Speaking to FoodManufacture.co.uk after unveiling a 7% rise in pre-tax profit to £5.4m on sales down 5.9% to £168.3m in the year to July 3, chief executive John Duffy (pictured) said shoppers had become bored as retailers focused on driving value lines and boosting promotional volumes.
“When the recession started to bite, the retailers were very quick to reposition categories with a renewed focus on value, limited innovation at the top end of the category and they upped the ante in terms of promotional spend. But it hasn’t delivered growth to the market and consumers are getting bored with it in my view.
“We responded well to the downturn but we’ve got to respond to the upturn as well. We’ve launched a few new products recently in premium own-label and the fact that they have done quite well should also help make the case that we have to excite customers again.”
While Finsbury was starting to have more conversations with customers about innovation, however, rising input costs and weak retail pricing made it difficult to make progress, he acknowledged.
Cake sales were down 9.7% during the year driven by the decline in the overall cake market, the decision to exit low-margin contracts and Finsbury’s general bias towards premium and healthier products, which had been hit particularly hard in the downturn, he added.
Sales of WeightWatchers dipped 11%, but this was still better than the overall low fat cake market, which was down 13.4% in value, he claimed, while some new WeightWatchers products hitting shelves in the second half should help arrest the decline.
But there was good news from the Thorntons brand, which had seen growth of 15.2% year on year at retail level, he said. “This represents significant out-performance of the rest of the premium cake market.” Meanwhile, the celebration cake range was also showing strong year-on-year growth.
Genius: ‘Hell of an achievement’
But the strongest performance was in bread and free from, which was up 9.3% driven by strong growth from the Genius fresh gluten free brand, which was now worth £10m at retail level, just over a year after launch, with a series of brand extensions now in the pipeline, he said. “It’s a hell of an achievement.”
Rising input costs
Finsbury aimed to pass on increased costs to its customers “as far as is reasonable in the circumstances” said Duffy, while its buying team would ”consider long-term contracts where appropriate to reduce uncertainty in input prices”.
Meanwhile, some value engineering - notably through replacing butter with cheaper alternatives in some areas - was being employed to keep costs down: “Regular renovation and innovation in our product range can help to manage margin pressures in an effective manner as far as the competitive environment allows.”
Finsbury had also “put a huge amount of work and effort into category management, determining what goes where on a supermarket bakery shelf”, he said.
“This recession will end eventually. When our major customers decide it is time to lead consumers into a new era, our job is to be there, working alongside them to ensure our products are given the prominence they deserve.”
Chairman Martin Lightbody admitted that it had been a bit of an annus horribilis for Finsbury: “Although profits are up, the reality is that sales are down for the first time in our history. Our largest market in cakes has been heavily discounted, creating the need to revise our own pricing structures.
“In addition to the difficulty of implementing price rises under current market conditions, we have also had to cope with increased prices of raw materials in some areas.”
However, the firm had the full support of its bank, was keeping operating costs down and launching a “regular stream of new products” to ensure that when the economic climate improved, it would be well-placed to cash in, he said.
“The economic tide will turn in due course and we are continuing to do all the right things to prepare ourselves for a more positive trading environment.”