The Competition and Markets Authority (CMA) has cleared a £75m deal for the owner of Kingsmill to acquire Hovis, creating the UK's largest bread brand. The regulator determined that Associated British Foods' (ABF) proposed takeover did not raise competition concerns because, without the deal, ABF's bakeries arm would likely exit the UK market entirely. This outcome would particularly impact lower-income households, for whom bread is a basic staple.
Market Challenges and Rationale
ABF's UK bakery arm, Allied Bakeries (AB), owns brands including Kingsmill, Allinson's, and Sunblest, supplying bread and baked goods like muffins and hot cross buns across the country. Alongside Hovis, it also provides own-brand products to major supermarkets. The CMA noted that bread suppliers in the UK face declining demand and significant cost increases. AB has incurred losses for 14 years despite restructuring efforts, due to waning sliced bread popularity, rising demand for lower-margin private-label products, and higher costs for energy, wheat, and distribution. Younger consumers are eating less sliced loaf bread, favoring artisan options like sourdough amid low-carb diets and concerns about ultra-processed foods.
Investigation Findings
The CMA launched an in-depth investigation after the deal was announced last August. ABF, which plans to spin off Primark next year, stated the tie-up would combine production and distribution activities, expected to lead to job losses. Cyrus Mehta, chair of the independent inquiry group, said: "Bread is a basic staple for millions, so we carefully assessed competition implications. Evidence showed Allied Bakeries would likely leave the market if the deal didn't proceed, so we concluded no competition concerns."
Financial Context
Hovis, acquired by private equity group Endless in 2020, also owns Mother's Pride and Ormo brands. Its pre-tax losses rose to £4.7m in the year to 28 September 2024, from £3.6m the previous year. The CMA noted that Kingsmill is weak compared to Warburtons and Hovis, contributing to declining branded sales volumes. As one of only three UK suppliers with a nationwide distribution network delivering six days a week, AB faces high fixed costs. The watchdog deemed restructuring options "unlikely to be sufficient to turn the business around."
ABF's Response
ABF welcomed the CMA's clearance, stating: "Combining with Hovis enables Allied Bakeries to continue operating and create a sustainably profitable UK bakeries business, better placed to compete and innovate. As the CMA found, demand for packaged sliced bread has reduced significantly due to changing tastes, and the market faces a difficult economic backdrop. However, we believe the market for nutritious, good value staples remains significant."
