The battle among UK bakers

Posted by Josette Dunn on 10th May 2010

As the pressures of weak consumer spending continues and major UK retailers embark on a promotional war to win shoppers, the lowly loaf of bread is at the centre of a fierce price battle on grocery shelves.And the UK’s three major players in what is a static bread category, Premier Foods plc, family-owned Warburtons and Associated British Foods, all believe they are holding their own in a category where the recovery has been a longer process than expected.

ABF chief executive George Weston believes that despite tough competition, Allied Bakeries – a business central to the history of ABF – is “extremely strong” at the present time, with key brand Kingsmill growing its volume and market share over the last six months.

Premier Foods last month admitted that its competitors had fought back in the first quarter of this year in a bid to win back sales the Hovis maker gained last year. Reporting a 4.7% rise in Hovis sales for the first quarter of 2010, Premier said it had improved its share of the category by 0.5% in the three months to the end of March.

And, while the firm admits that it expects fierce promotional activity from its rivals to dent Hovis’ market share in the second quarter, it forecasts a recovery in the brand’s share in the second half of 2010.

Warburtons, on the other hand, insists its strategy is to continue targeting consumers wanting a more premium loaf.

“We would argue that we are the premium brand leader and we have a duty to persuade people to pay more for good quality and give them the reasons to do that, rather than chase everyone down into a price war,” Richard Hayes, Warburtons’ marketing director, tells just-food. “The danger in this is that you devalue the category.”

Indeed, Warburtons may just be in the right position to catch consumers who could be considering a more premium purchase. The standard white loaf experienced an increase in demand during the recession as shoppers looked for more straightforward and cheaper solutions to their needs.

However, more recently, shoppers have started to trade up once again, opting for more premium breads with healthy white and seeded breads experiencing strong growth.

“The recession has had a very interesting affect on bakery,” Hayes says. “A couple of years ago, health was racing to the number one spot in the chart, but what we’ve seen in the recession is, because people have had to cut back on what they spend.

“And although health is still a very important driver, during the recession it quietened down a bit and the question that’s exercising everyone’s minds in the industry now is, when will the recession end. When it does, we need to be well placed to resume that health activity in quite an overt way.”

Warburtons is confident that its market share has remained the same throughout the recession, above that of its rivals.

“We’ve got around a 25% share of the total bakery market. Hovis has got about 16% and Kingsmill around 13%. They haven’t really taken any share from Warburtons,” Hayes says.

There are signs that health and wellness is again gaining traction in the UK bread sector, including the gluten-free category, where Finsbury Food Group has rolled out its Genius brand across UK retailers, and Premier making a concerted foray into health and wellness.

Last month, Premier added to its bread portfolio with health-focused Hovis Hearty Oats – a line that the firm is hoping will be the biggest FMCG launch in the UK this year.

Meanwhile, chief executive Robert Schofield is happy to admit that, while overall, bread is in slow decline, premiumisation is where value comes back into the market, with health at the top of consumers’ agendas.

“White bread is going to lose volume over time. Wholemeal and health have a lot of cues for the consumer,” Schofield says.

But Hayes is quick to point out that, while health has now returned to the agenda, at an overall level, the macro trends driving the category have remained “broadly the same” as they were a couple of years ago.

“The number one trend is all around taste delivery and that is still the most overwhelming and most important focus for people,” Hayes insists. “The taste and quality of the product is still the most overriding decision on what people choose to buy.

“Another is practicality, meaning how suited the bakery product is to the customer’s buying and particular usage occasions…so whether you’re eating it for breakfast or for lunchtime or perhaps as a food on the go product. For this, different formats are required.”

However, the added competition, pressures of weak consumer spending and the ever-constant threat of private-label rivals have prompted many manufacturers to respond with promotions and price reductions, the proportion of which has escalated over the last year.

Hayes estimates that around six out of ten products that both Hovis and Kingsmill sell are now on promotion, while he insists that Warburtons is happy to play a different game.

“Price has become quite a big driver in the category now. But we are a strange fish because we don’t want to play that game,” Hayes says. “We are going to try and stay high. We have to promote to a degree otherwise we would start losing share but we’re not doing it as aggressively as those guys because we believe there are other ways that we can persuade people to pay a bit more for products, based around quality and innovation.”

Nonetheless, Hayes admits that a price war is likely to continue for at least another 18 months but he believes the onus is now on the bread industry to “give people reasons to believe a product is worth paying money for and not just chase it down on price”.

“You can certainly grow share on the back of that in the short term,” Hayes insists. “And some people do very successfully but where do you go next because you’ve just got all these people wanting a better price.”

He adds: “At some point it has to stop. Otherwise you end up going down the escalator and you get to the lowest common denominator and there is no money in that for anybody. Not for the retailers, and not for the manufacturers.”

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