Premier Foods takes logistics to task as industry costs rise

27 April, 2007
Page 4 
RHM-owner Premier Foods has called for a shake-up in logistics in the baking industry, attacking existing "inefficient and environmentally unfriendly distribution methods" which "delivered poor customer service".
Speaking after Premier this week revealed that profits had halved in its bakery division in the six months to June 30, chief executive Robert Schofield called for collaboration on deliveries, where the plant baking industry shared one fleet of delivery vehicles. Distribution and baking should be separated. Early morning deliveries, where vans remained unused in the afternoon, were "not sustainable", he added. Improving the system was a "work in progress".Schofield also confirmed that Premier, which owns Hovis, was putting the price of a loaf up by 8p, following a previous round of increases on its bread products early this month. It was taking the action due to soaring costs of wheat, which hit profits, he said. It also faced increased distribution costs and overheads, he added.Sales in Premier Foods' bread division decreased by £4.4m to £398.4m, and profit decreased by £18.9m to £19m in the period to June 30, it revealed.Schofield told British Baker: "Price increases generally across food are not a blip. We have been in a low-inflation environment for 15 years. The increase in raw materials is not short-term; prices here have to go up." He said that if current wheat price rises persist, additional bread and flour price increases will be required and added: "At the moment, farmers are receiving encouragement to grow crops for fuel. I see it effectively as an environmental tax on food."Analyst Martin Deboo of Investec told British Baker that he accepted that cost increases were to blame for the drop in bakery profits, and said he was "watching the situation closely" to see how rivals Warburtons and Allied Bakeries would react. If the Hovis brand ended up selling at a premium to its rivals, it could hit market share, he said. Hovis had lost some market share to Warburtons and the relaunched Kingsmill in the last year, he added, but had "held the line" reasonably well, with some interesting new product development coming through - for example its recent Seed Sensations launch.In its cakes division, Schofield said cooler summer weather had helped drive the sales of its Manor Bakeries products, including the Mr Kipling brand. Sales of its cakes increased by £9m to £121.6m and profit went up by £0.2m to £7.8m. The firm anticipates sales will continue to increase in the run-up to Christmas. "Despite turbulent commodity prices, we remain confident that we will deliver underlying sales growth for the year in line with our 1.5-2% target," said Schofield.



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