Suppliers will be forced to consolidate further if they are to mitigate the effect of soaring raw material costs, Northern Foods' chief executive Stefan Barden has warned.
Speaking as Northern reported underlying sales up 3.5% year-on-year in the 13 weeks to 29 December, Barden said smaller suppliers in particular were having a "torrid time" with soaring ingredients costs, which National Statistics this week showed rising 11.3% in 2007.
Barden said Northern had successfully recovered spiralling commodity costs with only a "limited impact" on sales volumes, but added: "Smaller suppliers are feeling real pressure from retailers to keep prices down. Those that can't afford to provide a point of difference are in trouble. This is helping to lead to a consolidation through competitively priced acquisitions."
Northern itself has been on the acquisition trail, having bought the McDougalls frozen pastry business and ready meals supplier Ethnic Cuisine in the autumn. In December, it snapped up a Baxters soup factory, which it will use to make M&S chilled soups. Soaring demand for the range meant Northern's purpose-built factory in Lincolnshire was "bursting at the seams".
Sales in Northern's chilled division grew 5.2% in the last quarter. Sales at its bakery division grew 4.2%, lifted by strong Christmas pudding sales. However, frozen foods revenues dipped by 0.9%