Associated British Foods has reported lower half-year sales from its UK bread arm but said it will again look to up prices on the division’s products amid pressure on ingredient costs.

The company said Allied Bakeries – the UK bread business behind brands including Kingsmill and Allinson’s – has had a difficult year as a result of the termination of a major contract with grocer The Co-op and ongoing inflationary pressures.

In the 24-week period ending 5 March, Associated British Foods (ABF) saw sales from its grocery division increase by 2% to GBP1.82bn (US$2.31bn). The division, which houses Allied Bakeries, as well as other food businesses in the UK, North America and Australia, reported a 9% fall in adjusted operating profit to GBP175m.

ABF said it had had to introduce price increases on its food products as inflationary pressures kicked in, a trend keenly felt in its UK bakery business.

CEO George Weston said: “It’s hard to think of a product more impacted by inflation than bread.

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“[A] Kingsmill [loaf] has already gone from about GBP0.85 to GBP1.10 but we will have to move prices again as a result of Russia’s invasion of Ukraine.”

In the commentary linked to its results, ABF said Allied Bakeries’ sales were “well below” the same period last year.

Weston admitted losing the contract with The Co-op has had a big impact on Allied Bakeries.

“Revenue and volumes are well down as a result of losing the Co-op contract,” he said.

Weston added: “Bread is always a tough world and this half-year it has been particularly difficult.”

Allied Bakeries’ contract with The Co-op ended in April last year. London-listed ABF said in a stock-exchange announcement back in 2020 that “Co-op has always been one of our more challenging accounts in terms of cost to serve with deliveries to thousands of stores which are widespread across the UK” and that it could not agree a way forward that made financial sense.

Writing today, after ABF’s results were released, analyst Clive Black, director and head of research at Shore Capital said: “Allied Bakeries remains something of a notable problem child.”

The latest market research from Kantar, also published today, reveals UK shoppers are seeking out value as grocery inflation in the country hits an 11-year high.

Overall, UK supermarket sales fell by 5.9% year-on-year during the 12 weeks to 17 April 2022, as the market lapped the lockdown period of early 2021.

However, bucking the trend were discounters Aldi and Lidl. Aldi’s sales increased by 4.2% over the 12 weeks to 17 April, followed closely by Lidl, which saw sales up 4%.

Fraser McKevitt, head of retail and consumer insight at Kantar, said: “We’re seeing a clear flight to value as shoppers watch their pennies. The level of products bought on promotion, currently at 27.3%, has decreased 2.7 percentage points as everyday low price strategies come to the fore.”

Weston hinted at the difficulty of negotiating price increases with retailers against such a backdrop.

“Retailers around the world are doing what they do best, defending the interests of their consumers,” he said.