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The BBC's Nigel Cassidy
"Now it seems shareholders are paying a price"
 real 28k

Monday, 22 January, 2001, 11:17 GMT
Organic food sales disappoint Iceland
Iceland store
Organic sales have disappointed Iceland
Iceland Group's high-profile bet on organic foods failed to pay off as the company saw its sales slump in the six months to 29 December.

In the second half of the year, Iceland Group's like-for-like sales dropped by 0.5%.

Sales for Iceland Foods fell by 1.5%, while sales at cash and carry Booker were static compared with last year.

Iceland acquired Booker in June 2000.

Organic switch

The company has attributed the decline in performance mainly to its switch to organic products.

"We will continue to promote organic produce on a phased basis rather than a complete basis," said Bill Grimsey, the new chief executive of the group.

"I see it as a migration rather than a revolution."

He described the company's 100% move into organic foods, particularly vegetables, last September as a "bold but misguided policy".

Organic vegetables
Iceland's attempt to sell only organic foods was "misguided"

"Customers are not ready to make the jump," he said, adding that the company could not offer both organic and non-organic produce at the same price.

In a written statement, Iceland said it was reviewing the positioning of organic lines to make sure that they were in line with customer demand.

The Christmas trading period saw like-for-like sales in the group fall by 1.5%.

Over the same period, Iceland Foods sales dropped by 5.5%, while Booker sales increased by 1%.

Shares in Iceland fell by more than 15%, off 40.5p to 218p at close.

Analyst downgrade

Analysts interpreted the data as a profits warning.

UBS Warburg's food retail team downgraded Iceland's share price target and earnings estimate.

Customers are not ready to make the jump

Bill Grimsey
chief executive, Iceland

Profits before tax for the current year were cut 11% to 118.5m and 21% to 140m for the following 12 months.

Looking at the company's market valuation, UBS says the shares are now worth 220p rather than 340p each.

Integration report

Mr Grimsey also said that he and Bill Hoskins, the finance director, would be looking at the integration of Booker into Iceland Group.

"We need to look at the synergies to make sure that they are on track."

The company will then make a further statement at the end of January.

Mr Grimsey, who joined Iceland Group on 2 January, has replaced Stuart Rose, who left Iceland Group last November to join Arcadia.

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See also:

13 Nov 00 | Business
Top Shop owner poaches Iceland chief
14 Jun 00 | UK
Iceland takes organic lead
25 May 00 | Business
Iceland in 373m Booker takeover
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