How Malcolm Walker returned to save Iceland from collapse

Company profile interview Malcolm Walker Iceland June 2010

Frozen out of the company he founded, Malcolm Walker returned to save Iceland from collapse. Here the maverick director talks about his firm’s astonishing turnaround, why business is fun again and that insider dealing inquiry

Malcolm Walker muses in a magazine column that although many of his peers enjoy their business, he suspects they might prefer to be involved with making ski gear, selling boats or expensive cars.

While the founder and chief executive of frozen food retailer Iceland refuses to be drawn into a conversation about what he prefers to sell, he will say that for all the snipes about his store being the home of the maligned chicken nugget, he does what any good entrepreneur should: “We can’t sell the things I like. We’ve got to sell what people want to buy. It’s about remembering that.”

Putting saleable products on the shelves is a tactic that’s worked well for the business in recent years. In a competitive food retail market that now includes discount chains Aldi and Lidl, Iceland reported a fourth consecutive year of double-digit, like-for-like sales growth and pre-tax profit of £163m in the year to April 2009.

Mike Watkins of analysts Nielsen says Iceland outperformed Morrisons and Waitrose in 2008-09, achieving a “phenomenal” 10 per cent sales growth compared to 8.5 per cent at Morrisons and Waitrose’s 8.8 per cent. And in the latest full business year, Walker reveals, it made a pre-tax gross profit of £184m. “We’ve surprised ourselves over the profitability,” he admits. “We’ve not been seeking profit, we’ve been seeking sales.”

The business celebrates its 40th birthday in November, has 700 stores throughout the UK (with 30 more planned this year) and 20,000 employees.

Last year, it acquired 51 former Woolworths stores and was recognised on The Sunday Times 100 Best Companies to Work For list. And Walker, with a personal fortune of £54m, has no thoughts of retirement just yet. If one word describes the Iceland culture, he says, it’s fun. Corporate governance, or anything he sees as process and procedure, isn’t high on the agenda.

“We don’t have to have ‘fun’ written down on a piece of plastic card; everyone knows it. We have our own unique culture, we always have had. Our board meetings have never been formal affairs. They don’t start on time, we’ll tell jokes or forget to send out the agenda. Business gets done in corridor meetings or in the pub.”

As Adam Leyland, editor of The Grocer, points out, Walker is an entrepreneur through and through. “There’s no doubt that he gets his own way when he wants it—nothing is done by committee. But the exciting and liberating thing is that as well as being an entrepreneur and ruthless, he’s a natural motivator of people. He’s an amusing bloke. He’s a terrific operator,” he says.

But this success story could easily have ended badly. For even though he’s credited with being an inspirational director—he thought of selling frozen foods at a time when many people didn’t own freezers; his no-nonsense leadership steered the company through 30 years of continuous sales growth; it was his idea to stock GM-free foods and offer round-pound pricing—in Walker’s words, he was “booted out” of his own company.

His views on everything from short-term profit and big business through to reputation and the London Stock Exchange are coloured by what happened to him in 2001, when the business was going through a difficult period and the £600m debt raised to acquire cash-and-carry firm Booker the previous year had to be repaid. But why did he leave the company under such circumstances?

“After 30 years I was desperately looking forward to retiring,” maintains Walker. So, after planning to step back into a non-executive director role and hiring Bill Grimsey to take the reins as chief executive he sold £13.5m of Iceland shares in December 2000. Shortly afterwards, the company issued a profits warning and the share price collapsed. In January 2001, he left the business, and shortly after that the Department of Trade and Industry and then the Serious Fraud Office began investigating the deal.

Walker’s name was cleared in 2004, but as for his reputation, he says he turned from “the guy who built a big business from nothing” to “a crook—the guy who sold some shares ahead of a profits warning. You’d never see my name in the press without reference to ‘under investigation’.” The incumbent management refinanced the business, but as a retailer it never recovered, leading to what Walker describes as four years of “the dark ages”.

If Iceland had been a private company, he adds, “the little blip” in trading figures that preceded the profits warning would have been better dealt with—”I wouldn’t have lost a second’s sleep over that dip,” he says. As it was, “the world collapsed”. When you’re running a public company, he continues, you’re constantly under scrutiny and worrying what the City will think. Entrepreneurs lose their sense of ownership; the business stagnates.

So when Walker was offered the opportunity to return to Iceland as chief executive, he grasped it. Investors led by Icelandic venture capital group Baugur bought the business for £326m in 2005—following the demise of Baugur, the Icelandic government and members of the management team now own it [relevant shareholdings aren’t disclosed].

“Now we’re a private company once again I don’t give a shit what the City thinks,” says Walker. “We do as we like; we can make the right decisions. It’s not ‘how will it affect profits?’ it’s ‘will it be right for the business?’ Bugger the profits. The profits sort themselves out.”

So what’s right for the business? Walker has made shrewd moves that have benefited Iceland by growing share and attracting more shoppers. He was the first to focus on single-priced, or what they call in the retail trade, “round-pound” deals, says Nielsen’s Watkins.

“Iceland tapped into the shopper’s psyche and was rapidly copied by the likes of Asda. To this day, it maintains a high degree of promotional activity that’s clear on single-priced deals—what you see is what you get.”

It is simplicity, value messaging and maximising spend for the demographic profile at its best, he says. “The key thing about Iceland, and therefore Walker’s leadership, is understanding the shopper and what they expect, and then delivering on it.”

He’s transformed the business since he returned, confirms Leyland, which is a big thumbs-up for entrepreneurial deal-making. He says good retail sites, a strong offer and a great strategy all make Iceland tick.

“What’s remarkable about Iceland is that, actually, frozen food has been in the doldrums. Although recession has aided the sector, when it’s in the hands of the big supermarkets frozen food has continued to disappoint,” he adds. “Whereas Walker, with a mix of predominantly frozen and a few well-known ambient brands, has created extraordinary momentum and kept it up.”

Asked what he would say is right for the business, Walker doesn’t hesitate. A firm hand is required, he says, describing himself as a “benevolent dictator”.

When one of Iceland’s four distribution depots was proving troublesome—productivity was down, wages were too high, it had become highly unionised—he closed it. Taking a leaf out of Jack Welch’s book, he gets rid of his lowest-performing 10 per cent. He doesn’t want employees who aren’t pulling their weight, or doing a good job. He wants Iceland “disciples”, who live the values of the business. “If you’re disgruntled, resentful or pissed off , we don’t want you. Go and work for Tesco.”

That’s not to say he cultivates a culture of fear. He’s committed to encouraging young people through the business and rewarding workers handsomely. Last year, for instance, the company took 800 store managers to Disneyland Florida for their conference.

“That cost us £4m. As a plc you wouldn’t have dared do it because of the flak you’d get from the City. But we didn’t trouble ourselves with doing a profit evaluation on that. We have had a record year for profits, so it must be the right thing to do.” He claims Iceland is the best payer on the High Street, morale is at an all-time high and everybody loves his or her job “because it’s fun again”.

Walker appears to have made a significant difference to Iceland’s operations, observes Professor Mark de Rond, reader in strategy and organisation at Judge Business School, who can’t also help but draw comparisons between him and Steve Jobs.

“Both were ousted from the companies they helped found, only to be rehired in attempts to reverse fortunes once these companies (under new management) ran into trouble,” he says.

“And both are said to be inspirational leaders, even if not always the easiest people to be around. And that’s no surprise: often what makes people good can make them difficult, too. Qualities that propel them and their organisations to excellence (intolerance of failure, strong intuitions, discipline, high expectations, pragmatism, and a tendency to overvalue their contributions) can make them difficult to work for.”

Walker admits to finding political correctness intolerable and refuses to tiptoe around anyone. But, he claims, all he wants to do is help his company run unhindered. Bureaucracy crucifies business, he says.

That’s why he’s so keen to think of Iceland as a small firm, fleet of foot and entrepreneurial. In a big business, he says, nothing gets done; it’s like walking through treacle. “Big businesses are often run by managers or bureaucrats, not entrepreneurs,” he says. “So they morph into the Civil Service.”

Despite his views on corporates, Walker is flirting with the idea of expanding Iceland internationally. Having failed in France a few years ago—”we lost £8m, the problem was the French”—he’s thinking of eastern Europe this time. And in the meantime, he’s focusing on innovation—”new products, new cooking processes. To make products cheaper, more efficient and better quality.”

Can Iceland maintain its run of success? Watkins at Nielsen says the chain is benefiting from the trend of consumers shopping around more and Iceland is good at encouraging shoppers to come back more frequently.

“They do it very well with local advertising, and frequency of visit is as important as the number of shoppers who choose to go there. Frequency leads to loyalty.”

The pressure is on Walker not to slip up, then. And as de Rond explains, while inspirational leadership is valued, it is also risky. “Strategy appears to exist principally in the mind of Walker,” he says. “It remains wrapped up in an individual and makes organisational failure no further than a heart attack away.”

That’s a chilling thought for Iceland’s other shareholders. Luckily, Walker prefers to spend his spare time fishing and gardening. He could be taking his Ferrari out for a rather alarming spin.

By Amy Duff

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