The future is bright for small, niche players and multinational branded powerhouses, but life is becoming increasingly tough for own-label manufacturers caught inbetween, according to a government study into wealth creation.
The research, conducted by the Department of Trade and Industry (DTI), calculated companies' wealth creation or 'value added' by subtracting their costs for goods, components and services from sales.
The survey's measurement of wealth creation efficiency (value added divided by employee costs and depreciation) highlights a number of under-performing own-label specialists, said a DTI senior industrialist, Dr Mike Tubbs.
He said: "The UK food sector average is 157% and a figure of 100% or less effectively means you are loss making. So with Northern Foods at 116%, Grampian at 110%, Geest at 115% and Uniq at 109%, they are sailing dangerously close to the edge."
The figures also showed a slight decrease in spending on research and development as a percentage of value added, down from 15.7% last year to 14% this year.
The study was published as Geest and Uniq, two of the UK's leading own-label manufacturers, admitted that an "unprecedented" focus on price by retailers had severely dented their fortunes.
Panmure Gordon analyst Justin Scarborough said: "These companies used to have double digit operating margins. Not any more. Their return on capital is also pretty lousy and they seem to have been continually restructuring. The problem is that retailers just use it as leverage. They say: 'You've saved this much, we want a share of it'."
Numis analyst Andrew Saunders added: "The fresh prepared food market is mature now. Where we were seeing 15-20% growth in the mid-90s, now it's more like 6% by value and 8% by volume. They are all looking to claw back some margin through innovation, but it's proving extremely tough."
He said Cranswick and Northern Foods may attract takeover bids, if Geest leaves the London stock market as expected.
Geest's board has backed a £485m takeover offer by Icelandic investor Bakkavör and Uniq has parted company with its chief executive Bill Ronald, admitting its pan-European strategy was not delivering.