On a north London industrial estate, the smell of freshly baked bread cuts through the cold January air outside Warburtons’ bakery. More than 2m loaves are made here each day, from production line to supermarket shelf by 8am each morning, in a process where costs have soared at every stage.
Food prices are still rising at the fastest annual rate since 1977, according to official figures released on Wednesday, and a peek inside this bakery in Enfield shows why.
For the family-owned company, soaring costs for wheat, water and yeast – as well as for powering its gas-fired ovens at 11 UK factories – have led the firm to put up the price of its bestselling loaf by a quarter in only nine months. With inflation at the highest rate in decades, shoppers are feeling the pinch.
“Constantly going back to customers asking for a price increase is bloody hard work,” says Jonathan Warburton, the chair of the company. “It doesn’t enhance the relationship with us, it causes friction.”
Annual costs at the fifth-generation family business, started in a Bolton grocery shop in 1870, have ballooned by £118m in the past year for the several tonnes of flour it needs each week, as well as to keep its ovens fired close to 300C every day of the year except Christmas.
Warburton says he has little choice but to put up his prices, highlighting how sky-high energy costs are rippling through the British economy – from manufacturers to the supermarket shelf – as Russia’s war in Ukraine pumps up global gas prices.
“I think people are understanding about these price rises if you’re clear and straightforward with them about what’s happening. It isn’t my fault that bloody idiot went into Ukraine, quite frankly,” Warburton says.
“Putin doing what he’s doing in eastern Europe, on the back of Covid, is the major trigger. It has sent shock waves through the food industry.”
Across Britain, households are under pressure from the rising cost of the weekly shop, with food and drink inflation at the highest rate since September 1977. It has been especially tough for poorer families, who suffer more from the rising price of basic essentials than wealthy households because they spend a higher proportion of their income on food. Official figures show bread prices have soared by 20.5% in a year, almost twice the 10.5% rate of general inflation.
Even Rishi Sunak has noticed. Challenged to name a food that had gone up most in price during a TV interview while he was still Boris Johnson’s chancellor, he cited the humble loaf and told the BBC his family had a “whole range of breads” at home. The clip went viral amid criticism the now prime minister – with a family fortune of about £730m – was out of touch with ordinary people.
At Warburtons, the baker has increased the shelf price of its 800g Toastie loaf from £1 to £1.25 in only nine months – a move the chair says is entirely driven by higher costs.
“What we’re trying to do is recover our costs. We’re not trying to profit … we’re just trying to stay neutral by ultimately passing it on to the consumer. We can’t carry £118m-worth of extra cost. The business would be bankrupt and there would be 5,000 people out of work.”
Andrew Bailey, the Bank of England governor, has said food is the latest of three major inflationary “shocks” sweeping Britain – after the fallout from the Covid pandemic, and the Russian invasion of Ukraine.
Karen Betts, the chief executive of the Food and Drink Federation, expects the inflation rate for her sector to peak later this year. Even then, the rate of price growth will only slow; prices won’t return to what they were a year ago, meaning pressure will remain on living costs for some time to come.
“Most of our companies have got their heads in their hands. They’re trying to work out how they pay increased bills without passing it on to consumers,” she says.
“It’s going to be a tough year. Clearly it will be a tough year for consumers, and within that for vulnerable households, and for our companies making ends meet in a difficult economic environment.”
Marched through in batches of 10 (the baker’s dozen is long gone in the world of mass production), Warburtons’ vast Enfield factory churns out almost 9,000 loaves of bread an hour. More than four tonnes of flour an hour are drained from the vast silos outside, seven days a week, 364 days a year.
Alongside higher energy costs, the war in Ukraine – known as the breadbasket of Europe – has disrupted the global supply of flour, fertiliser and sunflower oil used in food production the world over. Russia and its neighbour are the first and fifth largest exporters of wheat in the world, accounting for almost a third of exports. Although British bakeries source very little from the region – preferring homegrown supplies and imports from the US and Canada – war hitting such important producers has pushed up prices everywhere.
Warburton says his business is the largest user of Canadian wheat in Europe, preferring to mix the premium crop grown on the prairies of North America with English produce. It’s a big contributor to his higher costs, with reduced supply pushing prices up globally.
“It affects the world market. You’re just affected by that. And you buy in US dollars and we do our best to forward cover and smooth it out,” he says.
The baker says a higher wage bill to pay for the company’s 5,000-strong workforce pales in comparison with the 85% increase in gas and electricity bills. In addition to the vast steel ovens he needs to heat, Warburtons has been hit by rising diesel prices to ensure its 1,200 trucks can maintain daily bread deliveries.
The cost pressures facing the company come after a period when bread prices had generally been falling for the past decade, thanks to overcapacity in the industry and red-hot competition among supermarkets. Warburton says the price of a Toastie remains good value, compared with a cup of coffee and other everyday staples.
Still, with Britain’s economy facing a potentially prolonged recession this year, and consumers expected to sharply rein in their spending, he is hoping there are no more cost increases waiting round the corner.
Barring, he says, any further black swan moments. The term is used in economics to describe events that are, like the bird not known in the west until the discovery of Australia, unpredictable or unforeseen.
“There can be external shocks. And you know how many black swan events there have been in the last three years? I thought you only had one every 25 years. But there’s a whole flock of swans at the moment.”
