Tomkins loses pounds 50m in bread price battle: Supermarkets charge less than a third of recommended price to lure shoppers (CORRECTED)

CORRECTION (PUBLISHED 13 JULY 1994) APPENDED TO THIS ARTICLE

SAVAGE discounting of the price of bread has cost British retailers pounds 50m in lost profits, according to Tomkins, the industrial conglomerate headed by Greg Hutchings, which owns the bread maker Ranks Hovis McDougall.

Supermarkets, particularly discount chains, are using basic white sliced bread as a loss-leader to entice shoppers into their stores, with some selling at prices as low as 26p. That is less than a third of Tomkins' recommended retail price of 80p and up to 20p below the price two or three years ago.

Antony Spiro, Tomkins' corporate affairs director, said the group was refusing to share the cost of that discounting with the retailers. He estimates that the price-cutting has cost them pounds 50m in profits so far. He added that the aggressive price discounting had not expanded the market.

The fiercely competitive food market has meant that Tomkins shares have been out of favour since it bought RHM for pounds 953m in December 1992, and its shares have lagged the market by about 15 per cent. Yesterday, however, it demonstrated the benefits of the acquisition with a 50 per cent jump in pre-tax profits to pounds 171m in the year to April on sales 57.6 per cent ahead at pounds 3.2bn.

The rise was fuelled by a pounds 102.5m contribution from RHM - more than three times the pounds 29.8m it made in the 21 weeks under Tomkins' ownership the previous year - as the group began a rationalisation programme. The group cut 2,300 jobs from the old RHM business last year and more redundancies are likely this year.

Ian Duncan, Tomkins' finance director, said the increase in profits, about 38 per cent on a calendar-year basis, was due to cost-cutting and rationalisation.

Margins in the food business rose from 4.5 to 6.3 per cent, but Mr Duncan said there was still room for improvement in margins and return on capital.

Manor Bakeries, which makes Mr Kipling and Cadbury cakes, had been disappointing, but management had been changed and new products introduced.

Other businesses lifted profits by 13 per cent to pounds 130.6m. Star performance came from the industrial products division, which supplies doors and windows for recreational vehicles, patio doors and bathroom products and increased profits from pounds 36.9m to pounds 48.1m.

The group ended the year with pounds 156m cash, up pounds 35m, despite the pounds 100m cost of Noma Industries, a snow plough manufacturer. That made a small loss in the eight weeks of ownership. But Mr Duncan said it gave the group extra manufacturing for mowers near its existing Murray Ohio operation, which was nearing capacity.

Earnings per share were 15.12p, up 14 per cent, and the final dividend is 5.3p (4.545p), giving a total of 7.38p, up 16 per cent. The shares gained 0.5p to 218p.

CORRECTION

Food retailers have lost pounds 50m because of price wars in the bread market, not Tomkins as stated in yesterday's edition.

(Photograph omitted)

View from City Road, this page