Murnaghan 17.02.13 Business Paper Review with John Vincent of Leon and Rita Clifton

ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: Now then, time to take a look through today’s main business stories and I’m joined by the co-founder Leon Restaurants, John Vincent and by the former head of Interbrand, Rita Clifton, thank you very much indeed, good to see you all here and guess what, starting with horsemeat. It’s even in the business pages, Rita, you picked this out of the Mail isn’t it?

RITA CLIFTON: Absolutely. I know that we’re a bit stuffed with horsemeat stories at the moment but I think this gives a slightly different angle on it. This is talking about the chilling truth, actually the story is saying that we’re all to blame. Our insatiable appetite for cheap ready meals is what’s driving what’s going on here and actually it is very interesting because it’s talking a lot about you have to be careful who your partners and suppliers are. Obviously the complexity of the supply chain, what this has thrown up of course is just a multi country mess of how the market really works so therefore when you are a strong brand, a strong branded company, you have got to be careful who your friends are because people are going to blame you. You can’t blame them because you’ve got to be in control of your supply chain.

DM: Well that’s right and as a consumer all you can go on is what it says on the packaging and if it says beef lasagne or whatever, you’ve kind of got to assume it’s beef. I mean we don’t know any more but we’ve been misled.

RC: Absolutely and you’re the brand that the consumers trust so therefore you have got a reputation to protect so you have got to make sure you know everything about the supply chain. I mean Morrison’s it talks about, they own their own abattoirs, they really know what’s going on in the supply chain and some other retailers do too but I’m afraid in the drive for cheap, cheap, cheap it is short term relationships with suppliers and driving costs down in a way that in the end is not helpful to consumers.

DM: I can see John Vincent nodding along here, I’m sure you are very careful about the supply chain that supplies the meat to your restaurants in Leon, you are able to keep track of it are you?

JOHN VINCENT: We are. I think what’s happened is going to do two things, it’s going to encourage the consumers to eat more plants and to make meat the side dish and not the vegetables as the side dish, I think we need to go back to recognising that metabologically, if that’s a word, we are primed to eat plants mostly and to have the meat as the side dish and I think one of the most worrying things as China goes from being a plant based society to being a meat based society, the pressure that puts on the western supply chain to actually commoditise meat is concerning. It also suggests that we may need to be more vertically integrated so we’ve separated industry into steps, as you were saying, which have no real understanding of the steps prior to where you are in the value chain. To use an analogy, I once worked for a company making recombinant human albumin, what that is is fake protein blood to put in vaccines and there was one vaccine company that had gone all the way back through the value chain and had actually created its own herd of Argentinian cows because they used the hoofs to become the gelatine for the vaccine and they decided it was their job, to go right back through the value chain and own an Argentinian herd of cows so they could be sure it was BSE free. I think that all of us need to now go back to looking at vertical integration.

DM: With your other hat on, John, because I know you’ve been looking at the issue of school meals for the Department for Education, it is this issue that we can’t be sure what’s in the food and some schools have found out that they have had horsemeat in some of the products supplied to them but also the fact that if it isn’t horsemeat, it’s not very good meat in the first place.

JV: Well one of the insights I think around school food and we’ll be publishing the final plan in spring/summer. We can’t pre-empt too much but one of the findings is that it’s unclear where ownership lies. Is Michael Gove responsible for school food, is it the local authority or is it the head teacher? One of the things we’re saying is that traditionally school food has been felt as if it has been done to the school and that head teachers I guess need to be responsible and accountable and take more interest in what’s actually being fed to their kids and not passing the buck to the local authority or to a big caterer. They have got a lot on, head teachers, but they do need to put that in their watch I think.

RC: I feel an echo of the old Turkey Twizzler discussion and I feel Jamie Oliver coming over the hill here somehow, don’t you. But there are very unpleasant stories coming out throughout all of this.

DM: Let’s bring another one to the public’s attention. John, what’s this all about, this is a real business story isn’t it? Rothschild declares victory in boomy showdown.

JV: When you’re young and you watched Dallas and Dynasty and thought that’s what business is like and then you grow up and realise it is mostly about PowerPoint’s and quite long tedious meetings but every now and again something comes along where you think actually it is like Dallas, it is like Dynasty. What’s interesting about this is that it’s almost biblical in its set up in terms of how potentially badly it was set up from the start. What Nat Rothschild did was create what’s called a SPAC, a Special Purpose Acquisition Company, it’s a capitalised shell, a shell with money. So he went round all his friends, close friends and less close friends and said you don’t know what you’re buying, I can’t put it in the prospectus what you’re buying, we are going to buy one thing and when I buy it you’re going to back me to buy it and I may not even have been … I don’t think he even went to the mines that he was buying. So this is almost biblical and I think we’ll contrast this later with the Buffett story, but it’s almost biblical in its set up and I think the problem with these SPACs is they are set up almost to make a fast buck. Not all of them but the majority of these shell companies, the investors know nothing about what they are investing in. I think you can contrast that with some of the more principled investing of Buffett.

DM: You led into that very nicely, so it’s caveat emptor but Warren Buffett of course, the Sage of Omaha, he always goes for the brands doesn’t he?

RC: He always do. I love Warren Buffett, I love Warren Buffett as you can imagine, I mean he is the sage who does love brands and he is a big investor as you know in Coca-Cola, in Tesco. I mean he just likes predictable growth, he likes companies that you’ve heard of, he likes sustainable value and his favourite investment advice is of course ‘forever’, and it has paid off quite well I would say as far as Warren Buffett is concerned. I think what’s interesting here on Heinz itself, if you contrast that for example, there is a story on the following page in the Telegraph which is about Premier Foods. What’s interesting here is they have got a fantastic story about Heinz, this is a global brand, it is a well-recognised brand, we are talking about a $28 billion deal here and of course he knows there is great demand already, secure demand for that brand, developing markets, there’s all sorts of places to grow in the future so this is an extraordinary thing and then you contrast that what is called I’m afraid a zombie company in Premier Foods. Now it has got some strong brands but not global brands, these are national brands, so therefore you haven’t got the scale, you haven’t got that security of spreading your risk in the way that a company like Heinz has.

DM: We’re nearly out of time but I was going to say, it’s kind of come full circle. Getting back to Heinz particularly, one of their best known products, Heinz Beans, did Warren Buffett know what was going on here, perhaps they’ll be selling a few more of them in this country. You never know.

RC: Maybe, maybe but I think, look, they’ve got some great foods in Premier Brands, they’re power branding, they’re concentrating their resources, they’ve got a new CEO who has worked in all the blue chips so if anything will get them out of this slight dip then I hope he can.

JV: And Buffett is good at backing the horses. He says he’d rather back on a winner, a likely winner, a favourite when it’s good odds, than back on the long horse and I think once again he’s done that.

DM: Listen, thank you both very much indeed for taking us through SPACs, beans and of course backing horses. It’s very good to see you.