Premier cakes business hit by logistics problems

Mr Kipling owner Premier Foods has revealed its cake business has been hit by issues with its new warehousing operation.

Premier said sales volume and efficiency in its Sweet Treats division – which includes Mr Kipling, Cadbury and own-label cakes – have been impacted in the short term by the transfer of warehousing to a third-party managed operation in September.

The move was the latest phase in the consolidation of all Premier warehousing and distribution operations in one central location in Tamworth, Staffordshire, managed by XPO Logistics. In February, the company announced the closure of a distribution centre in Rugby that handled Mr Kipling and Cadbury cakes.

Premier today said extra capacity had now been put in place for the peak festive trading period, and that “good progress” was being made, but warned that customer service levels are currently “below the group's usual high standards”.

It added that this would adversely impact the financial performance of the Sweet Treats division in the third quarter.

The warehousing issues were revealed in the company’s half-year financial report, for the 26 weeks ended 29 September, in which Premier also announced CEO Gavin Darby would be stepping down and that it planned to sell its Ambrosia brand. (See story here.)

Total Sweet Treats division revenue rose 3.8% year-on-year in the period, with branded revenue up 7.4%.

Branded growth had been driven by the Mr Kipling brand relaunch, television advertising, and NPD including Unicorn and Flamingo slices. Sales of the core Cadbury range grew in the first half of the year, said Premier, but total Cadbury revenue had been impacted by the axing of some lower-selling lines.

Revenue from own-label Sweet Treats fell 13.1%, with the business exiting some lower-value pies and tarts contracts and some of its own-label lines losing shelf space to branded products.

Premier’s international business – which has enjoyed strong growth in recent years thanks to exports of Mr Kipling and Cadbury cakes – fell 9% year-on-year.

The company said the decline was the result of phasing shipments of Cadbury cakes to Australia following capacity issues, and UK wholesalers raising the price of some Premier products they export. It added, however, that Cadbury cakes and Mr Kipling continued to gain retail market share in Australia, achieving a record share of 16.6% during the period.

Premier also said it planned to start building stocks of raw materials to protect the company against the risk of delays at ports following the UK’s exit from the EU.

“Potentially this action will cause an adverse movement of up to £10m in working capital during quarter four, which we would expect to reverse the following financial year as the situation normalises,” it stated.

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