to see how the release of provisions found to be ‘not needed’ boosted profits in 2002 – 2004.) The company therefore faced growing difficulties as these neared exhaustion towards the end of 2004.
In February 2005 The Big Food Group’s shareholders accepted a recommended offer from a consortium of investors that made it a private company once more. Shareholders received only a fraction of the value the business had enjoyed on the stock market at its peak. The group was subsequently split into its main component parts and Iceland placed under the management of Malcolm Walker and other senior executives who had been ejected in 2001.
The new team returned to find a company in crisis. Sales were running at minus 10% on the previous year, having declined every year since 2001. Over the same four years overheads had escalated on a massive scale, with head office employee numbers growing from 800 to 1,400 and a further £16 million being spent on the services of external consultants. The product range had expanded chaotically and prices were well out of line with the market. Morale was at an all-time low and the company was in such a precarious financial state that suppliers could not even obtain credit insurance.
Sales began to rise steadily every week during the new team’s first year back in charge, as customers returned to the stores. By the end of the financial year to March 2006 like-for-like sales, 2001-2005 were running 20% up year-on-year, making Iceland the UK’s fastest-growing food retailer. An independent customer satisfaction survey, conducted around the same time, also identified Iceland as the country’s fastest improving retailer. Instead of the massive loss anticipated at the time of the takeover in February 2005 the business achieved a satisfactory operating profit, while the cash position was transformed to give Iceland a healthy balance sheet. This permitted the launch of a major investment programme to improve neglected stores, and to turn the previous management’s unsuccessful convenience store formats back into traditional Iceland freezer centres.
The key to this success was a strategy of making the business simpler, and refocusing on its traditional strengths. Through this, Iceland rapidly became recognised once more as the UK’s natural destination store for innovative, value-for-money frozen food. The introduction of round sum pricing made it easy for customers to budget, while the unique home delivery service provided a vital helping hand to busy mums. By Christmas 2006 like-for-like sales were growing at 15% for the second year in a row.
On the Today programme on BBC Radio 4 on Monday, 24 August 2009, Focus DIY Chief Executive Bill Grimsey (or Bill Grimsby, as he was introduced) told interviewer Tanya Beckett that he had “rescued” the Iceland Group in 2001. Click here to read a full transcript of the interview.
Bill Grimsey was Chief Executive of Iceland Group (later renamed The Big Food Group) from January 2001 to February 2005, by which time the business was on the verge of collapse. A more realistic view of the achievements of those years can be found in The Dark Ages section of The Iceland Story on this website. See also the table of Accounting Provisions created in 2001 which plunged the business into loss but were subsequently found to be “not needed” and used to support profits until 2004, and the recurrent claims of imminent but undelivered recovery in The one, two, three, four, five year recovery plan.
Finally, for a more realistic perspective on this “rescue”, see the chart of Iceland’s Operating Profit since 1981 and note the contrast between the results achieved during The Dark Ages and those both before and after.
In his comment column in the Daily Mail on Tuesday, 25 August, City Editor Alex Brummer also took a rather different view:
So Bill Grimsey sees himself as a rescuer of companies.As the Focus DIY chief executive prepared for a meeting with creditors of Focus DIY at which he persuaded them to back a company voluntary arrangement (CVA), Grimsey gleefully told radio listeners that he ‘saved the Iceland group in 2001’.
Is this the same Iceland that, under Grimsey’s leadership, renamed itself Big Food Group and subsequently saw sales fall off a cliff?
Could it have been the same Iceland that decided that one route to recovery was to curtail the company’s final salary pension scheme?
Was this the company that eventually tumbled, frail and exhausted, into the hands of a consortium headed by the Icelandic retail group Baugur? Indeed it is.
And if Grimsey thinks that pushing through a CVA for Focus is the same as ‘rescuing’ it, then he has a different definition of the word Let’s be clear: with a CVA, creditors lose out. It is an admission of mistakes made and a way of trying to escape the full consequences of past actions.