A big unknown in cereal

By Nicholas Robinson

- Last updated on GMT

Hines is predicting own-label market growth
Hines is predicting own-label market growth

Related tags Breakfast Cereal Wheat

Own-label manufacturers are secretive. But John Hiles is ready to rip open the box of the cereal business he heads, Nicholas Robinson reports

Key points

It’s one of the biggest names in cereal manufacture you’re unlikely to have heard of, yet Bokomo Foods has products on the shelves of almost all UK supermarkets, including those currently at war with each other.

The price war, in fact, is one of the reasons the £34M turnover company has seen its sales rise by 20–30% year-on-year since 2012, its chief executive John Hiles says at the firm’s Peterborough factory.

The site is one of two UK facilities owned by Bokomo Foods, which produce enough to provide 250,000 bowls of own-label breakfast cereal a day. The second facility is in Wellingborough, Northamptonshire. Each of the sites produces 20,000t of cereal a year.

Bokomo Foods, which is owned by Pioneer Foods, is well known in its home country of South Africa, where it started as a wheat cooperative more than 80 years ago. Globally, Bokomo Foods is worth more than £1.17bn and produces branded and own-label products for South Africa and export.

Retail price war (Return to top)

In the UK, it produces own-label porridge, muesli, granola, multi-grain flakes and bran flakes for the domestic market, as well as some for export to Europe. Bokomo Foods is also one of only three wheat biscuit producers in the world (including Weetabix), Hiles claims.

Hiles, who also calls South Africa home, started the UK arm of the firm more than a decade ago, but had planned to stay for only five years. During its relatively short existence in this country, the firm has secured contracts to supply own-label cereal products to nearly 20 retailers and foodservice operators, including the big four, plus Aldi, Lidl and Marks & Spencer.

The price war that has been troublesome for many food businesses, in terms of pricing pressures, has provided a boost for Bokomo Foods, Hiles claims. “The landscape has changed, definitely. With the likes of Aldi and Lidl coming to the marketplace, as big as they have grown and taken share from the bigger retailers, it’s put a lot of pressure on some suppliers.

“However, the fact that we are supplying the discounters as well as the other retailers has definitely helped us.”

Aldi’s and Lidl’s market shares continue to increase and rose to 5.3% and 3.7% respectively last month (April), according to Kantar Worldpanel. In response, the big four have sought to reduce the number of stock keeping units (SKUs) and brands on their shelves.

Consumers (Return to top)

Cash-strapped consumers, too, have played a big part in changing the retail landscape. Recent research from Nielsen found that 60% of consumers asked believed most own-label brands were as good as branded products.

Premium own-label brands, such as Tesco Finest, have increased in popularity and grown in sales by 5.2% in the 12 months to June 21 2014. Nearly half (44%) of consumers asked said they would pay the same price for an own-brand equivalent of a branded product, Nielsen added.

“If you look, branded products are in value and volume decline,”​ explains Hiles. “There has undoubtedly been an increase in own-label and in my opinion, supermarkets will continue to bring in more own-label products in response.”

One tactic used by supermarkets to attract more consumers to their own-label offering is to produce products that look like branded ones, Hiles admits. Aldi’s ‘no-frills’ ad campaign that compares brands with its own-label products is one example.

Hiles points to a muesli product Bokomo Foods manufactures for the Tesco Finest range and agrees its packaging is similar to another well-known brand (Dorset Cereals). “Everybody tries to have their unique selling points,” ​he says.

“Dorset Cereals had great success when they launched that design. Everybody has since looked at their success and tried to follow it.”

But, problems can arise from such tactics, he warns. Branded products tend to be priced higher than own-label because they are usually premium. The price of own-label products is generally lower than branded and their quality can reflect that, depending on the range.

“There needs to be a balance between the quality of products and the design, while still being price competitive,”​ he adds. “You need to achieve that so consumers aren’t disappointed.”

Although Bokomo Foods focuses on supplying own-label to the retailers, Hiles doubts the retailers will ditch brands altogether. He does, however, anticipate more own-label focus from supermarkets in the future. “You can’t push the branded producers out while you grow your own-label offering,” ​he says. “Branded products still have a place but, in my opinion, own-label is going to grow further and I would like to think we're in the perfect position for that growth.”

Yet, surely, working so closely with the retailers during a price war must have its drawbacks, as supermarkets put pressure on all suppliers to reduce costs? Hiles responds that none of Bokomo’s customers are causing him any concern at the moment.

Groceries Code Adjudicator (Return to top)

But, if he did have any problems, would he go to the Groceries Code Adjudicator (GCA) Christine Tacon for help? In short, the answer is no. As an own-label producer, many might consider it unwise for Bokomo to go to the GCA. And Hiles admits it would be something he did only as a last resort.

“It must be serious for me to act on something because the majority of my turnover comes from retailers and I personally think​ [most of the issues brought to the GCA] will be brand-led anyway, because they have more sway.”

Like the whole industry, Hiles is also awaiting the outcome of Tacon’s current investigation into Tesco, following evidence from three major sources about delayed payments, he adds.

While he won’t say whether or not late payments are an issue for his business or even if they are rife in the sector, he does believe Tacon’s powers should be extended to the whole of the food and drink supply chain. Such a move would likely prevent large businesses from taking advantage of smaller ones, Hiles claims.

Pressure from the supermarkets isn't the only threat to the sector at the moment either. A dramatic decline in cereal sales, which slumped by 4.9% to £1.5bn last year, with volumes also down 5.4%, according to Food Manufacture’s sister title The Grocer, is also a problem, he agrees.

Despite overall category sales falling, Bokomo’s UK business has remained strong and Hiles is planning for further growth in the future.

No simple solution (Return to top)

There’s no simple solution to boosting sales, he admits, and outlines time-strapped consumers as the main reason for the decline in boxed cereal sales.

In response, Bokomo Foods UK introduced its first branded product – an on-the-go wheat biscuit breakfast cereal called Perfekt For. It comprises two wheat products in a re-sealable plastic pot that’s ready for milk to be added and is targetted at busy consumers. The brand was launched in 388 Tesco stores in September last year as part of an exclusive deal with the retailer, which ended in February this year. Hiles won’t reveal how well the brand’s launch went, but says: “We are satisfied with the sales if compared to, for example, porridge pot sales.

“We had a very small marketing budget for it and it was on the bottom shelf in Tesco and, in some cases, it had only a single facing. But it has performed exceptionally well, if you compare the sales to some of the other leading brands.”

Despite the success claimed for Perfekt For, there are no immediate plans to introduce other Bokomo Foods brands to the UK market, he says. Instead, the company will focus on getting Perfekt For into other supermarkets, as Hiles believes the concept is a good one.

Hiles also hopes Perfekt For will raise Bokomo Foods's profile among UK consumers. But, any future success will hinge on consumer purchasing behaviour, especially as the breakfast biscuit market continues to overshadow boxed cereals. In 2014, sales of breakfast biscuits were worth £91.4M and are expected to rise further, according to data from Nielsen.

Hiles refuses to reveal whether or not Bokomo has plans to pursue other parts of the on-the-go breakfast market, such as biscuits. “There are no major investment plans for the UK arm of the company anytime soon,” ​is all he will say.

“The breakfast cereal market here is fierce and if you’re not competitive, then you’re going to have problems,” ​he adds. “We’re one of the biggest names in the sector and I want to see us sustain the 20–30% growth a year we’ve become used to over the years.”

Listen to our podcast​ to hear Hiles explain why the cereal sector must work harder to produce more on-the-go products.

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