The retail price of a loaf of bread has soared as bakers pass on the summer’s severe increases in wheat costs.

In just three months, the average price of a standard 800g loaf of bread - including Warburtons, Hovis, Kingsmill, as well as own label - has shot up 7p to £1.22 [BrandView.co.uk 12w/e 25 October] .

The US drought caused the milling wheat price to leap by 40%, to £246 a tonne, in late July and early August. Over that period the retail price of bread remained virtually unchanged, but it started to move in early September as bakers sought to minimise the damage from the hikes in wheat costs.

Allied Bakeries brand Kingsmill increased its prices the most - up by 11p, to £1.35. The price of its popular Everyday Medium White loaf leapt by a whopping 18% over the period, to £1.36.

The cost of a loaf of Hovis also increased sharply - by 9p to £1.37. However, Warburtons actually stayed the same price, at £1.30.

In a further sign of the turmoil in the market, this week, Hovis owner Premier Foods said it was reviewing options for its bread business after losing a £75m contract with The Co-operative Group to Allied Bakeries.

As well as own label products, the contract included all Hovis-branded lines, which will now be delisted across Co-Op Group’s 4,000- plus stores by mid-2013. “Hovis branded products will be replaced by Allied Bakeries’ branded products, including Kingsmill,” a spokeswoman for The Co-op Group said.

“The switch to Allied will ensure we continue to provide our customers with the very best own-label bread, made from 100% British wheat, at a competitive price,” said Co-op Group commercial director Mike Osmond.

Premier said renewing the contract would have been inconsistent with its strategy to improve the sustainable profitability of its bread division.

Investec analyst Martin Deboo hinted that a sell-off could be on the cards. “While the contract is low margin, it will represent lost contribution,” he said. “We expect this to be a further catalyst for more radical actions to realise value from bread,” he said.

Allied Bakeries said winning the contract was testament to its hard work and would result in a recruitment drive.

“Our continuing multimillion-pound investment programme has resulted in Allied Bakeries operating on a stronger platform than ever before,” said a company spokeswoman.

“This has seen the business grow market share and outperform the market. We anticipate that as the new business comes on stream it will create new jobs.”

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