George Weston Foods owner sees bread margins hit by consumer “trade down”
Associated British Foods, the owner of George Weston Foods, has reported revenue growth of 19 per cent in the third quarter as the weak sterling and price increases make a positive impact.
“The food businesses … benefited from the flow-through of price increases, most of which were achieved in the first half of last year, and some volume growth,” the company advised. “There was continued strong trading from Primark. Group revenue unadjusted for the impact of disposals was up 14% year to date.”
Their Australian business, George Weston Foods, reaped strong revenue growth on the back of growth from last year’s purchase of KR Castlemaine.
“Revenues in Australia were ahead driven by price increases and the benefit of the KR Castlemaine meat business which was acquired in April 2008,” the ninth largest grocery supplier in Australia advised. “There was some margin pressure in baking with consumers continuing to trade down.”
Despite having a cushion by being the supplier of low cost private label bread to Woolworths, the margins on these goods are significantly below their branded goods such as Tip Top ensuring that a ‘trade down’ creates a drag on profit.
Goodman Fielder, George Weston’s main bread rival in Australia, has also noted the rise of private label bread – which they have said will threaten profits in the years ahead. The strength of generic brands is such that it has grown from 10 per cent of the packaged bread market to over 35 per cent last year. Importantly, however, the two market leaders are regarded as the only companies capable of producing bread at a low enough cost to satisfy Coles and Woolworths.
Associated British Foods added that they expect to meet targets for the full year as sales continue to meet forecasts.