Ranks Hovis McDougall Limited History

Company Perspectives:

We are one of the most successful food manufacturers in the UK, judged on our financial performance, and a major contributor to the profits of our parent company, Tomkins PLC. We believe our success is due, in no small part, to the fact that we have created an environment which encourages personal contribution and accountability.

Company History:

Ranks Hovis McDougall Limited (RHM) is the food division of Tomkins PLC, which acquired the company (then known as Ranks Hovis McDougall PLC) in 1992. A major food producer in the United Kingdom, RHM manages a federation of more than 20 subsidiary companies that also includes firms in Ireland, France, the Netherlands, and the United States. In addition to flour milling, the industry upon which RHM traces its roots back to Victorian England, the company is also involved in bread baking and cake making. Of increasing importance are RHM's partnerships with major customers; these include relationships to supply products and services to McDonald's and Pizza Hut restaurants and Marks & Spencer stores in the United Kingdom. Also among the companies that comprise RHM is The Red Wing Co., Inc., the largest manufacturer of private-label groceries in the United States.

Flour Milling Roots

Joseph Rank, the founder of the company, began in the milling business in 1875 by renting a small windmill. He lost money at first and had to take a cotenancy at West's Holderness Corn Mill. But he was soon able to recoup his losses and set enough money aside to expand his business. At this time competition from American and Hungarian flour was an issue for English millers. Rank explored new milling methods to improve his competitive position against these foreign imports. In 1885 he built a mechanically driven flour mill in Hull. By using steel rollers instead of mill stones, the mill was able to produce an impressive six sacks of flour an hour, up from one and a half. In 1888 he built another steel-roller plant in Lincolnshire, and soon after still another even more modern plant. This new plant, equipped with the best technology available, produced 20 sacks of flour an hour and was considered one of the finest flour mills in the country.

At the turn of the century Great Britain was plagued by malnutrition. The poor often lived on little more than bread and tea, and infant mortality was high. In 1901 military recruitment standards had to be lowered to find enough men to enlist for the Boer War: the new minimum height for recruits was reduced to five feet. Since bread was the staple of the country, Joseph Rank was challenged to increase productivity. He installed a plant that produced 30 sacks of flour an hour, and then another plant with a 40-sack-an-hour capacity. He also set up agencies to distribute his flour in parts of England where it previously had not been sold. In May 1899 Joseph Rank Limited was incorporated, and Joseph Rank became governing director, which he remained until his death in 1943.

In 1902 Rank made his first trip to the United States to see the wheat fields of the Midwest, determined to understand and conquer his competitors. Soon after his trip abroad, the company built mills in London and Cardiff. In 1912 a mill in Birkenhead was built to supply the needs of Ireland and northwestern England. Soon after that, the corporate headquarters was moved from Yorkshire to London.

During World War I, when starvation was a real threat to the people of Great Britain, Joseph Rank was asked to become a member of the Wheat Control Board. Frustrated by the government's inability to warehouse large quantities of wheat--distribution became chaotic as many ships carrying supplies were sunk--he relied much on his own resources and initiative to buy and store quantities of wheat and to increase the production capacity of his London mill. During the war years, the company employed 3,000 workers, many of them women who took on production jobs while men were away fighting the war. Despite his philosophy of personal initiative, Rank and his sons were known for public service, religious faith, and philanthropic work. In 1935 Joseph Rank received the Freedom of the City of Hull (the only public honor he ever accepted), in part because of a trust fund he had set up in Hull to help "poor persons of good character."

During the 1920s, the milling capacity in Great Britain exceeded the demand for flour. Nevertheless, Joseph Rank was able to expand into Scotland and consolidate and expand his operations in Ireland. He perceived the potential of new methods of transportation and communication very early, forming the British Isles Transport Company Limited to provide for the distribution needs of his company in 1920. In 1933 Ranks Limited became a public corporation. By this time Joseph Rank was in his eighties, but he was still actively involved in the business. His son Rowland was running his own business--the Mark Mayhew mill, which produced animal feed as well as flour, and which, after World War II, would be incorporated into the Rank company. His son James, who after his father's death in 1943 became chairman of the company, was employed during the war as the government's director for cereal imports. Joseph Rank, despite his age, also contributed to the war effort by working as a secret wheat buyer for the government to build up stocks in the year before the outbreak of war.

After World War II, James Rank, the new chairman, was joined by an associate of his government-service days, Cecil Loombe, who became a director. Their challenge was to reconstruct the mills devastated by bombing and to expand the company. A new mill in Gateshead was their first big postwar accomplishment.

In 1952 James Rank was succeeded by his brother Arthur as chairman. Under Arthur Rank, the company explored many new ventures and began to acquire a variety of small, family-owned agriculture and baking businesses. It was also during this period that the company's faith in quality control and research was firmly established. High standards of nutrition were set and maintained for both human and animal foods by testing in every phase of the production process. The legacy of these early efforts is RHM Technology Limited and its research center at High Wycombe, staffed by more than 200 scientists who continue to improve the nutritional value of the company's products as well as look for new food sources.

Acquired Hovis-McDougall in 1962 to Become RHM

In 1962, still under the leadership of Arthur Rank, Ranks Limited acquired the Hovis-McDougall Company and became Ranks Hovis McDougall, Limited (RHM). In 1968 RHM made another important acquisition: the Cerebos food group, which brought with it a number of popular food brands as well as interests in France, Argentina, New Zealand, Australia, Canada, the United States, and South Africa. By 1969, after transforming the company from a flour mill to an international company with a variety of food interests, Arthur Rank was ready to hand over the chairmanship to his brother's son, whose name, like his grandfather's, was Joseph Rank.

Under Joseph Rank's leadership the company maintained its dedication to research. During the 1970s, the research center at High Wycombe prospered and undertook projects in crustacea farming cereal and seed production, wheat hybrids, and protein production from starch. By 1984 research had advanced to the point that the company was ready to undertake a joint venture with ICI, Britain's largest industrial company, to form Marlow Foods, a company dedicated to producing and promoting mycoprotein food--food made by industrial fermentation of wheat-derived products and noted for being high in protein and fiber and low in fat, as well as containing no cholesterol.

By the late 1970s, RHM and its competitor, Associated British Foods PLC, monopolized their industry. Each company was selling over 60 percent of the flour it milled to its own subsidiaries, thereby offsetting losses in its baking division. Unable to compete or sustain losses, many small independent bakeries closed.

Joseph Rank became president in 1981 and was succeeded as chairman by Sir Peter Reynolds. The company made a number of important acquisitions during the 1980s in the United Kingdom, the United States, and the Far East. The largest acquisition was the 1987 purchase of U.K.-based Avana Group, which was renamed Avana Bakeries Limited. After a career with the company that had begun in 1936, Joseph Rank retired in 1988, remaining an honorary president after his retirement.

RHM undertook an unusual advertising campaign in 1986--one designed not for consumers of its products, but rather for the financial press, to increase awareness of the company itself. The ads featured a variety of slogans, all of which emphasized the diversity of the company, including "We do not live by bread alone" and "We bakers like to have fingers in many pies."

An innovative accounting practice introduced in 1988 also drew attention to the worth of RHM (by this time known as Ranks Hovis McDougall PLC). In its 1988 annual report, RHM showed the value of all of its brands on its balance sheet. As intangible assets, brands are not usually counted on financial reports as part of a company's assets. Grand Metropolitan was the first company to ever put acquired brands on its balance sheet, in September 1988. RHM went even further by including acquired as well as internally developed brands. Brand accounting was somewhat controversial because procedures for calculation had not yet been standardized.

Late 1980s Marked by Takeover Battles

In 1988 much of RHM's energies were directed to fighting a hostile takeover attempt by Australia-based food concern Goodman Fielder Wattie Limited, of Australia, which owned 29.9 percent of RHM's shares (the financial press saw RHM's move to brand accounting, in part, as a way of discouraging such a takeover). After the Goodman Fielder bid was thwarted by British regulators, the Australian firm began negotiating with third parties to sell its RHM stake.

In April 1989, however, RHM made a surprising bid of US$2.4 billion for its former suitor, viewing the purchase of Goodman Fielder--at the time the largest food company in Australia and New Zealand&mdash a logical next step in its international expansion. Goodman Fielder quickly rejected the offer, even as RHM built up a 14.9 percent stake in Goodman. In May 1989 RHM dropped its bid, after Goodman Fielder sold its 29.9 percent stake in RHM to maverick Anglo-French financier James Goldsmith. Fearing that "Sir James" would attempt a takeover, RHM moved quickly to sell its stake in Goodman Fielder. But a Goldsmith takeover never materialized, and by early 1991 he had sold his entire RHM stake in the market, leaving the largest single stake in the company under five percent.

Meanwhile, RHM paid £80 million (US$144 million) to purchase the U.K. ready-to-eat cereal business of RJR Nabisco in 1988. The main brands acquired thereby were Shredded Wheat and Shreddies, which were manufactured in the United Kingdom and distributed throughout western Europe. RHM had great difficulty competing with U.S.-based cereal giant Kellogg Company, which, for example, claimed a market share of nearly 50 percent in the United Kingdom, compared to RHM's declining share of 15 percent. Facing a tough battle with Kellogg, RHM decided to exit from the cereal business, selling the unit to a joint venture of Nestlé S.A. and General Mills Inc. for £93 million (US$167 million) in mid-1990.

Acquired by Tomkins in 1992

RHM's profits and stock price were battered in the early 1990s by an economic recession, the continued decline in bread consumption in the United Kingdom, and the concomitant overcapacity in the bread-making industry. The company's weakness led to another hostile takeover bid, this time a £780 million (US$1.2 billion) offer from Hanson PLC, a company well-known for its takeovers that were quickly followed by asset sell-offs. Launched on October 5, 1992, the bid was rejected by the RHM board, which on October 16 announced a three-way demerger as a defense. The plan involved dividing the company into three separate units: a milling and baking group, a grocery products company, and a cake business.

In late October 1992, however, a white knight entered the scene in the form of Anglo-U.S. conglomerate Tomkins PLC, which bid £935 million (US$1.5 billion) for RHM, an offer accepted by the company's board and not challenged by Hanson. Tomkins--a diversified manufacturer of bicycles, handguns, industrial valves, and other products--was criticized by some analysts for having acquired too diverse an array of interests, but the acquisition of RHM seemed to prove the critics wrong. The renamed Ranks Hovis McDougall Limited, which became the food division of Tomkins, posted gains in operating profits each year from fiscal 1994 through fiscal 1998. RHM also remained largely intact after its acquisition by Tomkins, a development in sharp contrast to its likely fate had Hanson's hostile bid succeeded.

In 1995 Tomkins acquired Lyons Cakes, which two years later was integrated into Manor Bakeries Limited, an RHM subsidiary and the largest cake manufacturer in Europe. Also in 1997 RHM merged two of its subsidiaries--Tiffany Sharwood's Frozen Foods and Abercroft Cakes&mdashø form RHM Frozen Foods Limited, a consolidation move aimed at lowering marketing costs for such brands as Mr. Kipling, McDougalls, and Sharwood's. RHM Frozen Foods held strong market positions in meat and pastry pies, ethnic ready-to-eat meals, individual cakes, and other desserts. In October 1997 Tomkins acquired Golden West Foods Limited for £35.6 million (US$54.1 million), gaining the leading supplier of products--buns, drinks, and sauces--and distribution services to the McDonald's fast-food chain in the United Kingdom. This addition to RHM bolstered the increasingly important area of partnerships for the company, which already had relationships with the Pizza Hut restaurant chain and the Marks & Spencer retail chain in the United Kingdom, as well as ownership of The Red Wing Co., Inc., the largest manufacturer of private-label grocery products--including ketchup, peanut butter, preserves, and jelly--in the United States.

Beginning in September 1996, following Tomkins's acquisition of industrial manufacturer Gates Corporation, Tomkins launched a disposal program to sell off nonstrategic businesses. Among the RHM companies sold were Carriage House Fruit Company Inc. and Chesswood Produce Limited, both jettisoned in 1998.

In May 1998 Tomkins paid £35.6 million (US$57.7 million) for Le Pain Croustillant Limited, a maker of specialty breads sold to major supermarket chains; Le Pain Croustillant subsequently became an RHM subsidiary. In March 1998 Tomkins acquired six flour mills in the United Kingdom from Kerry Group, an Irish food company, for £92 million (US$149 million). But in September of that year, U.K. regulators ruled that the purchase would give Tomkins too large a share of the domestic flour market and ordered the company to sell four of the six mills, allowing it to keep mills at Birkenhead and Cambridge. Despite this setback, the increasingly profitable Ranks Hovis McDougall appeared to be thriving in its role as the food division of Tomkins. RHM was likely to benefit from further add-on acquisitions funded by the deep pockets of its parent.

Principal Subsidiaries: Avana Bakeries Limited; British Bakeries Limited; R.F. Brookes Limited; Golden West Foods Limited; Holgran Limited; Le Pain Croustillant Limited; Manor Bakeries Limited; Overseal Foods Limited; Pasta Foods Limited; Rank Hovis Limited; RGB Coffee Limited; RHM Foods Limited; RHM Frozen Foods Limited; RHM Ingredients Limited; RHM Technology Limited; J.A. Sharwood & Co., Limited; Three Cooks Limited; Sofrapain (France); Gateaux Limited (Ireland); RHM Foods (Ireland) Limited; Ranks Meel B.V. (Netherlands); The Red Wing Co., Inc. (U.S.A.).

Further Reading:

• "Aiming for a Bigger Slice,' Grocer, May 31, 1997, p. 44.
• Braithwaite, Paul, "RHM Brands Facing Up to the Future,' Super Marketing, November 20, 1992, pp. 26+.
• Bray, Nicholas, "Tomkins Makes $1.5 Billion Bid for RHM, Topping Hanson Offer,' Wall Street Journal, October 30, 1992, p. A7.
• Carrington, Tim, and S. Karene Witcher, "U.K.'s Ranks Hovis Bids $2.4 Billion for Former Suitor,' Wall Street Journal, April 25, 1989, p. A18.
• de Jonquières, Guy, "Britain's Baking Industry Fights for Every Crumb,' Financial Times, March 30, 1992, p. 17.
• de Jonquières, Guy, and Richard Gourlay, "Searching for the Right Recipe,' Financial Times, November 9, 1992, p. 15.
• Forman, Craig, "Ranks Hovis Drops Bid for Goodman, May Sell Stake,' Wall Street Journal, May 23, 1989, p. A15.
• Gibson, Richard, "Venture of Nestle, General Mills Buys Cereal Line in U.K.,' Wall Street Journal, July 24, 1990, p. B5.
• "'It Can't Be Done,'' Frozen and Chilled Foods, May 1998, pp. 23, 25--26, 29.
• "Just Desserts for RHM,' Management Today, December 1992, p. 13.
• Lublin, Joann S., and S. Karene Witcher, "Goldsmith Buys 29.9% Ranks Hovis Stake,' Wall Street Journal, May 19, 1989, p. A11.
• "RHM: 1875-1975,' London: Ranks Hovis McDougall, 1975.
• Taylor, Roger, "Too Big for Its Own Good?,' Financial Times, January 17, 1998, p. FTM5.
• Urry, Maggie, "Kerry to Sell Spillers Mills to Tomkins,' Financial Times, February 13, 1998, p. 26.
• ----, "Mandelson Order Tomkins to Sell Four Flour Mills,' Financial Times, September 25, 1998, p. 26.

Source: International Directory of Company Histories, Vol. 28. St. James Press, 1999.