UK: HOW A BLACK HOLD BECAME A HALO. - Sugar-replacement products were big in the late '70s. For the then Holgate, life was sweet. Then came the Cambridge Diet, a low-cal calamity that shed pounds from the company's profits. Humbled, Holgate became Halo,

Last Updated: 31 Aug 2010

Sugar-replacement products were big in the late '70s. For the then Holgate, life was sweet. Then came the Cambridge Diet, a low-cal calamity that shed pounds from the company's profits. Humbled, Holgate became Halo, and the fattening up process began afresh. Charles Darwent investigates.

The blood still drains from Peter Saunders' cheek when he describes the vision that haunted his dreams in the months leading up to the April 1992 takeover of his company, Halo Foods. 'Once I had decided to buy the business, again,' Saunders winces, 'I was suddenly overcome by this terrible image of the company as a large hole in the ground. It was a hole I knew I could only fill by shovelling money into it. I shovelled and shovelled, but the hole didn't seem to get any fuller. I realised that if money couldn't fill it, I would eventually have to throw in my house as well. And every day, that house seemed to get nearer,' Saunders pushes an evocative ham sandwich across his desk, 'and nearer to the edge of the hole. That was the image I had. It did,' says Saunders, with a wan smile, 'concentrate the mind wonderfully.' Welcome, gentle reader, to the sweet world of chocolate-bar manufacture. Or, to be absolutely precise, to the not-so-sweet world of chocolate-bar manufacture: for the raison d'etre of Halo Foods - formerly Holgate Nutritional Foods, but felicitously re-baptised at the time of Saunders' takeover - is the production of that most perverse of comestibles, low-calorie chocolate.

Now, there may be those among Management Today's readership who have never heard of low-calorie chocolate. There may even be those of you who find the very idea of such a thing heinous: kin to such abominations against nature as alcohol-free wine and low-tar tobacco. If so, then chances are that you are male and over the age of 25. To women of a lesser vintage - the market at which Halo Foods' flagship product, the Halo Bar, is targeted through advertising in magazines such as Chat, Looks and Cosmopolitan - low-calorie chocolate apparently counts as one of the great panaceas of the 20th century, up there with penicillin and the Salk vaccine as a potential alleviator of human suffering.

Should this fact strike you as improbable, then consider the evidence. In year one of its existence, the turnover at Halo Foods' Welsh factory - picturesquely set at the end of the Tywyn Valley in Gwynedd - was roughly £2 million. Last year - the Halo Bar's first - that figure topped £5 million and this year Saunders confidently expects it to hit £10 million. What component of this sum is accounted for by his firm's eponymous bar, Halo's MD will not confirm but it is presumably of a magnitude adequate to explain why the once-haunted Saunders' now has a cheery mien.

If so, then it is a deservedly happy ending to a not always sufficiently happy commercial story. Back in the '50s, a Cotswold bee-keeper and avant la lettre hippy named James Holgate found the inhabitants of his hives being killed off by new-fangled crop spraying. Understandably huffed, Holgate took himself and his few remaining bees off to Aberaeron in rural West Wales. There, Holgate branched out into honey by-products - most notably into the ice-cream eaten by Saunders and his wife (then trainee chemical engineers with - aptly enough - BP) while on a Welsh holiday in 1975.

Six months later, Saunders joined the firm as production manager, and six months after that persuaded Holgate to split the company with him. 'I'd had a bug to have my own business but I knew I couldn't afford an oil refinery,' reasons Saunders. 'On the other hand, I also knew I liked food. So I said to Peter: "You do the bees" - he had a very calm temperament, great for bee-keeping but not so good for factories - "and I'll do production." He sold me that side of the business for £10,000 and privately lent me £10,000 to buy it with.' It was to number among the gentler of Saunders' forays into the world of confectionery. Nonetheless, Holgate Foods flourished. From a vague annual operating loss, the company's production went first into the black and then on to increase its profitability by 66% every year for five years. The business - under Saunders' plutocratic hand - also underwent the first of several corporate redefinitions. 'I realised early on that we were not going to be able to compete with the big boys on the honey market,' Halo's MD recalls. 'On the other hand, honey in the late '70s was beginning to get a very, very big reputation. So I saw that what we had to do was use the expertise we had already gained in combining honey to sell it as a replacement for sucrose.' At a stroke, Holgate's market vision found itself refocused and broadened: 'Now,' explains Saunders, 'we were in the health-food business.' As much to the point, the firm also began to manufacture own-brand confectionery for larger, Jesus-sandalled concerns such as Allinson and Prewetts - 'And it wasn't just contract packaging,' Saunders notes. 'We were actually developing products. Expansion at Aberaeron was impossible' - Holgate's original factory being charmingly, if inconveniently, surrounded on three sides by the Irish Sea - 'so we moved to Tywyn in 1980.' As might have been expected, such Virgilian bullishness soon attracted the attention of the British confectionery industry's sweet-toothed titans. 'In 1982, it was the fashion among big companies to diversify,' Saunders recalls, a hint of weariness in his voice. 'Rowntree Macintosh asked us whether we would like to, er, join them, and it suited us at the time to say yes. We'd been over-trading since the day I started and we needed the money. Also,' says Halo's MD, discreetly, 'I realised we were so small that Rowntree's could have stamped us out.' As it was, the alliance was initially a happy one. With an alacrity that would set whole business schools salivating, Holgate used Rowntree's cash and product-development facilities to hitch its commercial wagon to yet another passing nutritional star: this time, slimming products. 'There are a lot of similarities between health foods and slimming products,' Saunders points out. 'High fibre, small niche - but the slimming business is much higher tech: quasi-pharmaceutical, more to do with vitamin combination and things like that. The market grew like mad, and all the buildings you see' - an abstracted wave through the window - 'were added in the mid-'80s.' If Holgate's corporate history so far sounds irksomely like Course Unit One of How To Succeed In Business, Saunders' roaring mouse was about to commit its Classic Error. By 1987, the firm's biggest contract customer was Dr Howard's Cambridge Diet - a regimen, based on NASA research, that claimed to whittle inches off fatties with breathtaking speed. So breathtaking, indeed, that certain spoilsport nutritionists began to suggest that the diet might, in some cases, result in dangerous levels of weight loss. Slimming being a notoriously neurotic business, the result was catastrophic - not least for Holgate, which found itself, more or less overnight, bereft of considerably more than half of its previous year's market.

'What did I learn from the experience?' grimaces Saunders. 'Humility. We went from a high profit to a sizeable loss in a single year. At the same time, the money supply tightened up after Big Bang and Nestle took over Rowntree, which complicated matters. Then we made a new product for Nestle - Nesfit, a sports bar aimed at the German market - that didn't work out. All this meant that finding replacement business took far longer than it should have done.' Not unreasonably, Nestle decided that it was not prepared to wait around while Holgate did so, and announced the company's sale in September 1991.

Even with the benefit of hindsight, Saunders points out the insolubility of the conundrum faced by many an entrepreneur before him. 'What do you do?' shrugs Halo's MD. 'Turn a customer away for being too big? Had the whole thing followed the regular rise-plateau-tail-off pattern, we would have been all right. We were re-investing our profits in diversification, in new products. As it was, we had to restructure, lose lots of staff - and we're the biggest employers for 50 miles. It was a painful time.' If Saunders' main lesson from these tribulations was one in humility, though, they would also seem to have afforded a timely course in product diversification. Halo now manufactures a broad range of what one might call body-neurosis confectionery: meal-replacement bars for Boots and Carnation; a pugnacious number called Multipower ('bodybuilders eat six of them for breakfast,' says Saunders); as well as the heroic Halo Bar.

The last is a useful departure in a number of ways. For one, it is Halo's first venture into branded products. ('I would be happy with an eventual 50-50 split between branded and own-label,' Saunders muses.) For another, its progenitor claims that the bar fills a market niche presently untapped by the British confectionery giants: that for a toothsome choc - known generically as a 'snack bar' - which, coincidentally, contains fewer calories (97 of them in Halo's case, as opposed to 311 for your average Snickers) thanks to its replacement of sugar with something yummy called Litesse. 'Millions of people are on diets,' observes Saunders, wisely, 'but millions more are just watching their weight. This allows people to indulge without feeling indulgent.' The name Halo - trademarked by Rowntree in 1948 but generously returned to Saunders 'as a complete gift' - was, it seems, chosen for its combination of 'warmth and virtue', a juxtaposition also attempted in the product's ad campaign. This - featuring a woman spraying herself with water from the nether parts of the Brussels statue, Manneken Pis, while munching on a Halo Bar - is described by Halo's MD as 'indulgent, fun and slightly risque', although the curious connection of micturition with chocolate might strike the faint-hearted as unappetising.

Nonetheless, Saunders nurses an understandable affection for his low-cal babe - one that is shared by his new, £1.5 million backers, venture capitalists 3i. A competing bar - Lo, from Finland - has already appeared on the market, and the prospect of major confectionery players entering the arena fills Halo's MD with undisguised glee: 'When they do that,' reasons Saunders, 'they'll simply expand the market and we'll grow, too.' Most of all, though, his optimism lies in a perceptive grasp of human weakness. 'There are still a lot of overweight people around,' notes Saunders, blithely. 'And even if they're not overweight, they're vain enough to think they are.'

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