A survey of 51 grocery executives across Europe has indicated that almost all of them believe the sector's growth prospects for 2007 are as good as, if not better than in 2006.

In the research by Mergermarket, 62% believed this year's growth would be at least equal to last year's, with 30% believing it would outperform this.

Nielsen figures show the European food market grew 3% between July 2005 and July 2006.

However, Louise Wallace, partner at report sponsor CMS, an alliance of law firms, warned there were concerns over pressure on profitability, with 22% of executives believing it would be worse than in 2006.

"The more cautious view of profit prospects indicate that the focus for the next 12 months may well be on investment in the development of brands, innovation and increasing efficiency - all of which should provide longer sustainable growth in the sector," said Wallace.

The survey also found two-thirds expected increased levels of M&A activity in the sector in the coming year. "M&A activity will be fuelled by consolidation at the manufacturing and supply level as well as the appetite for products in higher growth areas, such as health foods and drinks, locally sourced products and organic foods," said Wallace.

"Private equity investors will continue to be attracted by the sector's cashflows, opportunities to leverage brands, improve efficiency and increase margins."