A potential fuel surcharge may soon be added to the popular bread brand Kingsmill due to the impact of the Iran conflict, as per information obtained by the Mirror. Allied Bakeries, the manufacturer of Kingsmill, is currently engaging in initial discussions with various retailers regarding the potential implementation of this levy.
The proposed surcharge, estimated to be under 5p per loaf, aims to offset the heightened energy expenses incurred during the production and transportation of bread to retail outlets. Retailers will have the discretion to decide whether to pass this additional cost on to consumers. Presently, a standard 800g loaf of Kingsmill 50/50 medium soft white bread is priced at £1.05.
The ongoing conflict in Iran has triggered an energy crisis, posing a risk of increased costs for energy-dependent businesses and industries relying on fertilizers, including food production. George Weston, the CEO of Associated British Foods, the parent company of Allied Bakeries, mentioned that their current hedging strategies have shielded them from significant impacts so far. However, continued high oil prices could alter this situation. Allied Bakeries also produces Allinson’s and Sunblest bread.
Weston highlighted that their bakery operations in Australia, specifically manufacturing Tip Top bread, lack the same hedging protection against energy price fluctuations. Consequently, a fuel surcharge has been introduced for bread products in Australia due to this vulnerability.
Farmers have reported notable disruptions in fertilizer availability and costs due to Iran’s blockade of the Strait of Hormuz. If this situation persists, it could lead to escalated expenses for autumn-planted crops.
Although fuel surcharges are commonly associated with airlines, several businesses in Australia have already implemented similar levies to counteract the surge in fuel prices following the Iran conflict. Unlike regular price increases, a surcharge targets a specific cost and can be removed once the associated expenses decrease.
In addition to Allied Bakeries, other Australian businesses, such as the Sydney Fish Market, have introduced fuel surcharges to compensate for increased operational costs. Similarly, a hospitality trade body in Australia has advised restaurants and cafes to incorporate a 5% surcharge.
While ABF also owns the budget fashion retailer Primark, plans are in place to separate it as an independent FTSE 100 entity. Weston emphasized the need to manage the ramifications of the Middle East conflict to prevent any adverse effects on Primark’s sales amid potential consumer spending downturns.
The Food and Drink Federation has cautioned that the cost escalations resulting from the Middle East conflict could take several months to impact retail prices. They have projected a potential surge in food price inflation to 9% or 10% by Christmas, even if the conflict were to cease immediately.
The FDF urges the government to provide urgent assistance to energy-intensive sectors to mitigate rising expenses and prevent possible business closures. Karen Betts, the FDF’s chief executive, stressed the pervasive influence of energy costs across the food supply chain and advocated for prompt regulatory adjustments to curb inflation before it permeates pricing structures.