Northern: 2008 a challenge

Northern Foods chief executive Stefan Barden has admitted that 2008 will be a challenge for manufacturers, with rising commodity costs an ongoing issue and medium-value products being squeezed hard.

Barden told Food Manufacture​: “Commodity inflation in food will continue and manufacturers will pass this through to retailers and the consumer.” However, he noted that pressure on smaller companies would continue the slow consolidation of the food manufacturing sector.

“Premium and value sectors will grow to the detriment of products in the middle of the market,” he added.

In a trading update last week Britain’s biggest food group Premier Foods reported that while its cakes business had performed well over Christmas, results from its core business had been “disappointing”. Although its branded sales grew by about 3% in the second half of the year, its retailer own-label sales declined by 8%.

Premier’s results were affected by “significant cost pressures”, particularly through soaring wheat prices, but also through rising dairy, fruit, vegetable and packaging costs.

While manufacturers’ were able to pass on a proportion of their increased input costs to their customers and consumers in 2007, it is unlikely this will continue. This is because retailers such as Asda and Sainsbury will find themselves battling even more aggressively with market leader Tesco as the financial screw turns on hard-pressed consumers during 2008.

Sainsbury’s chief executive Justin King reportedly said, following the release of its Christmas trading update last week, the supermarket chain would maintain pressure on suppliers to keep prices down.

Cost cutting will therefore continue to be a priority for manufacturers this year. Premier has already announced plans to close seven more sites over the next two years, following the closure of two factories in 2007. This follows the acquisition and integration of Campbell’s and Culinary Brands businesses into Premier’s core operation.

Northern Foods has also announced that it has bought Baxters’ chilled soup manufacturing operations in Grimsby for an undisclosed sum as part of the company’s chilled growth strategy.

No existing business will transfer as part of the deal. The Grimsby plant, which employs 48 staff, occupies 6,351 metres squared of space and was built in 2001, has assets valued at £9M. The facility will be used to develop Northern’s growing soups business, said the company.

“This transaction underpins our commitment to grow within our chosen markets and complements our recent purchase of Ethnic Cuisine,” said Barden. “With both our soup and ready meal capacity increasingly constrained, buying the Baxters facility provides us with an additional high quality manufacturing facility, in a cost-efficient manner, without adding new capacity into the industry.”