On the money: Premier can "contain" commodity-cost hike
Premier Foods Robert Schofield said We will move out of what has largely been a year of deflationary commodity pricing into an inflationary one"
Premier Foods plc chief executive Robert Schofield today (28 October) insisted the UK's largest food group can "contain" the jump in wheat prices seen this year.
Droughts in Russia and the Ukraine have pushed up the cost of wheat in recent months and the Hovis bread maker is pushing through price increases on its products to absorb its raw-material bill.
"We will move out of what has largely been a year of deflationary commodity pricing into an inflationary one," Schofield said, adding that Premier is "making its plans on that basis".
Premier had some 11 of its Hovis products delisted by Tesco recently as it pushed up the prices on its bread products to reflect higher wheat prices.
Schofield played down the impact of that delisting. "We have had some delisted lines, and we are talking to Tesco to resolve that. I don't think this will be a long term situation. And by the way, in most periods, i.e. most months somewhere in our categories, we are having discussions of this nature, given that we're across 15 categories," he said.
Higher wheat prices have also filtered through in Premier's other products, with its flour and cake ranges being repriced.
However, Premier said its own-label chilled ready meal business Brookes Avana had experienced a reduction in short-term margins as much of its business is with one customer and the contract cannot be renegotiated for a few months, Schofield said. "In that time, we've got escalating costs, and we have to wait a number of months before we can rebalance that contract," he added.
The company painted a bleak picture for the rest of the year, saying that "category market trends, promotional intensity and commodity cost inflation have all continued to worsen".
Despite the gloomy outlook, Schofield said he still expects to "make progress" in trading profit for the full year, but that the results would depend largely on the company's performance over the Christmas period, which accounts for some 30% of the manufacturer's sales.
Described the 3.2% volume decline Premier reported for the quarter, Schofield said he "hasn't seen anything of this nature" since 2007, but that early numbers for the company's fourth quarter are showing improvements and are largely flat against the same period last year.
Outlining the company's aspirations for the Christmas period, the Premier boss said: "We're not looking for a fantastic Christmas, we're looking for a standardised type Christmas approach, with around a 1% volume growth."
While increased promotional pressures was one of the causes cited for the lacklustre results, Schofield said that it had good visibility of Christmas promotional levels, as they were agreed with retailers in May this year. Speaking about promotions at Christmas, he said: "We have a known entity in this regard."
However, looking further into 2011, he said he "can't say what's going to happen in 2011" as he "can't see how things are going to get better for consumers", so the promotional landscape is likely to continue to remain competitive.
Speaking about the possibility of selling its meat-free business, which includes the Quorn brand, Premier said it is in negotiations with a "number of parties" and that discussions are continuing.
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