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Related British Meals is in talks over a deal to mix its bread unit Allied Bakeries with rival Hovis, because the business struggles with a rising shopper choice for more healthy and extra handy alternate options.
The FTSE 100 firm mentioned on Tuesday that it was in discussions with UK non-public fairness agency Infinite, proprietor of Hovis, a couple of “potential transaction” for its bakery unit, which produces Kingsmill and Allinson’s bread.
ABF mentioned in a press release that Allied Bakeries “continues to face a really difficult market” and that it was evaluating strategic choices. The corporate added that there was “no certainty” a transaction could be concluded.
A possible merger between the maker of Kingsmill and Hovis was first reported by Sky Information.
The sliced and packaged bread market has been struggling as shopper tastes shift in the direction of a broader vary of baked items, like croissants and crumpets.
Conventional bread makers are additionally dropping share to so-called on-the-go choices from bakery and fast-food chains, in addition to more healthy, higher-protein alternate options.
“There’s a large change within the consumption of bread — lots of people are on the transfer after they eat their breakfast now,” mentioned Shore Capital analyst Clive Black, pointing to the expansion of breakfast gross sales at Greggs. Client demand for more healthy choices like yoghurt has eaten into bread’s share of customers’ spend, he mentioned.
Black added that industrial bakeries like Allied had been extremely vitality intensive and costly to close down, which had contributed to an oversupply of sliced bread available in the market. The business has been hit exhausting by rising vitality and labour prices lately.
ABF is a sprawling retail and grocery conglomerate, with a portfolio that encompasses fast-fashion retailer Primark, the UK’s largest sugar enterprise and grocery manufacturers together with Twinings tea and Jordans granola. Its shares have fallen 23 per cent over the previous yr because it battles weakening gross sales in Primark’s UK enterprise.
A merger of the makers of Kingsmill and Hovis would deliver collectively two historic UK firms which have fallen on exhausting instances. Allied and Hovis gross sales make up 40 per cent of the UK’s packaged bread market, in accordance with analysts at Shore Capital.
Hovis, which traces its historical past again to 1890, made a pre-tax lack of £4.8mn final yr, and Allied Bakeries, based in 1935, made a £30mn loss final yr.
In January ABF chief govt George Weston instructed analysts there had been “no level” growing capital expenditure in Allied Bakeries, and that regardless of repeated makes an attempt to restructure and reduce prices, it was nonetheless “money unfavourable”.
Weston mentioned that Allied Bakeries misplaced “a piece of enterprise” with Tesco final yr that had dragged gross sales down additional. Sliced bread makers are seen as susceptible to a broader shopper backlash in opposition to processed meals.
