Associated British Foods to buy Hovis in bid to revive bakery business

Investing.com -- Associated British Foods Plc (LON:ABF) (ABF) on Friday said it will buy Hovis Group from private equity firm Endless LLP, in a bid to revive its struggling U.K. bakery arm after years of declining demand for packaged bread.

Profitability at Allied Bakeries, which owns the Kingsmill brand, has been under sustained pressure from falling sales of pre-sliced bread and the loss of scale in supplying major retailers. 

A review earlier this year concluded that merging with Hovis offered the best route to restoring competitiveness.

Hovis, a heritage bakery brand founded in 1886, produces and distributes bread and other bakery products across the U.K., selling through supermarkets, convenience stores and other outlets. 

The company has faced similar headwinds, posting a £6.9 million operating loss in the year to September 2024. 

Endless acquired Hovis in 2020, paying £37 million for Premier Foods’ 49% stake along with an undisclosed amount for the remainder.

ABF said combining Hovis with Kingsmill will concentrate production and distribution, unlock efficiencies, and allow the business to respond more quickly to shifting consumer preferences. 

U.K. bread consumption has been changing, with slower sales of mass-market loaves but growth in premium, specialty, and alternative baked goods.

The tie-up also aims to address industry-wide challenges, including the growing popularity of low-carbohydrate diets, intense competition from supermarket own-label bread and artisanal bakers, and elevated wheat and flour prices following Russia’s invasion of Ukraine. 

By restoring scale, ABF hopes to narrow the efficiency gap with market leader Warburtons.

“This transaction will create a UK bakeries business that is both profitable and sustainable over the long term,” said ABF chief executive George Weston in a statement. 

He added that combining two of Britain’s best-known bread brands under efficient, well-invested operations will give consumers greater choice and deliver value for shareholders.

Founded in 1935 by Weston’s grandfather, ABF is now a diversified conglomerate with operations in grocery, ingredients, agriculture, sugar, and retail, best known for its fast-fashion chain Primark. 

While its bakery division is smaller than other segments, it has been underperforming, making the Hovis acquisition a strategic attempt to stabilise and reposition the unit.

Financial terms of the deal were not disclosed, and completion remains subject to regulatory approval. 

If approved, it would mark one of the most significant consolidations in the U.K. bread market in recent years.