By Elizabeth Anderson Tuesday, 20 November 2012

Hovis maker Premier Foods to slice 900 jobs

Struggling food giant Premier Foods is making more cuts to its bread division as fierce competition and rising wheat prices continue to take their toll.

Hovis has long been the black spot at Premier Foods, and Premier has decided to take swift action to rein in any further losses. Two bakeries are being closed in Greenford and Birmingham – and that’s on top of the planned closure of another Hovis bakery in Hampshire. Across the whole of Premier’s bread division, 900 jobs also face the chop and distribution routes will be squeezed as new chief executive Mike Clarke tries to bite into the £1bn debt pile Premier has accumulated.

Premier specialises in British favourites such as Mr Kiplings cakes, Bird’s custard and Bisto gravy. But our sense of nostalgia has waned in recent years, and Hovis is one of the brands that has suffered. Intense competition in the bread market has dented sales; and rising wheat prices, driven by droughts and wildfires in Russia, have also taken their toll on margins. Last month, Premier announced it had lost a worth £75m-a-year contract with a major supermarket chain to supply bread.

Premier Foods was once Britain’s biggest food producer. Following its re-entry on to the stock market in 2004 (following a five-year stint under private-equity ownership), the company went on a buying spree, adding brands such as Oxo to its food cupboard. But the deal which really knocked the balance sheets was the purchase of RHM, maker of Hovis. Seen as overpriced at the time, the deal also came just before the credit crunch squeezed consumer spending and pushed up the price of commodities.  

In the last five years, Premier Food’s shares have been on a rollercoaster ride. They almost hit rock bottom at one point last year – crashing from 200p a share in late 2007 to 4.27p in November 2011. Since then, they have been steadily regaining their value, with shares worth around 96p today.

Last year, Clarke was brought in from Kraft to try and restore Premier to its former glory. His strategy has been to offload brands to tackle the £1.4bn debt pile the business had accumulated at the beginning of the year. That has now shrunk to around £1bn after the recent sales of Sarson’s vinegars, Elephant Atta, Branston Pickles and Hartley’s jam helped raise around £300m.

Hovis’s latest troubles mean a sale of Premier’s bakery business could be next on the cards. That would leave a total of eight 'power brands' including Loyd Grossman's legendary sauces.

   

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