DEALTALK-Picard promises growth to buyers, but where?

(For more Reuters DEALTALKS, click [DEALTALK/])

* Could open 300 more stores in France

* Also eyes expansion in Scandanavia, not UK or Germany

* Picard on the block in 1 bln euros plus PE deal

By Nina Sovich and Julien Ponthus

PARIS, July 15 (Reuters) - The strategy of Picard Surgeles for luring investors relies on aggressive store openings in France and replicating its high-end frozen food format abroad.

Analysts are not sure either approach will work.

"In truth Picard is more of a yield story," said one banker familiar with the company. "There are some expansion prospects, but they will take investment, time."

The company has grown since the 1970s from a quirky niche store into a staple for working women seeking the convenience equivalent of a home-cooked meal.

It operates 823 stores in France and 30 in Italy, generating 1.5 billion euros in revenues and underlying profit of around 160 million.

Owners London-based BC Partners are looking to sell the firm for upward of a billion euros in a deal likely to close this summer [ID:nLDE66C21I] after rejecting the idea of an IPO.

While most frozen food companies market themselves to the low and middle market, Picard succeeded by offering products slightly more expensive than fresh.

"Picard is quite high end. There is nothing else like it in Europe," said Isabel Cavill, a retail analyst at Planet Retail in London.

AUTHENTIC FOOD

It offers cut-up vegetables for making soups, fish from Madagascar and ready-made meals prepared in their country of origin. A Thai meal is prepared in Thailand, for example.

In the saturated French market, it competes with family-run stores offering fresh food and bigger supermarkets like Carrefour (CARR.PA).

And despite the high density of stores in cities and reports that some of the stores in the French countryside are flagging, the company is going ahead with plans to set up more 300 more.

"The strategy for the next three years is to continue to develop in France while planting seeds abroad that will generate buzz for the fourth LBO," says Picard CEO Philippe Pauze, referring to Picard's three previous private equity owners.

But analysts worry that new stores in France will undercut existing ones and that other European countries with no tradition of high-end frozen food be unwilling to adapt.

Thus far Picard's attempt to open stores abroad have faltered.

Several outfits were closed in Italy and the company is now focusing on existing stores in Turin, Milan and new stores in Rome.

In southern European countries, people still buy most of their food at markets and do not have a culture of buying frozen food.

Meanwhile the potentially lucrative markets of Germany and Britain also present significant hurdles.

NO TO GERMANY

"Obviously we will not open stores in Germany. No foreign distributor has ever taken hold in Germany. It is a market for low prices, not gastronomy," said Pauze.

The UK, with its high percentage of working women and longer work days, is another obvious target. But Picard made a modest attempt to open in the UK market several years ago, an effort that faltered due to poor marketing, one banker familiar with the company said.

"When you look at the power of chilled products there and their good quality you wonder what Picard would add," says Pauze.

The company is instead focusing on expansion on Scanadanvia, where Pauze says there is a culture of frozen food, and Belgium where the company currently offers Picard delivery.

But the focus on the Scandanavian market may be a mistake analysts say.

"Why not focus on French speaking countries like Switzerland and Belgium? This makes more sense," says Cavill.

(Editing by David Cowell)