Bread has been a key battleground in the price war that has raged as the UK's traditional supermarkets seek to hold onto market share in the face of the growth of discounters such as Aldi and Lidl.
Exclusive research by BakeryandSnacks, using data from Brand View, shows the average retail price of a large (750 g and over) loaf of bread has fallen 8.6% in the past 12 months from £1.04 to 95p (see graph below).
Industry insiders fear that, should bread remain a focus of the supermarkets’ pricing activity in light of Asda’s announcement, a loaf could become even cheaper.
Widen price gap
Asda president and CEO Andy Clarke this week said the £500m spend will be in addition to his previously pledged £1bn ($1.4bn) price investment. The retailer claimed the move would widen the price gap between itself and the rest of the so-called ‘big four’ supermarkets (Tesco, Sainsbury’s and Morrisons) and close the gap on the discounters.
“The structure of UK grocery retailing has permanently changed to reflect the way customers shop today,” said Clarke. “Being part of Walmart also gives us insight into similar trends in the rest of the world and it’s clear that this is a global phenomenon.”
He added the growth of discounters meant “radical action” was needed to win back customers. And that action could include further cuts to the price of bread, warned analysts.
“If the big retailers continue to focus on the price of staples to try and fight the discounters then it’s a possibility bread prices will fall lower,” said Mintel senior global food & drinks Analyst Chris Brockman.
Further price cuts would add to the pressure on a UK bread industry that – despite the drop in prices - is suffering a decline in volume sales as health concerns and the shift to alternatives such as thins and wraps move consumers away from pre-packaged bread.
Volume decline
Mintel estimates that volumes sales of pre-packaged bread fell 1.3% in 2015, with the drops in price driving a 5.6% decline in value to to £1.7bn ($2.5bn).
Battle for UK share
Bread prices have fallen in the price war as UK supermarkets fight to maintain market share.
The traditional supermarkets such as Asda have lost ground to discounters Aldi and Lidl, with Kantar Worldpanel figures for the 12 weeks to 3 January 2016 revealing a million more shoppers visited the discounters in this period than a year ago.
“The discounters are continuing to establish themselves in the minds of British consumers – almost one in eight did their single biggest December shopping trip in Aldi or Lidl,” said Kantar Worldpanel head of retail and consumer insight Fraser McKevitt.
Tesco, Asda and Morrisons all lost market share over the period, and it is against this backdrop that Asda boss Andy Clarke announced the additional price cut investment.
The retailer also revealed it was joining EMD – described as Europe’s leading buying alliance with a combined turnover of €178bn ($193bn)– which will work with Asda to develop the retailer’s own label ranges.
“Fundamentally changing how we buy products means we can realise significant savings from our cost base and pass these directly to customers through a rebased pricing model,” said Clarke.
Asda will report its fourth quarter and full-year trading update on February 18 in line with Walmart’s reporting period.
“Further price cuts won't reverse declining bread volumes,” added Brockman. “The main reasons consumers are not eating as much packaged bread are to do with health – with 31% of consumers considering it too high in calories, carbohydrates or sugar, and 23% believing it is too processed.”
In a trading update released last week, Carr’s Group – which supplies flour to bakeries, food manufacturers and retailers across the UK – stated that margins in the bakery supply chain were under pressure from changing shopping habits and the retailers’ response to those changes.
Much of the retail pricing activity has focused on the UK’s three major bread brands – Warburtons, Hovis and Kingsmill - and some loaves that were selling for around £1 ($1.45) just 18 months ago now as low as 75p ($1.08).
Brand price match schemes
Compounding the problem, the big four UK supermarkets have programs in place to match the price of branded products sold at rival retailers – often in the form of a voucher given to shoppers to make up the difference in price. As a result, a drop in price at Asda could have a "ripple effect" across packaged bread at UK retail, suggested Ray Gaul, vice president of research and analytics at Kantar Retail.
Should prices drop further, the major bakeries will go into "emergency mode", added Gaul. "They will attempt to lock in contracts where they can with the likes of Sainsbury’s, Tesco, Morrisons etc."
With health concerns driving the decline in volumes – and price cuts focused on standard loaves such as white, wholemeal, and half-and-half blends – bakers are turning to higher-priced, added-value products to improve performance.
Added-value loaves
Launches have included Good Inside bread from Hovis Limited, which rolled out last year and offer benefits such as added fiber and omega 3 from flax seeds. These are currently selling for an average of £1.08 ($1.56) versus 84p ($1.21) for the brand’s standard loaves [Brand View].
The same trends are likely to have contributed to the decision by UK supermarket chain Marks & Spencer – announced this week - to fortify its entire bread range with added fiber in a move that prompted M&S product developer Jenny Galletly to declare: “The days of the simple white loaf are numbered."
That may be overly pessimistic, but Asda’s price cut announcement is unlikely to have many bakers feeling optimistic, either.