- bread bruised by loss leader role - poor harvest will push a loaf up 2p - economy own label in decline - NPD pushes on regardless Analysis by Sheila Eggleston The continuing drive by the supermarkets to keep bread prices low is having a dramatic effect on the market. Value and volume shares of wrapped bread have been hit hard by their use of bread as a loss leader and there is no sign of recovery. Our own The Grocer 33 shopping survey shows that since its debut in June 1997 the price of an 800g Hovis wholemeal in the multiples has fallen from between 55p and 59p to between 45p and 49p ­ a reduction of 10p. To add to the pressure, this year's harvest is expected to be poor because of the wet weather, and since almost 60% of the flour used by the country's bread manufacturers is home sourced, the price of a loaf is likely to rise 2p. This will please the big bakers but they would dearly love to see an even bigger hike to give a badly needed boost to the market. Peter Baker, the Federation of Bakers chairman, expressed his concern at bread's low retail prices and the supermarkets' loss leader policy when he addressed the federation's annual conference last month. The worth of bread is being downgraded in the consumer's eyes by prices which are below the cost of manufacture and delivery, he told members. Short term low prices to promote sales and drive consumption was fine, but, long term, they destroyed the true price hierarchy and devalued the category. Baker, who is md of British Bakeries, adds: "A more consistent pricing approach would help bakeries to invest more confidently in innovation and efficiency. "When overall returns are too low, investment in all senses ­ including plant and equipment ­ is questioned, potentially to the long term detriment of the category. "Average bread prices have been falling as a consequence of plentiful supplies of wheat and reforms in the agri-economy, which have brought EU grain prices down to world prices. But the picture is already looking very different this year. We have rising UK grain prices, pushed by the firm world grain market and a likely shortfall in UK supplies next year. "We expect the entire bread supply chain will need to adjust to these significantly changed conditions." Allied Bakeries' commercial director Eric Place says: "Economy own label bread is in serious decline because it isn't in the retailers' best interests to sell it. They make no money from it. But there are value for money branded products and, for the first time, we are seeing multiples sell more manufacturer brands than they do in own label. We won't see cheap loaves disappear completely, but we will see this category get much smaller. He says Allied Bakeries would like to see price inflation. "Bread is still seen as a commodity market and still used as a loss leader. "The artificial price of 17p at the bottom end of the market just encourages all the prices down." The bakers federation has taken a proactive step to highlight the issues affecting the bread market with the forthcoming publication of its Bread Values report, which it hopes will spark communication between suppliers and retailers over issues such as below cost selling, delivery, wastage and marketing. The federation complained bitterly that the Competition Commission report did little to help harmonise relationships between manufacturers and retailers. However, price pressures aside, the major players have shown some activity in the market. Allied Bakeries recently opened an innovation centre at Maidenhead, Berkshire, where projects include a major image makeover for Kingsmill aimed at building the brand and consumer loyalty. The Kingsmill brand is also being used to spearhead a corporate initiative by Allied Bakeries to forge community links. The manufacturer is taking part in a new children's playground in West Bromwich which it believes will help raise the profile of its bakery there. New product initiatives include test marketing a new-look Allinsons bread, and the relaunch of 400g standard Kingsmill and Kingsmill Tasty wholemeal. The latter particularly should benefit from the ads starring comedians Mel and Sue who have attracted new younger consumers that AB is determined to keep. British Bakeries is looking to build the category in tandem with its retail partners. The Hovis brand will be relaunched this summer with new packaging, new products and a new ad campaign. A third manufacturer, Warburtons, takes the premium route, highlighted by its broad spectrum of premium offerings such as organic loaves and rolls, morning goods, and its entry into the lucrative ready to bake sector. The company points out that growth in wrapped bread comes from the premium and super premium sectors, up 14.9% and 26.3% respectively [TNS 52 w/e March 4 2001], and it is confident the rsp is a price which reflects the worth of its product. {{FOCUS SPECIALS }}

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