Premier Foods plc, the maker of Hovis, today (27 April) admitted that its rivals in the bread category had fought back in the first quarter of the year in a bid to win back sales the company gained last year.
The UK food group shone the spotlight on its bread business after reporting a 5% fall in group sales in the first quarter of the year, which sparked a drop in the company’s share price.
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Premier said Hovis sales climbed by 4.7% and improved its share of the UK bread category by 0.5% in the three months to the end of March.
The increase in market share in the first quarter of 2010 came after Premier managed to improve Hovis’ share of UK branded bread sales by 3.5% in 2009.
However, Premier admitted that it expects fierce promotional activity from its rivals to dent Hovis’ market share in the second quarter of the year, although it forecasts a recovery in the second half of 2010.
Premier chief executive Robert Schofield said he had expected the company’s bread rivals to use promotions and discussions with retailers over range to battle back after Hovis enjoyed a strong 2009.
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By GlobalData“We figured that our competitors would have a go back at us – and that’s happened,” Premier chief executive Robert Schofield. “It’s a more ferocious promotional environment.”
However, Schofield insisted that Premier, which earlier last month added to its bread portfolio with health-focused Hovis Hearty Oats, had faith in its strategy for the brand.
“We’ll see a few blips in our share but it will go forward during the year as our marketing strategy comes into play,” Schofield said.
“Overall, bread is in slow decline … and premiumisation is where the value comes back into the market. White bread is going to lose volume over time. Wholemeal and health have a lot of cues for the consumer.”
Schofield was speaking as Premier booked a 5.1% fall in first-quarter revenues, prompting the company’s shares to tumble on the London stock exchange.
Total sales reached GBP606m (US$932.2m) for the three months to the end of March, with sales to foodservice outlets down 50% after the snow closed businesses and schools.
The slump in foodservice outlets meant sales from Premier’s “defend” brands fell 6.7%. Sales of its “core” brands, which include Oxo and Bisto, dipped 1.1% as Premier promoted the brands less than a year earlier.
However, sales of Premier’s flagship “drive” brands, including Hovis bread and Mr Kipling cakes, grew 3.4%.
Meanwhile, the company said its own-label business saw its sales fall by almost 13%. Schofield cited consumers switching more to brands and the impact of the loss of private-label contracts in the second half of 2009.
Nevertheless, the Premier boss said the company had secured new own-label contracts in the first quarter of this year.
Shares in Premier were down more than 11% at 26.73p 12:29 BST this afternoon.
