Bread will fare better than milk in price wars

Bread is being used as a loss-leader by the supermarkets

The bread supply chain will not be affected by the supermarket price wars in the same way as milk, the Federation of Bakers’ director Gordon Polson has said.

Supermarkets were using their own-label bread as a loss-leader, he told FoodManufacture.co.uk, and it was unlikely the costs would be passed down the supply chain.

“I don’t think it will have the same effect down the supply chain as milk [has seen], but the proportions of own-label bread [in supermarkets] are lower than own-label milk,” said Polson.

"Although, I don’t know the details of the relationships with each supermarket [and their suppliers], it has been widely reported they will take the loss on bread.”

Negative impact

Bread and milk supply chains differed, Robert Newbery, National Farmers Union chief dairy adviser, said.

“The difference between bread and milk is the value of the raw product,” said Newbery. “If you devalue milk in store, farmers will eventually feel it. You can double the price of wheat without having a major impact on bread prices, but milk comes out of the cow, is processed and goes into the bottle as one commodity.”

The supermarket price war reached a new level this week after the Co-operative, Tesco and Asda announced cuts to staple foods, including bread, in a bid to offer more stable prices for customers.

Yesterday (April 24), the Co-op launched a range of 75p own-label 800g loaves – part of its Value for Money Campaign, which will see the supermarket plough more than £100M into lowering the price of basics. While on Tuesday (April 22), Tesco cut the price of an 800g wholemeal loaf from 90p to 75p and Asda from 85p to 79p.

‘Food staples at low prices’

“There are cheaper loaves than that on the supermarket shelves; some loaves are 50p,” added Polson. “These cuts [to prices] seem to be in the middle or top ranges of own-label [bread] and supermarkets are doing this to demonstrate they are offering food staples at low prices.”

Price wars amongst the big four were stimulated following Morrisons’ pledge in March this year to cut prices in a bid to combat discounters Aldi and Lidl, which have seen market share grow to 4.6% and 5% respectively in the 12 weeks ending March.

By competing with the discounters and slashing prices, supermarkets were locked into a race to the bottom in terms of pricing, which could distract consumer perceptions, said Chris Young, coordinator of the Real Bread Campaign. The campaign was set up by the charity for better food and farming Sustain.

Race to the bottom

“The problem with such a race to the bottom is that it artificially skews people’s perception of what is the ‘right’ price,” said Young, who wasn’t optimistic about margins down the supply chain remaining unaffected either.

“Such a retail battle in 1999 got so ridiculous that loaves were being sold for 7p, a move which made unions, and even the industry body that represents the majority of the big loaf fabricators, squeak.”

However, bread prices would not sink as low as they did in 1999, predicted Polson, as it wasn’t only the price of bread being slashed. “I don’t think we are going to see 7p a loaf, the supermarkets are fighting back for their market share and they are reducing [the price] of a range of products, not just bread, to regain share.”

Meanwhile, top analysts predicted food manufacturers would fall victim to supermarket price wars eventually, unless retailers were willing to chop their own margins.

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