Like-for-like sales of Hovis bread grew 17% in the first half of 2009, boosting the brand’s share of the market to its highest in two years. However, profits are proving harder to come by, according to one City analyst.
The jump in Hovis’ sales, announced in parent company Premier Foods’ half-year results to 27 June, boosts the brand’s market share from 22.7% to 26.3%, following a relaunch last year, with new recipes, packaging and heavy marketing support.
Premier said sales across its entire Hovis division, which includes baking, milling and frozen pizza bases, had fallen 3.2% to £372.4m, but profit had increased 18.7% to £14.6m. The fall in turn-over is partly due a 20.7% sales decrease at the firm’s milling operation, following the end of a flour contract with Warburtons.
Martin Deboo, an analyst at Investec, said that Premier had done a good job of reviving Hovis bread sales, but added: "It remains to be seen whether these can be translated into profits.
"At the current rate, Premier would expect to make around £30m profit in bread and milling in 2009. To put this into context, in 2006 - the last boom year for UK bread and milling (when the business was owned by RHM)- it made £64m profit."
With wheat prices falling from £220 to £180 per tonne since January and branded loaves remaining above £1.20, bakeries should be making "much better profits", said Deboo. But, he said much of the profit is being poc-keted by the supermarkets, while brands are having to finance large-scale promotions.