Supplier profit margins are in pretty rude health according to new research for The Grocer by OC&C Strategy Consultants.

Our annual index of the UK's top 150 food and drink suppliers reveals that margins have grown from 9.1% to 9.5%.

The margins of the top three - Cadbury Schweppes, ABF and Tate & Lyle - have risen from 12.2% to 13.5%, while those with turnovers of less than £500m have risen from 5.9% to 6.3%.

Luke Jensen, head of the consumer and retail practice at OC&C, said: "Over the past ten years operating profits of food manufacturers have steadily increased from 6.5% to 9.5%.

"At the same time, Tesco has substantially increased its power and the supermarket trade has become more concentrated. This has to be conclusive evidence that retailer concentration is not negatively affecting supplier profitability and that this is not an industry in crisis."

However, he added, the figures mask a wide variation in performance.

Other than the top three, many of the big manufacturers experienced a slide in profit margins. "It is the medium-sized companies that have performed well and driven up profitability overall," Jensen said.

The performance is all the more impressive given that The Grocer 33 research shows inflation has been kept in check by retailers despite the fact suppliers have faced huge hikes in their production costs.

The fact that suppliers are not just surviving, but in many cases thriving, is not a story that they will be keen to broadcast widely, given that the Competition Commission inquiry will be looking at how retailers deal with their suppliers. But the research will be welcomed by those big retailers who are increasingly frustrated at always being seen as the bad guys, while they help many suppliers build successful businesses.

A spokesman for the BRC said while he accepted suppliers were getting paid less than previously, some were missing the point.

"Suppliers often fail to acknowledge the huge benefits they get from supermarkets, such as guaranteed sales of high volumes over predictable periods."

The growing strength of some suppliers will also fuel calls for the code of practice to be widened to include manufacturers. The calls will be given credibility by evidence that some suppliers are starting to use the heavy handed tactics retailers are usually accused of .

This week, The Grocer was contacted by an ingredients supplier that had a letter from Burton's Foods demanding a one-off payment or risk losing its business. Purchasing director Gary Williams says Burton's is being squeezed by the multiples to the point where it can no longer absorb the pressures: "[We] must now pass an appropriate and fair proportion back down our chain."

He asks suppliers for a one-off payment of 3% of the value of business in the past year, to be invoiced this month. Williams warns: "A negative response will lead us to draw the conclusion that the level of business transacted between our two companies is not important to your long-term strategy."

One supplier said the letter was tantamount to blackmail: "We're not going to pay it. We're under pressure from the multiples, too, but we don't give in."