The owners of Hovis and Kingsmill have entered talks that could lead to two of the UK’s biggest bread brands merging amid “challenging” market conditions.
After weekend reports, Associated British Foods (ABF), which owns the Kingsmill parent Allied Bakeries as well as the budget clothing chain Primark, confirmed it was in negotiations with Hovis’s private equity owner, Endless, regarding a potential sale of the bakeries arm. It said last week that it was considering strategic options for the business.
If a deal is agreed, it would bring Kingsmill and Hovis, two of the UK’s best-known and oldest supermarket bread brands, under one roof.
ABF told shareholders: “Allied Bakeries continues to face a very challenging market. We are evaluating strategic options for Allied Bakeries against this backdrop and we remain committed to increasing long-term shareholder value.”
The company reported last week that sales at Allied Bakeries fell in the 24 weeks to 1 March, which resulted in a higher operating loss at its UK-based grocery business. Sliced bread producers have struggled in recent years amid higher wheat and energy prices, coupled with changing consumer habits.
Britons’ appetite for bread has waned as people have been cutting back on carbohydrates and gluten, and lunchtime alternatives to sarnies have increased, such as protein pots, salad bowls and sushi. Sliced bread makers also face competition from artisan bread such as sourdough loaves, and are under intense pressure to keep supermarket prices low.
The deal is expected to attract scrutiny from the competition watchdog because it would bring together the UK’s second- and third-biggest breadmakers, creating a new market leader, ahead of Warburtons.
The combined annual sales of Allied Bakeries (estimated at £400m) and Hovis (£478m in the year to September 2023) would be higher than those of Warburtons (£711m in the year to September 2023), according to the Panmure Liberum analyst Anubhav Malhotra.
Warburtons is a private family-owned business founded in 1876, and actively managed by the fifth generation of the Warburton family. The company is known for its eye-catching TV adverts, in 2019 landing the Hollywood star Robert De Niro.
Hovis, which was founded in 1890, was bought by Endless in 2020 from Premier Foods, which owns the Mr Kipling brand.
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Allied Bakeries dates back to 1935, when the bakery entrepreneur Willard Garfield Weston set up Allied Bakeries and its sister company Allied Mills. It also owns the Allinson’s and Sunblest brands, with eight bakeries and six depots stretching from Glasgow to London. ABF is still part-owned by Allied’s founding family, and is run by George Weston.
ABF’s sugar division is also struggling, while its Primark chain posted a sharp drop in UK sales last week and lost market share, as the company warned that consumer confidence was likely to worsen further amid Donald Trump’s trade wars.
ABF’s shares fell by nearly 1% on Tuesday.
“Despite considerable efforts over recent years to reduce costs and restructure operations, Allied Bakeries has struggled to achieve a sustainable turnaround,” Malhotra said. “A potential merger of equals could unlock significant cost efficiencies necessary for the turnaround of both businesses.”
