Allied Bakeries’ financial woes deepened this week as the struggling Kingsmill owner announced it would no longer supply Tesco with own-label bread.
In its interim results for the 24 weeks to 2 May 2019, the ABF-owned business included a £65m impairment charge against its income – to reflect the estimated cost of the loss of its biggest own-label contract.
The change, which was first reported by The Grocer’s sister title British Baker, will see Tesco switch to another supplier from 2020 for wrapped bread SKUs including those for its HW Nevill’s tertiary brand. It follows six months of pricing discussions between the grocer and Allied.
“We are making some changes as part of a review of our bakery supply chains,” said a spokesman for Tesco. The supermarket giant was, however, “absolutely committed to working in partnership with all our suppliers and will do all we can to support them during the transition process”.
A spokesman for Allied said it was “proud of our recent work with Tesco to help develop their own-label bakery range” – and it would “continue to service their stores with our branded portfolio”.
He added: “Our focus on own label product quality and brand innovation will continue, building on the successes of our recent launch of Kingsmill 50/50 Vitamin Boost and the relaunch of the Allinson’s craft bakery range, which is now the fastest growing brand in the category, with value sales up 40% year on year.”
The news comes during troubled times for Allied, which has been loss-making for a number of years. In its most recent annual report, published in September, ABF noted that the cost of wheat had risen significantly over the summer. This meant Allied’s losses ‘remained unacceptable, although some progress has been made with cost reduction programmes and price increases’.
Nevertheless, Allied’s biggest brand, Kingsmill, is in serious decline. It lost £13.2m over the past year on volumes down 11.6% [Nielsen 52 w/e 16 March 2019]. It’s now worth £194.2m, while its stablemate Burgen has fallen in value by 25.6% to £6m. Only Allinson’s has made money for Allied in grocery, soaring by 38.7% to £8.7m.