Baker using its loaf as profits are sliced

Even bread is feeling the pinch in this slump but family-owned giant Warburtons is fighting back

Before the financial crisis changed the habits of a lifetime, it was quite common for families to throw away the last four or five slices of a loaf, a practice that was bad for the environment but good for bakers.

For most bread eaters, those days are long gone. As the recession has squeezed household budgets, consumers are increasingly freezing loaves and taking out slices as they need them, while stale crusts are being resurrected by the toaster.

But changing attitudes to bread freezing and wastage are only the latest in a series of challenges for a British baking industry which has been hit hard in recent years, according to Jonathan Warburton.

As chairman of Britain's biggest baker, the 136-year-old, family-owned Warburtons in Bolton, he should know. Churning out about 800 million wrapped loaves, wraps, crumpets, pancakes and bread rolls a year, Warburtons accounts for more than a fifth of the UK bakery market.

"The good, old-fashioned, standard sliced white and brown loaves that we grew up with are definitely in decline," said 55-year-old Mr Warburton, who took over running the company with his cousins, Ross and Brett, on same day as their three fathers retired in 1991.

Since then, the trio have expanded the bakery from its North-west roots, opening sites from Scotland to Bristol, and jettisoned peripheral businesses such as a jewellers, a car number-plate maker, fish farm and a share in a health club in Boston, Massachusetts.

"There has been a proliferation of stuff to eat [in the bakery arena] – 20 years ago, you could have a sandwich, or a sandwich or a sandwich. Now, you can get a slice of pizza, a wide choice of cakes – muffins, nutribars, muesli bars. Pret A Manger is a terrific business – look at the variety on offer there – and then you've got Starbucks and the other coffee chains," Mr Warburton said.

Rising energy and wheat costs and mounting health concerns over carbohydrates, preservatives and processed food in general have also taken their toll, he added.

And then there is the growing, but still very niche, market for "artisanal" loaves, which Mr Warburton portrays as a microcosm of Britain's snobbery towards large-scale manufacturing.

"It's the classic British psyche – mass is bad. But that's just not true. You don't get the same reaction in parts of Europe where they are very proud of their manufacturing industries," said Mr Warburton, who cut his teeth at the family business as a van boy, getting up at 4am to help deliver bread throughout Lancashire.

He went on to work for Unilever as a sales rep, selling cooking oil to cash-and-carries and chip shops in south-east London before returning full time to Warburtons at 23.

"We look down our noses at mass production. But I think getting our hands dirty is a bloody good thing. There is definitely a place for Lizzie Smith's organic bakery, charging £3 or £4 for an organic, handwrapped loaf, and personally I would always stop at a bakery and buy artisan bread when I'm travelling. But artisan bakers can't make 14.5 million loaves a week, at a very good price, like we do and most people can't afford them," he said.

"We've both got our place in society, but one knocking the other is incredibly counterproductive," he added. "I'd like to see the science that supported the notion that artisanal loaves are better for you."

So, one way or another, Warburtons is up against it, a point underlined when the group recently revealed profits fell by 38 per cent to £16.3m in the year to 24 September. The group suffered, in part, because it was unable to pass on much of the higher wheat and energy costs to consumers, whose loaf consumption was hit by the recession and changing attitudes to bread.

But the company, which has had decades of unbroken family ownership since being set up in a grocery store in 1876 opposite its present-day headquarters, has a plan and is confident it will work.

"Even though the waters are very choppy, we are in good nick. Being a family-run business gives us the willingness and ability to take longer-term decisions and enables us to weather difficult market conditions, an advantage that is particularly poignant at the moment," Mr Warburton said.

Because the company doesn't have to satisfy short-term, shareholder demands to maximise profits, it is investing heavily in its future, even though the extra spending dragged its profits down last year. Over the past 18 months Warburtons has been diversifying in a number of ways.

First, it has launched a range of "sandwich alternatives" such as "thins" (lean, low-calorie slices), pittas and wraps, to satisfy the growing demand for low-carb meals. Second, the company has introduced a range of snacks, such as pitta chips and third, it is now selling gluten-free products through retailers and pharmacies. Finally, Warburtons has started exporting to France and central Europe, where longer working hours are shifting markets which were traditionally dominated by freshly baked bread towards the company's longer-lasting wrapped loaves.

While it can be extremely handy when it comes to investing for the future, the path of family ownership is not always paved with roses.

"It never leaves you and you can't check out when you go on holiday," said Mr Warburton.

There is also considerable danger that family firms can create friction and laziness.

"A lot spend too much time arguing among themselves rather than running the business. We learned from our fathers very early that you have to get on. It was drummed into us that we have a privilege and it needs looking after.

"A lot of family businesses think the business is there for the lifestyle. The lifestyle comes from running a bloody good business. The business isn't meant to serve you, you are meant to serve it," he said.

Succession, too, can be a thorny issue and it's essential to get it right. Jonathan and his cousins are fifth generation. But they are adamant that the running of the business won't automatically go to the younger family members, much as they would like it to.

"Six of the next generation are around 17 to 20 and all are expected to spend a period of time working at the company because they have a responsibility to understand the business as shareholders even if they don't end up working here," said Mr Warburton, who has three sons and a daughter.

"Realistically it will be seven or eight years before we know who is right to run the business in the next generation. Clearly it makes a difference if one or two can be family members, but with our shareholder hats on we want the best people," he said.

Warburtons is now Britain's second-biggest grocery brand, behind Coca-Cola, with annual sales of £495m and 5,000 staff employed in 12 bakeries and 13 depots across Britain.

But even Warburtons, with its hefty cash reserves, isn't immune from the double-dip recession. Last year, it decided to close a bakery in Oldham to reduce costs, leading to 73 job losses.

However, while any redundancies are unpleasant, they might have been far worse at a public company.

"We are not running a charity, it is still a business. But there would probably have been a lot more redundancies if this wasn't a family business," said Mr Warburton.

European market: Traditions in retreat

Bread consumption is not only changing in the UK. Lifestyle changes are also affecting it on the Continent, albeit in a different way, creating opportunities for Warburtons to sell its loaves over there, according to Damian Ghee, the group's new business development director.

In contrast to Britain, where about 80 per cent of the bread people eat is wrapped, with a shelf life of about four days, most of the loaves consumed on the Continent have been freshly baked to be wolfed down that day.

But this is changing. "Longer working hours mean more and more Europeans are buying food less often and in greater quantities, increasingly from hypermarkets. So there has been a decline in fresh bread sales and growth in wrapped products over there," says Mr Ghee.

"Even in France, there is a decline in the number of boulangeries, which make fresh baguettes that last four hours," he adds.

These changes have opened up a market in Europe for wrapped breads such as Warburtons, but with a modification.

Traditionally, Warburtons' loaves have had a four-day shelf-life, which means there isn't enough time to get them to Europe. But Europeans typically demand a 12-day shelf life because they tend to keep wrapped loaves in the cupboard as a reserve option for when they can't make it to the local bakery.

And so the loaves Warburtons supplies to France, the Czech Republic, Poland, Slovakia and Hungary have a few extra preservatives injected into them, giving them a 19-day shelf-life and giving the baker a week to wrap, transport and distribute them to Europe.

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