The breadwinner

Jonathan Warburton has a lot on his plate.

So far this year the boss of Britain’s biggest bakery has had to swallow a 38.5% fall in profits as the declining sliced bread market (sales dropped a fraction to £495.5m) has coincided with ever-deepening promotions. Meanwhile, costs are once again marching upwards - in the past three months alone the price of wheat has shot up by a third.

“The market is very, very challenging and will be for the foreseeable future. I don’t see an uptick for a couple of years, minimum,” predicts Warburton.

But Warburton hasn’t grown the family business into a national powerhouse by accepting fate, and the latest evidence comes in the significant senior management shakeup this year, with marketing director Richard Hayes leaving after five years in February and MD Robert Higginson moving on in May after 11 years.

While temporarily stepping into Higginson’s shoes, Warburton’s priority is to find a new MD. And he wants a fighter. “When you’re scrapping for every loaf you need a different kind of individual to when you’re growing at 10% a year,” he says. “I’m a firm believer that what has got us here won’t get us where we need to be.”

That’s because times have changed. “People have so much more choice now and good old sliced bread is no longer the default setting,” says Warburton. Faced with the decline of white sliced, the company has focused on innovation, launching wraps, sandwich thins, snacks and free-from - all of which he says were £5m to £10m investments. The aim is to expand sideways into other areas of bakery and reduce reliance on sliced bread.

It appears to be paying off. Since last year’s launch Warburtons says it has sold over 12 million units of its Sandwich Thins, worth more than £13m in retail sales, and more than 6 million wraps, worth more than £7m. And, after adding new brown and seeded variants in April 2012, Warburtons claims to have helped turn the sandwich alternatives sector within wrapped bakery into the fastest-growing sector, up 10.1% in unit sales and 18.3% by value [Nielsen 52w/e 18 August 2012].

Change requires tough decisions. Warburtons closed its Oldham bakery in January and this week the company announced plans to close another in Blackpool. It also requires cash. In the past year, the company has invested £39m transforming the original Bolton plant in addition to the £15m spent in Bolton and Bristol to meet the growing demand for wraps, thins and other laminated extensions.

More NPD - and investment - is on the cards, says Warburton. Indeed, with commodity prices continuing their ascent and competition on the supermarket shelves intensifying, it is the only option. “The best protection is to keep on investing in innovation and quality,” says Warburton.

“The expectation now is for the latest thing all the time. Our wraps and thins business, launched 18 months ago, is as encouraging a launch as we’ve had in a long time. But it’s a bit like the iPad, a classic example of an innovation we’d all survived perfectly well without before we started making it.”

However, Warburton has not given up on the domestic bread business. The company is planning a major marketing drive to highlight the nutritional benefits of bread, which it believes has been unjustly labelled unhealthy. It has funded a British Nutrition Foundation report that will highlight the protein and mineral content of bread and is preparing to publish more “myth-busting” research in the autumn.

It has also appointed a new ad agency, WCRS, to spearhead a new push for 2013, and Warburton is promising to shell out more than the record £8.2m 2012 budget. I feel more confident about our advertising than I have for a long time,” he adds. Promotion is another matter. “The market is cutting its own throat in a race to the bottom. Multibuy deals like ‘get two for £1.80 or £1.90’ don’t encourage people to buy more bread.”

The appetite for aggressive promotions may actually be dulled by sharp increases in bread prices in recent months. Michael Clarke, CEO of Hovis maker Premier Foods, told The Grocer the “sheer magnitude” of commodity cost increases meant the baker would have to pass them on. Warburton agrees commodity costs have never been more important. “Twenty years ago, nobody understood what a hedge fund was and people didn’t look at commodities. Now we still don’t really know what hedge funds are but commodities are definitely at the front of our minds,” he says.

The development of value-added products will help insulate Warburtons from inflation, but diversification is also taking other forms. International expansion began in June 2011 with a Tesco jv in Eastern Europe, and this summer Warburtons bread went on sale in 270 branches of French supermarket Monoprix. Expanding overseas has not been without its complications. Besides all the translation work, local tastes need to be understood. For example, in France, the shelf life of the loaves has had to be doubled as it is a “planned emergency” purchase.

For Warburton, exports is a long-term project. “France is a nice distraction but it’s only tiny at the moment. It’s not yet paying for my golf balls,” he says. Perhaps it’s just as well. He won’t be spending much time on the golf course for the foreseeable future.