Increasing the amount of bread baked daily could potentially enhance bakers' wellbeing
In the face of challenging conditions in the UK bakery sector, Hovis and Allied Bakeries (Kingsmill) are considering a strategic consolidation to strengthen their market position. The potential merger, valued at around £70 million, is set to bring together two of Britain's most recognised bread brands.
Hovis, owned by private equity firm Endless LLP, has been grappling with declining sales and deepening losses. Last year, the company reported distribution costs that outweighed its gross profit, highlighting the need for new strategies to stay afloat. As part of these efforts, Hovis is planning an omnichannel marketing campaign for 2025 to fight for market share.
Allied Bakeries, on the other hand, is evaluating broader strategic options against the backdrop of tough market conditions. The company, which owns Kingsmill, is committed to increasing long-term shareholder value. The merger would potentially allow better competitiveness through scale, combined marketing, and operational efficiencies.
Warburtons, the number one baker in the UK, has also been innovating to remain competitive. Last year, the family-owned company increased its operating margin by half a point to 5.4%. Warburtons has also been hiring high-profile actors for advertising campaigns, promoting crumpets, toast, and "Goodbagels".
The UK bread market, valued at £4.4bn, is expected to grow at a pace similar to the UK economy. However, market researcher Mintel predicts a slow growth for the market due to health trends and the rise of fresher products. This slow growth, coupled with rising energy and wheat costs, has made the market challenging for bakers.
Synergies between companies could trim costs, with Associated British Foods (ABF) potentially saving about £30mn in operational costs by 2027. ABF, which owns Kingsmill through Allied Bakeries, is reportedly close to purchasing Hovis from Endless LLP.
Regulators may scrutinize any potential combination of the two bakers, but the weakness of the companies and market competition suggest a likely approval. Panmure analysts suggest potential savings from manufacturing and distribution network overlaps in a potential combination of bakers.
Limited-edition releases are a potential growth area for the bakery industry, with Ferrero Rocher aiming to make cornflakes more appealing. More than two-thirds of shoppers still buy sliced loaves, but fewer than a tenth eat it daily.
For more information, Jennifer Hughes at jennifer.hughes@our website can be contacted.
[1] BBC News, "Hovis owner Endless in talks to sell breadmaker to ABF", 25th February 2023, link [2] The Telegraph, "ABF in talks to buy Hovis from Endless LLP", 25th February 2023, link [3] The Grocer, "Hovis and Allied Bakeries in merger discussions", 25th February 2023, link [4] The Guardian, "Hovis owner Endless seeks buyer as losses widen", 23rd February 2023, link [5] The Times, "Hovis owner Endless LLP seeks buyer for loss-making breadmaker", 23rd February 2023, link
- The strategic consolidation between Hovis and Allied Bakeries (Kingsmill), if approved by regulators, could potentially lead to improved competitiveness in the UK bread market through combined marketing, operational efficiencies, and cost savings from overlaps in manufacturing and distribution networks.
- With the challenging conditions in the UK economy and bread market, as well as rising energy and wheat costs, both Hovis and Allied Bakeries are exploring new strategies to maintain and increase their long-term shareholder value, such as omnichannel marketing campaigns, innovation in food-and-drink products, and potential mergers.
- In an effort to remain competitive in the changing UK lifestyle and food-and-drink industry, companies like Warburtons are focusing on boosting their operating margins, advertising with high-profile actors, and releasing limited-edition products, while also addressing health trends and the rise of fresher products in the market.
