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One of the staple products in most shopping baskets each week is bread. Something interesting is happening to bread. It might be thought that there are not many ways in which bread can be differentiated and at one time, it was assumed in the market that consumers would not pay decent prices for a loaf. However, it now seems that sentiment is changing.
The bread market is really split into four main categories: there are the local bakeries that still exist; the supermarket in-store bakeries; then the nationwide bakers such as Hovis, Kingsmill and Warburtons. Hovis and Kingsmill are owned by British Bakeries Ltd and Allied Bakeries respectively but Warburtons has remained a family-run business.
The smell of freshly baked bread and access to fresh bread used to be seen as being a reason to charge customers a premium price. Now that view is changing and bread baked by large national bakeries is commanding higher prices. Does this contradict the normal rules of the market? Copyright: Robert Tostes, from stock.xchng.
The price of bread did not change very much over the past 15 years. The price for a standard loaf stayed within the 40-60p range for much of the 1990s but since 2003, the price of bread in the supermarkets has started to rise. Part of the reason has been the rise in the cost of raw materials but there has also been another, more unusual, reason.
Data source: Office for National Statistics (ONS)
Warburtons has its main bakery in Bolton in Lancashire. The company has been around for 130 years but is a relative newcomer in the national bread market. The company has risen to become the top baker in the UK; it is also, according to consumer ratings company AC Nielsen, the UK's second most valuable grocery brand, second only to Coca-Cola, no less.
One of the reasons for this rise has been an aggressive expansion policy and also a willingness to raise price. The law of demand states that if you increase price quantity, demand would fall. In Warburtons' case, this does not seem to have happened. Sales of its seeded batch loaf have increased and have changed the nature of the market.
The humble white sliced loaf - not an inferior good anymore? Copyright: Yucel Tellici, from stock.xchng.
On the one hand, you have the freshness provided by the in-store and local bakeries; on the other, the shelf-life provided by the wrapped national bakers. It might be assumed that the fresh product is the superior good and the wrapped the inferior good. Indeed, you might expect to find that prices for the fresh bread would be higher than the wrapped. However, in Warburtons' case, that is not what is happening: Warburtons have a product which is generally much higher priced than the fresh product. In many cases, its seeded batch will retail at around £1.40 a loaf. Despite the relatively high price, the product is selling.
What Warburtons think they have is a product that provides value for money. Not only does it have shelf life but it seems to have captured the imagination of the shopper. There is now an array of different types of pre-packed bread available, including sunflower and multigrain, wholegrain and cranberry, organic, malted grain, wholemeal, soya and linseed etc. Consumers are now buying bread on the basis of these different types rather than the bog-standard thin sliced white loaf, which can still be had for around 20p in some supermarkets. How do Warburtons compete against such prices and why has their high priced product proved so successful?
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