The maker of Hovis bread has bad news for its consumers. The fact that wheat prices have escalated so bad means higher bread prices at the grocery store. Wheat prices have risen about 50 per cent in the past month, due to severe drought in the Ukraine, Russia and Kazakhstan. Also, heavy rains in Canada have played a part in wheat prices increasing to an intolerable level.
Premier Foods, maker of Hovis bread has some financial road to make up. Wheat prices have created an issue of having to cover more costs to break even.
“We seek to cover all our incremental costs on labour and overhead through our own devices,” said Robert Schofield, Premier chief executive. “But where we’ve got commodity increases, we do pass those on.” If retailers refuse to help absorb the rise in cost, the price of a Hovis loaf could increase about 5p, according to Martin Deboo, an analyst with Investec.
The price has decreased by 50 per cent over the last 12 months and, according to Mr. Deboo, was “set for a bounce if there was any sort of ‘beat’ at all.”
It is set to produce at least 100 million pounds of cash by the end of the year, which it will use to pay down its 1.37 billion pounds net debt.
Shoppers have continued to move away from own – label brands – a trend demonstrated by Hovis. Falling wheat prices up until June helped reduce the price difference between branded and non- branded loaves. Promotions could help keep that gap small, even with wheat prices surging again. Shoppers remain cautious.
Julian Hardwick, an analyst with RBS, said: “Given a difficult marketplace with a lot of promotions and very little volume growth, Premier Foods appears resilient.”