Mixed blessings as Hovis strike ends

29-Sep-2013 - Last updated on 01-Oct-2013 at 08:24 GMT

Rumours suggest Premier Foods might sell Hovis: one of its power brands

Premier Foods’ senior management must have had mixed feelings following the agreement reached with the Bakers, Food and & Allied Workers Union (BFAWU) towards the end of last month.

The deal agreed ended several weeks of industrial action at its Hovis plant in Wigan in a dispute over employment conditions and the use of “zero-hours contracts” for third-party workers.

While Premier would have been relieved that it had averted further strikes, it will be seen as a climb-down in some quarters. Critics will feel it puts an obstacle in Premier's attempts to streamline its business and introduce efficiency improvements to cut costs.

Zero hour contracts

Under the terms of the deal, there will be a review of manning levels at the plant and 24 staff, previously employed on zero-hours contracts, have now been taken on full-time. The use of inferior employment terms and conditions for third-party staff will also end.

While Premier will be allowed to continue using agency staff – something that is widespread in the industry to cover peaks in demand – it will first have to offer extra hours to its permanent staff to cover such shortfalls. The Wigan Hovis factory employs 357 people.

Such negative press will not help the firm's image, coming when it at last seemed to be turning the corner under the leadership of its new chief executive Gavin Darby after a very difficult couple of years. Premier's share price and rating among City analysts had been improving as it continued to make inroads in reducing its significant debt mountain by restructuring and selling non-core businesses.

However, there had also been recent speculation that Premier might sell off its Hovis business to concentrate on other areas. This followed the damaging loss of a contract to supply bread to The Co-op and other problems. The Co-op contract was picked up by Premier's competitor Allied Bakeries, which has also stolen the second position of leading bread brand Kingsmill after Warburton's at number one slot, in what was inevitably another blow to Hovis.

While some analysts have questioned the logic of selling off a major source of revenue such as Hovis, given the pension responsibilities it would retain, Premier needed to demonstrate its commitment to streamlining the business further, especially given the huge investment Allied Bakeries is making to improve efficiency.

Closure

Last November Premier announced the closure of two of its bakeries, one in Birmingham and at Greenford in West London with the loss of 900 jobs. This followed the loss of the £75M Co-op own-label bread contract, which took effect this year. Some of this production has been moved to the Wigan site.

The closures came on top of a previous decision to close Premier's bakery in Eastleigh, Hampshire.

At the time former chief executive Michael Clarke said the cuts were critical to secure the bread division's future: “By simplifying our cost base, we can increase focus on improving efficiency, quality and service levels to help grow our core Hovis business.”

Premier took over Hovis as part of its acquisition of RHM in 2006.