UK bakery giant Warburtons held on to sales gains from the pandemic spike last year, but profit margins were hit by mounting costs.

Britain’s biggest bakery brand gained a further 2.1% of sales to £567.9m in the year to 25 September, despite the long-term decline in the core bread market and “very competitive” market conditions.

The growth followed a bumper 10.4% sales jump in its previous financial year, boosted by a Covid-driven spike in demand.

The group was boosted by its expansion into further wrapped bakery sectors, such as pittas and gluten-free rolls – achieving share leadership in both cases – as well as a new crumpet line, and “strong” sales from the award-winning Co-op/Jacksons distribution joint venture partnership.

However, it also incurred extra costs, due to both additional staffing and driver shortages through the pandemic and commodity inflation.

Operating profits fell to £22.4m from £24.2m during the year.

“The impact of Covid-19 continued to have a significant impact on the business throughout the financial year and we remained focused on the health and welfare of our people while we continued to ensure we fed the nation,” chairman Jonathan Warburton told The Grocer.

“However, we saw costs increase to support this focus on safety, and to cover absenteeism through the pandemic, together with higher costs to secure service to customers due to the national driver shortages.”

Warburton noted that the outlook for the entire sector remained “challenging”, with the group focusing on “the quality of product and service while delivering outstanding quality and category leading innovation to meet changing consumer trends”.

During the year the group incurred £3.7m of exceptional costs, primarily from restructuring-related staffing costs as well as onerous lease costs and asset impairments.

It also “transformed” its entire wheat supply chain “to make it more efficient, and in a way that enhances flour quality even more,” said MD Neil Campbell.

In 2019 Warburtons committed to investing £56m, with the creation of 150 jobs, on improving its manufacturing and distribution capabilities to tap demand for crumpets, bagels and other alternatives to bread.

This push included the launch of a range of pittas last year to quickly became branded market leader.

As well as rolls, it is also the market leader in gluten-free bread, overtaking Genius, while pioneering expansion into sourdough, and recently launched its first loaves wrapped in paper.

The Grocer’s Britain’s Biggest Brands report found its increased capacity away from wrapped bread had added £2.8m of retail sales, despite a £21.7m drop in sales of core loaves.