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Declining Bread Sales May Prompt you to Slice your Bakery Shares

By Malcolm Stacey | Monday 13 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Swallowers. The wiser investor pays attention to consumer trends. And to buy shares in a company which is at the mercy of food fashions can be a risky undertaking. We all found this out as the price war among supermarkets began. But here are a few other companies I think might be ‘sells’ because of changes in the most basic type of food we eat.

Associated British Foods (ABF) makes Kingsmill bread. It acknowledges ‘unsustainable losses’ as the cost of baking bread rises. Our lousy Summer hasn’t helped, making wheat more expensive due to short supply. And because of the poorly pound, wheat imports are costing more.

Meanwhile, bread sales are going down. It appears that younger people are more interested in buying takeaway breakfasts than toast. There is also a growing avoidance of gluten, whether justified or not. And a perception that bread adds calories. Plus, the growing craze for wraps, rather than sandwiches. 

Hovis is another baker, about half owned by Premier Foods (PFD), which is also feeling the pinch of the bread situation. It reported a pre-tax loss of £19m in October 2016.

Warburtons is doing a bit better, though sales dropped slightly last time. It is anyway a family-owned company. But how well will bread firms stave off rising costs and easing demand? It may not be worth taking a risk finding out.

But I would not put Greggs (GRG) in my look at bakery shares to be wary of. These shops are springing up everywhere, including housing estates, for a reason. The convenience snacks it sells are very popular. But my local Greggs has, I've noticed, stopped selling as many loaves as it did.

If you have any bread-related shares, I would look at them carefully. When you’re not in the Punter’s Return.

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