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Premier hoping Christmas comes early as own-label sales slide

By Ben Bouckley , 28-Oct-2010
Last updated on 29-Oct-2010 at 11:40 GMT

Contract exits and promotional activity by branded competitors have seen Premier Foods' third quarter own-label sales slide.

Premier said today in its interim management statement that group sales fell 4.2% in the quarter ending September 30 to £606m against the same quarter of 2009, with non-branded sales of £109m reflecting falls of 10.4% in value and 6.4% in volume.

Own-label woe

Premier pointed to slight improvement on its own-label value drop of 12.7% in quarter two, and cexecutive Robert Schofield (pictured) said: “Group sales have fallen as a result of ceding own-label contracts in bread, and the general decline of the own-label markets.”

Widespread promotional activity within grocery (high promotional spending by competitors in canned foods, in particular) contributed to a 2.3% decline in general cross-category market value, as did Premier exiting “low margin” own-label bread contracts in 2009.

“Markedly tougher” third quarter trading had also been influenced by rising wheat prices, which hit margins in cakes and bread and led Premier to renegotiate contracts with retailers in grocery and Hovis.

The company statement said: “During 2009 we switched production of own-label bread output towards the Hovis brand and re-signed some contracts to preserve profitability. We have lost no more material contracts in 2010…

Premier also predicts a recovery in own-label (which represent 35.4% of its total sales): “We see these trends as a temporary feature in markets, which in aggregate should grow modestly in value in the medium-term.”

‘Drive’ brands perform well

Premier said its brands had “traded well” given the economic backdrop, up 4.6% in the quarter, despite a value fall of 0.5%. Nonetheless, the group's ‘drive’ brands grew 3.9% year-on-year in value terms and 7.9% in volume.

One of these is Hovis – which despite Premier's own-brand bread decline of 18.4% in the quarter – saw value growth of 1.8% and volume growth of 9.5% driven by promotional activity, widespread distribution and ‘Hearty Oats’ loaf sales.

Drive brands in grocery also performed well, with Sharwoods, Hartley’s and Loyd Grossman underpinning sales value growth of 5.8%: the recent launch of ‘Loyd for One’ pouches led to 24% growth of that brand in the third quarter.

However, core brand sales fell 7%, with Oxo and Branston Beans hit by reduced promotional activity – where Premier says it has increased its spend at a lower rate than competitors – while sales of McDougalls flour, Lyons cakes and Birds saw ‘defend’ brand sales fall 3.1% in the quarter.

Christmas cheer?

With quarter three (Q3) its smallest trading quarter, Premier is pinning its hopes on Christmas sales (30% of year totals in 2009) to exceed overall gross profits of £255 in 2009: Category market trends, promotional intensity and commodity cost inflation have all continued to worsen,” it said.

“Nevertheless, we still aim to make progress in the full year but the slowdown in Q3 means this is likely to be more modest and is, as always, dependent on Christmas trading which is by far our largest sales period.”

Premier said it is “making progress” on reducing net debt, and that its recent restructuring deal would reduce financial risk in its swap and pension portfolio (final salary pensions will be closed in 2011) and enable it to diversify its financing sources.

The group remains “open-minded about disposals” to reduce debt and raise its share price, and confirmed that it remains in discussion “with a number of parties” over the sale of its meat-free business.

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