Premier Foods has admitted that the timing of bread price rises last year and consumer concerns about its Hovis white bread played a significant part in losses of £73.5m for 2007, announced this week.
Rocketing wheat prices were identified by the company as the main reason for a 48.4% fall in trading profits at its Bread Bakeries Division, which comprises RHM, taken over last year. But Hovis also lost market share because it was the first big bread brand to introduce price rises.
The company raised prices in early September and late October, but said that competitors did not follow suit until the end of December, resulting in a price differential of up to 15p a loaf.
Premier reported an increase of £150m in wheat costs in its preliminary results for 2007.
The company also admitted quality issues with Hovis white bread. "In white bread, Premier lost market share because of customer feedback highlighting quality concerns," said associate director Angharad Couch.
Premier has now changed the recipe for Hovis white with a new blend of flours and longer baking times. Couch added that promotional activities across all Premier’s divisions will be limiited in the first half of 2008, as a new management information system is introduced.
Premier’s chief executive Robert Schofield said it had made progress on integrating RHM and was on track to deliver annual synergies of £113m. "The downside to 2007 was the exceptional cost inflation. While we moved quickly to raise prices, the time lag between cost increases and raising prices reduced second-half profitability," he said.
Premier has already recovered £190m of the estimated £225m cost inflation in 2007 and plans to recover the remaining costs in the first quarter of 2008. Investec analyst Martin Deboo said: "Premier was flayed by rising wheat prices last year and had a difficult second half in its bread business. Going forward will be challenging, as the supermarkets are expected to be extremely aggressive on price negotiations this year."