Allied Bakeries would close if bread business merger doesn’t go ahead: CMA
Allied Bakeries would close if a potential merger with Hovis didn’t go ahead, the Competition and Markets Authority (CMA) has revealed in an interim report.
The CMA has been investigating the proposed merger of the two bread businesses and whether it would substantially reduce competition in the supply of bread and baked goods in Northern Ireland and Great Britain.
In the interim report, the CMA states its provisional conclusion is that absent the merger, Associated British Foods (ABF) is likely to exit the Allied Bakeries business in the whole of the UK, however added there is likely to be a purchaser for Allied Bakeries assets in Northern Ireland that would continue to compete with Hovis absent the merger.
It found that the merger between the companies would not substantially reduce competition in Great Britain as competition between the two would be lost with or without the merger. However, they have provisionally found competition concerns in Northern Ireland.
Subsequently, ABF is presently running a sales process for its bakery business here in Northern Ireland, where it remains profitable, unlike the GB business.
The CMA’s interim report found that evidence shows that Allied Bakeries is a heavily loss-making business in a structurally declining market and the bakery business is not of wider strategic importance to Associated British Foods; while Allied Bakeries’ Kingsmill brand is considered to be weak compared to other brands, such as Hovis and Warburtons, and this has contributed to the significant decline in branded volumes.
“As one of only three GB suppliers with a nationwide delivery network that delivers bread and other bakery products direct to retail stores six days per week, Allied Bakeries faces high fixed costs from distribution, which has impacted profitability as Allied Bakeries’ volumes have declined,” states the CMA.
PROVISIONAL CONCLUSION
It added that the overall pool of potential purchases for the Allied Bakeries business as a whole is “likely to be limited as Allied Bakeries is loss making” with any potential purchaser requiring significant funding to absorb losses.
The CMA also notes that with the company’s Northern Ireland business largely independent of the GB business, it is profitable and considers that there are relevant differences between GB and NI that impact whether it is likely that there would be an alternative buyer for the NI business.
“The Allied Bakeries NI business represents an opportunity for other suppliers, such as those based in the Republic of Ireland, to enter or expand in NI to help overcome barriers to entry and expansion in NI, including access to distribution and the importance of the brand,” states the CMA.
“Evidence indicates that the markets for bread and other bakery products in NI are separate from those in GB,” it adds, stating that there are different consumer preferences in NI compared to GB, there are different distribution models and the competitive dynamics differ between GB and NI.
The CMA concludes provisionally that the merger between Hovis and Allied Bakeries would result in the creation of a relevant merger situation (RMS), and the creation of that RMS may be expected to result in a substantial lessening of competition (SLC) in the supply of each of bread, pancakes, potato farls and soda farls in Northern Ireland, but may not be expected to result in an SLC in the supply of bread or any other bakery products in GB.
This is not the final decision of the CMA, and it has invited any interested parties to make representations to them on these provisional findings no later than 5pm on Thursday 16th April.
Responses can be submitted by email to ABFGrainProducts.Hovis@cma.gov.uk
