United Biscuits (Holdings) Plc Business Information, Profile, and History

Company Perspectives:

Leading household names and an impressive track record of innovation and development highlight UB as the number one biscuit manufacturer in the UK and a leading biscuit manufacturer in Western Europe. A group whose high visibility brands may be seen in any supermarket trolley and drives a market that impacts on every man, woman and child in Western Europe.

History of United Biscuits (Holdings) Plc

United Biscuits (Holdings) plc is the leading biscuit (cookie and cracker) maker in the United Kingdom and one of the leading biscuit makers in Western Europe. Active in seven Western European nations, United Biscuits (UB) owns a number of leading national biscuit brands, including McVitie's (United Kingdom), BN (France), Delacre (France and Belgium), and Verkade (the Netherlands). Other biscuit brands include Oreos, Go-Ahead!, and Chips Ahoy! Out of 2000 sales of £1.3 billion, £1 billion was generated by the European biscuit business; the remaining £300 million came from the company's U.K. snack and nuts businesses, which included KP Snacks, Derwent Valley Foods, and KP Nuts. In May 2000 UB was acquired by Finalrealm Limited, a financial investment consortium connected with both Groupe Danone and Nabisco Holdings Corporation.

History of McVitie & Price

As its name implies, United Biscuits was founded when two biscuit makers—McVitie & Price and Macfarlane Lang & Company—joined forces, in the wake of World War II. Robert McVitie, the son of a prosperous farmer who started a provision store in Edinburgh in the 1830s, was first apprenticed to a baker. He later joined his father in the shop, carrying on the business when his father decided to leave it. By the 1840s, Robert had left the shop on Rose Street (just a few yards away from the Crawford family's business, which became a part of United Biscuits in 1962) and moved to larger quarters. Robert prospered, opened more shops, and, in 1844, married Catherine Gairns, who brought additional wealth to the family.

Robert and Catherine had four children; sons William and Robert, Jr., were apprenticed in the bakery trade, and were sent to the continent to study French, German, and baking. William became a journalist, but Robert returned to introduce Vienna bread into Scotland and inherited the family business in 1884—the year that McVitie Scotch cakes (shortbread, oatcakes, and biscuits) won the gold medal at an international exhibition in Calcutta. Robert decided to concentrate McVitie's resources on biscuits, which at that time would keep better than bread or cakes—an important point in the expansion of sales territory.

Preparing to leave for the United States in 1887 to study American methods, Robert was behind the counter in the Edinburgh shop when Alexander Grant, 22, came in to seek employment. Told that no job was available, Grant replied, "it's a pity, for I'm a fell fine baker." As he lifted a scone and scrutinized it on his way out he added, "Well, onyway, ye canna make scones in Edinburgh"—and Robert, amused, hired him on the spot. Grant did prove to be a fell fine baker, was promoted, and saved enough money to buy a small bakery of his own. But, undercapitalized, the business failed, and Grant returned to McVitie's employ. He devoted himself to further study and hard work and took on increasing levels of responsibility.

Charles Price, a traveling salesman for Cadbury, joined McVitie in 1888 on the understanding, contingent on his sales volume, that he would become a partner. The company was soon McVitie & Price. Thirteen years after he joined, he departed to become a member of parliament, having transformed the company into a national entity.

Londoners' tastes required something smaller, thinner, and lighter than the traditional Scottish fare, according to George Andrews Brown, another outstanding salesman, who was the first to develop the London market. While the company worked to refine its "Rich Tea" biscuit to suit London tastes, Brown invented a sandwich biscuit with cream filling. Alexander Grant meanwhile developed what he called a digestive biscuit, using a formula he kept secret until the 1930s, when he passed it on to his daughter. Because he was the only one who knew how to supervise the biscuit's mixing at the Edinburgh and London factories, he kept a strenuous schedule, traveling by train between the two.

Queen Victoria's daughter, Princess Mary of Teck, pronounced McVitie and Price's cake the best of those made for her wedding in 1893. Later, as Queen Mary, she named the firm the royal family's official supplier of wedding and christening cakes, a tradition that has continued through all its succeeding generations.

Robert McVitie died in 1910 at age 56, his one-man business now a prominent national enterprise. He had guided it through the mechanization necessary to increase volume—the result, in part, of a fire that destroyed the Edinburgh factory in 1894. The business employed thousands of people, and its products had inspired many tributes. Because McVitie had no heirs, he planned to make the firm a limited liability company and nominated Alexander Grant as managing director. The board of directors agreed.

World War I created pressure to supply "iron ration" plain biscuits as government-issued fare. This overtaxed existing factories, so an additional facility was opened in Manchester. Grant, whom the directors had named chairman, wanted to develop the company at a faster pace; consequently, he borrowed the money to buy control of the business in 1916. Grant's son, Robert McVitie Grant, had worked his way up from an entry-level position to managing director, demonstrating his resourcefulness along the way by inventing a product to compete with Scandinavian hardtack: MacVita, which continued to be a popular item.

The hard work Grant demanded from himself and his son was expected of the entire staff. Hector Laing, engaged to Grant's daughter Margaret, began work at McVitie's by stoking ovens when he returned from World War I. Even on the morning of his wedding, in 1922, he had to put in a stint at work.

Grant paid close attention to his sales staff and kept them motivated through special recognition of achievement and through generous commissions. He himself was rewarded in 1924 with a baronetcy. That same year, McVitie & Price received this tribute from the Oxford expedition to the Arctic Circle: "Every brand which you supplied had its devotees and you can be certain that not one crumb was left uneaten. If any Expedition in the future revisits North Eastland it will find many of your tins on these icegirt shores—all empty, mute tokens of our appreciation of your biscuits."

At Sir Alexander's death in 1937, Sir Robert was already in command of a vast business. But World War II brought many changes. The company soon found that, with restrictions on supplies and transportation, cooperation with its competitor, Macfarlane Lang, made good sense. The 370 varieties of biscuits produced in 1939 were reduced to ten by 1945. Robert Grant had begun negotiations for a merger with Macfarlane Lang when, in 1947, he died at the age of 52. He had previously named Peter MacDonald, legal adviser to the company for many years, his successor. Taxation and death duties, together with the need for a reduction in overhead expenses and the promise of economies of scale, made the merger with Macfarlane Lang a natural union.

History of Macfarlane Lang

Macfarlane Lang began with a bakehouse and small shop opened by James Lang in Glasgow in 1817. At Lang's death in 1841, his nephew, John Macfarlane, took over the business, renaming it Macfarlane and using its assets to open a new bakery on another street in Glasgow. When his sons James and John, Jr., joined him in 1878, he had greatly expanded the business and decided to rename it John Macfarlane and Sons. In 1884 his youngest son, George, joined the business. The following year Macfarlane built a new, mechanized bread factory called the Victoria Bread Works. But one of Macfarlane's chief assets was Lang's fine reputation. The name Lang had clung over the years to the bakery's products. Eventually that asset was recognized; in 1885 "Lang" was officially restored and the company became known as Macfarlane Lang & Company.

The bakery continued to grow. A depot in London was built in 1894, and soon the demand for Macfarlane Lang products warranted the construction of a new factory on the Thames River—the Imperial Biscuit Works.

John Macfarlane died in 1908, on the day before the date he had set for his retirement. Facing intense competition from other biscuit companies for the bakery business, his sons nonetheless capably carried on their father's expansion programs through the succeeding decades. Despite the supply shortages and transportation problems during World War I, the business continued to expand; between 1914 and 1916 the capacity of the London operations more than doubled. New and larger factories were built in Osterley, Glasgow, and Tallcross, and extensions were built onto these to meet the burgeoning demand for breads and biscuits. Directorship of Macfarlane Lang remained in the family even after the retirements of each of John's sons, until 1973, when John E. Macfarlane, the grandson of the founder, died in his 90th year.

Postwar Era: Formation of UB and Further Acquisitions

The combined trading profits of Macfarlane and McVitie came to £443,000 in 1947, of which Macfarlane had contributed £164,000. When the merger was finalized and United Biscuits incorporated in 1948, Peter MacDonald was named chairman of the new company. MacDonald concentrated on taking advantage of economies of scale, sticking to a shorter list of biscuit varieties. During his 20 years of leadership, UB achieved market dominance in many products, including digestive biscuits, rich tea biscuits, Homewheat, and Jaffa Cakes.

Despite their merger, however, the two companies continued to operate quite independently until the late 1960s. Independence stretched so far, in fact, that the three McVitie factories were not even using identical recipes for the same products. Nonetheless, United Biscuits soon began to grow. In 1962 William Crawford and Sons, best known for its shortbread, joined United Biscuits.

The oldest of the UB bakeries, Crawford and Sons was founded as a family bakery in Leith in 1813. The bakery eventually expanded into restaurants, meat processing, and jam-making under the leadership of successive generations of Crawfords.

In 1964, William McDonald & Sons, best known for its chocolate-covered biscuits, was the next company to join UB. Formed in 1946 by a former salesman with two favorite recipes, Macdonald & Sons went public in 1954 and was acquired by UB in 1964.

Together these four bakeries became the foundation of the UB Brands division of the 1980s. Two acquisitions, in 1967 and 1968, respectively, formed the basis of the KP division: Meredith and Drew, a biscuit and crisp (potato chip) manufacturer since 1830, and Kenyon Sons and Craven Ltd., Europe's largest nut processor, dating back to 1891.

After founding his bakery in 1830, William Meredith quarreled with William Drew, his principal assistant, in 1852 and Drew left to set up a rival business. The sons of these two men reunited the two companies in 1890, deciding by coin toss the order of their names. In 1905 Meredith and Drew merged with Wright and Son, a small company known for a cheddar sandwich biscuit—"a meal for a penny." One of the strengths Meredith and Drew brought to United Biscuits was its experience in concentrating on a single product in each plant; adopting this plan helped UB attain dominance in the biscuit market.

Kenyon Sons and Craven dated back to two British factories that began making sugar confectionery, jams, and pickles in 1853. In 1891 the partners and their families formed a limited liability company. For several decades, the company's facilities and products—as well as profits—increased. But the Depression and then World War II sent the company into a steady decline. In September 1943 the directors resigned, and Simon Heller, of the Hercules Nut Company, became director.

Heller's hard work, ingenuity, and imagination turned the company around. For example, during the war, when there was a glut of vegetables at the local market, the company would fill a van with the low-cost items and rush to the plant to make chutney. In 1953 Heller introduced a twopenny packet of KP Nuts. It became a best-seller and stimulated demand for more nut and mixed nut-and-fruit products. So it was with a strong snack food background that Kenyon Sons and Craven came to United Biscuits in 1968.

Continuing to Grow: 1970s-80s

When United Biscuits formed its Continental businesses division in 1986, it united Westimex (Belgium), Sepa (France), and Productos Ortiz (Spain) under a single management team. Westimex, a crisp manufacturer, had joined United Biscuits in 1970 and had been expanding its line to include lower-fat products; it has been steadily increasing its market share in France and the Netherlands as well as Belgium. Sales of branded crisps and private-label nuts sparked major growth in volume and profits at Sepa. Productos Ortiz, acquired in 1973, profited from increased sales of toasted bread, chocolate granola, and cookies.

The British Carr's of Carlisle, acquired in 1972, was founded in 1831 when Jonathan Dodgson Carr, 25, walked to the town of Carlisle from nearby Kendall to seek his fortune. The bakery he started was so successful that within three years he was able to add a flour mill to the business. In 1841, he became the first biscuit maker to receive a royal warrant from Queen Victoria. At first his biscuits were handmade, but during that decade he designed and installed the first biscuit-cutting machine, based on the hand-operated printing press he had observed at his tin supplier's factory. Described as a giant of a man, Carr was renowned for his work in campaigning for the repeal of the corn tax and for affordable housing. The business expanded until the 1930s, went into a decline, and had recovered to some extent at the time of the United Biscuits purchase.

Kemp's Biscuits Limited was another 1972 acquisition. The business began in 1835 as Watmough and Son Limited, making ship's biscuits—hardtack. During World War I, Watmough made Army biscuits—which were reported on occasion to have been used as money to purchase tram tickets. The market for ship's biscuits was nearly decimated when the Board of Trade passed regulations requiring shipowners to make fresh bread at least three days a week. Ernest Kirman, the founder's grandson, joined the business in 1892. In 1926, the company introduced sweet biscuits for human consumption, and it was producing 300 tons a week at the outbreak of World War II. In 1948, wearied by wartime labor shortages and production schedules for civilian gas masks, Kirman sold Watmough to Scribbans-Kemp Limited, which became Kemps Biscuits.

Reaching across the Atlantic, United Biscuits acquired the Keebler Company in 1974. In many ways, Keebler's development paralleled that of the family-owned bakeries that had come together as United Biscuits.

Godfrey Keebler opened a small Philadelphia bake shop in 1853 and earned a fine reputation for his cookies and crackers. A network of similar bakeries was formed in the United States, coincidentally under the name United Biscuit Company, in 1927 to provide the purchasing economies and transportation that central management made possible. By 1944 United Biscuit had 16 bakeries, from Philadelphia to Salt Lake City, Utah. For the next 22 years, United Biscuit expanded its reach into all but three states, selling products under many brand names. Finally, in 1966 the company adopted Keebler as the single, official corporate and brand name for all these bakeries' products.

Under United Biscuits, Keebler later became a unit of UB Foods U.S., a holding company formed in 1986 that operated companies under the Keebler name. With annual sales in excess of $1 billion, Keebler was the second largest cookie and cracker producer in the United States. The company also produced ice cream cones and salty snacks, and in 1986 opened a product-and-process development center at its headquarters in Elmhurst, Illinois, to develop and test new products.

United Biscuits continued acquiring bakeries and other types of food companies throughout the 1970s and 1980s, including Shaffer Clarke in 1978, Terry's of York in 1982, and Callard and Bowser in 1988. The company also made an early entry into China in the late 1980s, leading to the opening of a joint venture biscuit factory in the south Chinese city of Shenzhen in 1990. In the late 1970s UB ventured into the fast-food business with the acquisition of two U.K. chains, Wimpy hamburgers and Pizzaland. Further diversification came in 1988 with the £335 million acquisition of Ross Young's, a leading U.K. frozen food company. United Biscuits also failed in its efforts to complete two other large acquisitions: tobacco and brewing giant Imperial in 1986 (which was acquired by Hanson PLC) and the European operations of RJR Nabisco in 1989 (which were acquired by BSN, forerunner of Groupe Danone). UB's variety of operations and desire to keep brand names and individual company identities intact necessitated repeated reorganizations. By the late 1980s, the company was divided into five business segments. This was reduced to four during 1989 when the fast-food operations were sold to Grand Metropolitan PLC, one of the forerunners of Diageo plc.

Leading United Biscuits from 1972 through the late 1980s was Hector Laing, the son of Hector Laing and Margaret Grant. The chairman was mindful of the impact of computerization and other technological advances on the business—and particularly on personnel. Reinvestment in expansion and new equipment was set at a minimum of 5 percent of profits. That sometimes left little for raising wages during lean years. To offset that occurrence, UB workers received a rare degree of job security: three years' service guaranteed the job for the next five years, ten years' service guaranteed a job for life. Workforce reductions resulting from technological improvements were accomplished through normal attrition and incentives for early retirement.

International Expansion in the Early 1990s

In May 1990 Laing retired as chairman of United Biscuits, having shepherded the company through a period of astounding growth. Taking over as chairman was Robert Clarke, who had served as chief executive since 1986. Promoted to chief executive in January 1991 was Eric Nicoli, who had headed up the UB Brands division. The new leaders continued to seek acquisitions, aiming on further expansion in the Asian-Pacific region and on bolstering the firm's weak position in continental Europe. In 1990 UB acquired Verkade, a leading biscuit and confectionery firm in the Netherlands. During 1991 UB purchased majority or near-majority stakes in three major European biscuit companies: Fazer Biscuits of Finland; Oxford Biscuits of Denmark, the largest biscuit maker in Scandinavia; and Gyori Keksz, the largest biscuit firm in Hungary. The stakes in Oxford and Gyori Keksz were increased to 100 percent by 1993.

Also in 1993, United Biscuits acquired the snack food business of Coca-Cola Amatil of Australia for $300 million. Renamed Smith's Snackfood Company, the acquired business held 56 percent of the Australian snack food market and also had a leading snack business in Italy. With UB's overseas push, 1993 marked the first year in which more than half of sales were generated outside the United Kingdom. The company was not inactive at home, however. It purchased Derwent Valley Foods, which was based in northern England and produced the Phileas Fogg brand of tortilla chips and other corn-based snack products. To pay down its acquisition-fueled debt load, United Biscuits also made some divestments in 1993, selling the U.S. chocolate maker Terry's to Philip Morris for £220 million ($319 million), and the loss-making Productos Ortiz of Spain to the company's management. Further expansion in Eastern Europe came in early 1994 with the purchase of an 80 percent stake in ZPC San SA. San was one of the two largest biscuit makers in Poland.

Mid-to-Late 1990s: Returning to the Company Core

The mid-1990s were marked by United Biscuits' retreat from the U.S. market. Keebler had long been a distant second to Nabisco in the U.S. cookie and cracker market and suffered from roller coaster-like profit margins. The difficulties at Keebler contributed to UB's poor financial performance in the early 1990s, earnings per share having fallen 15 percent from 1989 to 1994. In mid-1995, then, Keebler was put up for sale. United Biscuits sold the bulk of Keebler to an investment group for $600 million in early 1996. Restructuring costs and costs associated with the exit from the U.S. market led UB into a net loss of £110 million and a reduced dividend for 1995.

United Biscuits retrenched further over the next few years, reducing its international operations to biscuits only by early 1998. In addition to several smaller divestments, UB made a key deal late in 1997 with arch-rival PepsiCo. UB exchanged its continental European and Australian snack operations for Biscuiterie Nantaise (BN), PepsiCo's French biscuit business. UB also received net proceeds from the transaction of £241 million ($410 million). Along with this transaction, Nicoli also spearheaded a restructuring of United Biscuits from regional divisions into two divisions: McVitie's Group, which comprised the international biscuit business, and UK Foods, which included the remaining snack and frozen and chilled food businesses. In April 1998 UB acquired another key European biscuit business by purchasing Delacre from Campbell Soup Company for £125 million. Delacre had operations in the Netherlands, Belgium, Germany, and France and annual revenues of £108 million ($180 million).

In early 1999 Nicoli resigned his position as chief executive in order to take over leadership of EMI Group plc. Leslie Van de Walle, head of McVitie's Group, was promoted to UB chief executive. Around that same time, Colin Short, who had served as nonexecutive chairman since 1995, stepped down from his position and was replaced by Gordon Hourston, a member of the company board who had previously served as chairman of Boots The Chemists Limited, a leading U.K. drugstore chain. The new leaders quickly brought the previous regime's restructuring efforts to what seemed like a logical conclusion by divesting all of the frozen and chilled food businesses through a series of transactions completed by the end of 1999. Despite the slimming down to core operations in international biscuits and U.K. snacks, however, United Biscuits' stock failed to rally and in fact remained at barely half the price it had been at in late 1990 upon Laing's retirement. The much more focused company began gaining the attention of a number of suitors, and the new management team decided the time was right to put the company up for sale.

21st Century: New Era As Private Company

Two main bidders soon emerged, Nabisco Holdings Corporation and Finalrealm, an investment consortium connected to Groupe Danone. After a five-month battle, the two competing groups agreed in late February 2000 to jointly buy United Biscuits for £1.26 billion ($2 billion). The deal involved Nabisco joining the Finalrealm consortium, which took control of UB in April 2000. Malcolm Ritchie, an executive with H.J. Heinz Company, took over as chairman and CEO of UB. Over the next several months, through a whirlwind of activity, a new United Biscuits emerged. UB's operations in China, Hong Kong, and Taiwan were sold to Nabisco. In turn, Nabisco contributed to United Biscuits its biscuits businesses in Europe (primarily in Spain and Portugal), North Africa, and the Middle East, which included the Oreos and Chips Ahoy! brands. UB sold a number of operations to Danone, including businesses in Scandinavia, Malaysia, Singapore, and central and Eastern Europe, as well as its snack food interests in Germany and Italy and certain savory biscuit brands in the United Kingdom.

By mid-2001, then, United Biscuits consisted of a biscuits division that had operations in seven countries in Western Europe and a snack and nuts division operating exclusively within the United Kingdom. The company was also involved in exporting its brands to other nations. Given its ownership by an investment consortium, United Biscuits' future was somewhat cloudy, but there was speculation that Nabisco might eventually take full control of the company.

Principal Competitors: Associated British Foods plc; Northern Foods plc; Bahlsen GmbH & Co. KG; Hibernia Foods plc; Groupe Danone; Kellogg Company; Kraft Foods International, Inc.; Keebler Foods Company; PepsiCo, Inc.

Chronology

• Key Dates:
• 1817: James Lang opens a bakehouse and small shop in Glasgow.
• 1841: Upon Lang's death, his nephew, John Macfarlane, takes over the business, renaming it Macfarlane.
• 1884: Robert McVitie inherits the family baking business and begins concentrating on biscuits.
• 1885: Macfarlane is renamed Macfarlane Lang & Company.
• 1888: Charles Price joins McVitie; the company is soon renamed McVitie & Price and becomes a national entity.
• 1948: McVitie & Price and Macfarlane Lang merge to form United Biscuits (UB).
• 1962: William Crawford and Sons, maker of shortbread, is acquired.
• 1964: UB acquires William McDonald & Sons, known for its chocolate-covered biscuits.
• 1967: Company enters the salty snack category with the acquisition of Meredith and Drew, maker of potato chips.
• 1968: Kenyon Sons and Craven Ltd., Europe's largest nut processor, is acquired.
• 1974: UB acquires U.S.-based Keebler Company.
• Late 1970s:Two U.K. fast-food chains, Wimpy hamburgers and Pizzaland, are acquired.
• 1988: Ross Young's, a leading U.K. frozen food maker, is acquired.
• 1989: The fast-food operations are sold off to Grand Metropolitan.
• 1990: Netherlands-based Verkade is acquired.
• 1993: The snack food business of Coca-Cola Amatil of Australia is acquired and renamed Smith's Snackfood Company.
• 1996: Keebler is divested.
• 1997: UB exchanges its continental European and Australian snack operations for Biscuiterie Nantaise (BN), PepsiCo's French biscuit business.
• 1998: Delacre, a European biscuit business, is acquired from Campbell Soup Company.
• 1999: Frozen and chilled food businesses are divested.
• 2000: Finalrealm consortium acquires United Biscuits for £1.26 billion ($2 billion).
• 2001: Following series of transactions with Nabisco and Danone, United Biscuits emerges as a leading Western European biscuit maker, with a snack and nuts operation confined to the United Kingdom.