Associated British Foods (ABF)’s Allied Bakeries unit will not be renewing a contract with UK retailer The Co-op from April next year.

London-listed ABF explained in a stock-exchange announcement this morning (2 July): “Co-op has always been one of our more challenging accounts in terms of cost to serve with deliveries to thousands of stores which are widespread across the UK. It is with regret that we have not been able to agree a way forward that makes financial sense and we will therefore be exiting our relationship with them in April 2021.”

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ABF UK bakery arm Allied Bakeries manufactures the Kingsmill, Sunblest and Allinson’s bread brands.

The company confirmed to just-food the contract covers private-label and branded products.

ABF made the disclosures in a trading update for the 40 weeks to 29 June.

In its stock-exchange filing, ABF added Allied Bakeries had experienced a decline in its private-label bread business during the period, with an increase in Kingsmill volumes not enough to compensate for the loss.

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Reporting on its overall grocery division, which also includes operations in markets such as North America and Australia, the company added: “Grocery benefited in the third quarter from increased sales volumes through the retail channel which more than offset weaker foodservice demand.

“Following flat revenues in the first half, third-quarter revenues were 9% ahead of last year, with increased retail volumes, and margin and operating profit were strongly ahead.” 

ABF said its ACH grocery unit in North America delivered “very strong sales growth”, benefiting from higher demand for baking ingredients and corn oil. George Weston Foods in Australia was also “ahead”, with higher volumes of Tip Top bread and bakery breakfast products more than offsetting reduced foodservice sales at the company’s Don meat business.

Third-quarter revenue from ABF’s grocery business stood at GBP941m (US$1.1bn).