A £75m deal for the owner of Kingsmill to buy Hovis and create the UK’s biggest bread brand has been given the green light by the competition watchdog.
The Competition and Markets Authority (CMA) ruled that Associated British Foods’ proposed takeover of Hovis did not raise competition concerns because if the deal did not go ahead “the most likely outcome” would be ABF’s bakeries arm leaving the UK market entirely.
This would affect especially people on lower incomes, for whom bread is a basic staple, the regulator added.
ABF, whose UK bakery arm Allied Bakeries (AB) owns the Kingsmill, Allinson’s and Sunblest brands, supplies bread and other baked products such as muffins, hot cross buns and pancakes nationwide and, like Hovis, supplies own-brand baked goods to several large supermarkets.
Bread suppliers in the UK are struggling with declining demand and significant increases in costs, the CMA said.
AB has run up consistent losses over the past 14 years, despite restructuring and cost-saving efforts, because of the waning popularity of sliced bread, the increase in demand for lower-margin private-label products and higher costs for energy, wheat and distribution.
Younger people in particular are eating less sliced loaf bread, while artisan bread such as sourdough has become more popular, amid low-carb and gluten-free diets and concerns about ultra-processed foods.
The competition regulator launched an in-depth investigation into the proposed deal after it was announced last August. ABF, which recently said it would spin off the Primark budget clothing chain next year, said the tie-up would combine the production and distribution activities of the two businesses, which is expected to lead to job losses.
Cyrus Mehta, the chair of the independent inquiry group leading the investigation, said: “Bread is a basic staple for millions of people, which is why it is important we looked carefully at this deal and assessed the competition implications for households across the UK.
“On the basis of the wide range of evidence we received, which showed the difficult position many UK-based bakeries are in, we found Allied Bakeries – owned by ABF – would likely leave the market entirely if the deal did not proceed. Taking that into account, we have concluded the deal does not raise competition concerns.”
Hovis was initially born in Staffordshire but came to prominence when it merged with the larger Fitton & Sons mill in Macclesfield in 1886, although following several takeovers it is now based in Buckinghamshire and was owned by private equity group Endless from 2020 until the latest takeover. Its 1973 Boy on Bike ad (pictured), from Collett Dickenson Pearce and directed by Ridley Scott, was voted the nation’s all-time favourite advert in a 2006 survey, and was resurrected to mark the bakery’s 120th anniversary the same year.
Hovis also owns the Mother’s Pride and Ormo brands and reported pre-tax losses of £4.7m in the year to 28 September 2024, up from £3.6m the year before.
AB’s flagship Kingsmill brand trails big hitters Warburtons and Hovis in terms of both popularity and recognition, and this has contributed to a significant decline in branded sales volumes, the CMA said. As one of only three British suppliers with a nationwide network that delivers bread and other bakery products to shops six days a week, AB has high fixed costs from distribution.
The watchdog said restructuring options were “unlikely to be sufficient to turn the business around”.
ABF welcomed the CMA’s clearance of the deal. It said: “Combining with Hovis enables Allied Bakeries to continue operating and to create a sustainably profitable UK bakeries business over the long term that is better placed to compete and establish a platform for product innovation.
“As the CMA found, demand for packaged, sliced bread has reduced significantly due to changing consumer tastes, and the bread market faces a difficult economic backdrop. However, we believe the market for nutritious, good value staples remains significant.”
