Bread undervalued in the U.K.

by Teresa Acklin
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   The widespread practice by U.K. retailers of selling “economy” bread at below cost has not helped to increase consumption and has led to a real value decline in retail bread sales, according to a report released last year by the U.K.'s Flour Advisory Bureau.

   John Murray, director general of the National Association of British and Irish Millers, detailed the highlights of the report's findings at the International Milling Association's 1998 Congress in London.

   The Flour Advisory Bureau, which is the promotional arm of NABIM, in 1997 commissioned the London-based consultancy group Management Horizons Europe to undertake an analysis of the price, quality and positioning of bread in U.K. food retailers. The group also conducted store-exit consumer research at four leading stores.

   At the time the report was commissioned, an economy 800-gram loaf of bread in the U.K. sold for about 27 pence (U.S. 43c), a price which had slipped to 15p (U.S. 24c) per loaf by the beginning of 1998. “The report found that such price discounting had not boosted household bread consumption, which had stagnated since 1991,” Mr. Murray said. “And below-cost selling appeared to be detrimental to consumers' image of bread. People tend to be suspicious of a product that is sold so cheaply.”

   Management Horizons Europe also looked at the price of bread in relation to other groceries, including breakfast cereals, soup and pasta. It found that at the economy and standard levels, bread was significantly cheaper in unit terms (pence/100g). Bread, therefore, appeared undervalued relative to other competing products.

   Furthermore, prices of the cheapest wrapped white bread had fallen by 52% in the six-year period to 1997, while non-seasonal food prices increased by 21%. “Had bread prices tracked inflation, U.K. retailers would have earned an extra £350 million of income,” Mr. Murray said.

   In an attempt to regain value and margin, the U.K. baking sector sought to extend bread categories through product innovation, including “premium” and “super-premium” loaves. “Boosted by heavy promotion, sales of premium bread have risen steeply since 1995,” Mr. Murray said, “while standard bread sales have fallen steadily and sales of economy bread have remained fairly stable.”

   The report suggested that the number of categories, indistinct quality differences between standard and economy breads and price discounting had created customer confusion about the bread offering in U.K. supermarkets, and proposed a reassessment of consumer's views about quality and a rationalization of the product range.

   Consumer research based on store-exit interviews of 1,500 customers found that the most important factors in purchasing bread were taste (32%), followed by “household must have” (20%) and health benefits (15%). “Price didn't feature very strongly,” Mr. Murray said. “It was very interesting how unaware customers were about the price of bread. Sixty-one percent said they didn't consider it before purchase and 45% had no idea about the price of an economy or standard loaf.”

   In addition, the research identified a significant gap between what consumers thought they were paying for per loaf and what they were prepared to pay. Most were willing to pay up to 35p (U.S. 56c) for an economy white loaf.

   The report concluded that bread appeared to be undervalued, and suggested that retailers devote more energy and investment to the promotion and marketing of bread and that any repositioning of bread should be done in conjunction with a reassessment of the price structure. “Until bread is properly priced, it is going to be a very tough task to try and enhance its image and its status in the consumer's mind,” Mr. Murray said.

   As a postscript, Mr. Murray told World Grain in March that U.K. retailers have not changed their practice of below-cost selling of bread. “In fact, the price of the cheapest 800-gram white loaf has fallen to about 7p (U.S. 11c),” he said. “In recent months, the Office of Fair Trading has been investigating competition in the supermarket industry in the U.K., and may refer the investigation to the Mergers and Monopolies Commission.”