The Competition and Markets Authority (CMA) has cleared Associated British Foods plc's (ABF) £170m acquisition of Hovis Group Limited, paving the way for a significant consolidation in the UK bakery sector. This Phase 2 investigation was triggered by concerns over reduced competition in an industry grappling with declining demand and rising costs.
At the heart of the CMA's inquiry were the market dynamics between ABF, owner of the prominent Kingsmill brand, and Hovis, both major suppliers to supermarkets across the UK. The sector's challenges are stark: bread consumption has declined by 12% over the past five years, with 2022 data showing sales of just £4.6bn in the UK bakery market.
Investigation findings revealed that ABF's UK bakery business, Allied Bakeries, has incurred significant losses – £234m over the past 14 years – due to a perfect storm of factors: declining bread demand, increased private-label production by retailers, and higher costs for essentials like energy, wheat, and distribution.
After a thorough review, including two public consultations, the CMA's independent inquiry group concluded that Allied Bakeries would likely exit the market entirely in the absence of the merger. This outcome would remove competitive pressure from ABF, regardless of the acquisition. Consequently, the CMA has determined that the deal does not raise competition concerns.
Cyrus Mehta, Chair of the independent inquiry group, highlighted the significance of their rigorous assessment: 'Bread is a staple for millions; understanding the competition implications for UK households is crucial. Our decision reflects the challenging circumstances facing many bakeries in the UK.'