Kingsmill and Hovis set for merger talks amid processed foods backlash

Associated British Foods (ABF), the owner of Kingsmill, has confirmed it is exploring a potential merger between Allied Bakeries, its bread business, and Hovis, which is currently owned by the private equity firm Endless. The move comes as the baking industry faces significant challenges, including changing consumer habits and rising manufacturing costs.

A merger between these two major brands would create a combined market share of 40 per cent, according to analysts at Shore Capital. This level of concentration is expected to draw scrutiny from the Competition and Markets Authority (CMA), which has been known to block deals impacting key consumer staples. In a statement, ABF said it was evaluating its options for Allied Bakeries as part of a broader strategy to create long-term shareholder value.

Founded in 1934, Allied Bakeries produces bread under brands including Allinson’s and Sunblest, supplying across the UK. Hovis, a venerable name in the industry dating back to 1890, was acquired by Endless in 2020 after previously being part of the Premier Foods group. Both companies have faced significant challenges in recent years, particularly due to energy-intensive production processes that have become more expensive following the Ukraine conflict.

The broader bread industry has been struggling to cope with evolving consumer preferences. A growing interest in low-carb diets, greater awareness of gluten allergies and scepticism around ultra-processed foods, including white bread made via the Chorleywood process, have reduced demand. While Kingsmill and Hovis remain household names, Allied Bakeries has been described by analysts as a “problem child” for ABF, which reported operating losses of approximately £30 million annually in its bread division.

Efforts to consolidate bread manufacturing may be seen as a logical step for ABF, a group spanning sectors such as retail, groceries and agriculture and operating in 50 countries. However, the merger could face hurdles if regulators believe a deal would reduce competition and lead to price increases for consumers. Notably, the CMA recently required French firm Cérélia to divest British frozen pastry maker Jus-Rol due to similar concerns.

With consumer behaviour shifting and costs escalating, the proposed merger represents a critical junction for ABF and Hovis. Observers will be closely watching to see how the CMA responds and whether the creation of a larger player in the bread market will ultimately benefit or harm consumers.