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Home > Food and Beverage > Food > Food - General Markets
United Kingdom Food and Drink Report Q3 2009
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Increased demand for private-label food and drink products has been a key theme running through thesector since the onset of the economic downturn. This trend has benefitted some producers at the expenseof others and is exemplified by the contrasting fortunes of two of the UK’s largest food producers -Northern Foods and Associated British Foods (ABF).
This trend has been a boost for Northern Foods which saw its sales rise in the three months to the end ofMarch 2009. Over this period Northern Foods recorded an 8.8% increase in underlying sales, which stripsout the impact from acquisitions and divestitures. This was above the firm’s average rate of growth forthe last 12 months suggesting that it is well-placed to contend with the economic downturn. Leeds-basedNorthern Foods produces branded and private-label products, and controls approximately a fifth of theUK ready meal market.
Northern Foods’ strong performance since the UK economy started to contract can be attributed to aproduct portfolio, which includes the types of food consumers are now buying more of. The firm’s focuson private labels is proving to be advantageous as consumers look to trade down while its brandedproducts, such as Goodfella's pizza and Fox's biscuits, are in categories which are performing strongly asconsumers look to save money by spending more time at home. Northern Foods has also benefited fromgaining prominence in the increasingly important discount sector. The firm has contracts to supply Aldi,Lidl, Iceland and Netto, and has reported that its value ranges now account for 10-20% of business,compared to less than 10% a few years ago. This focus on value is also filtering through to conventionalsupermarkets, with the firm supplying Tesco with sandwiches that retail for under GBP1 and producingready meals under Marks & Spencer’s ‘Wise Buy’ range.
In contrast ABF has reported a sharp fall in profits at its grocery division for the 24 weeks to February 282009. Despite a 22% increase in revenues, profits at the division fell by 30% to GBP62mn. This fall waspartly attributed to ‘taking long positions in vegetable oil futures at values well above the current market’,but was also due to the rising popularity of private labels, with ABF citing this trend for falling sales at itsUS oil business and falling margins at its Australian bakery and processed meat businesses. Fallingmargins may be an increasingly prominent trend over the coming year as major brand builders are forcedto adjust their prices downwards to maintain market position and fend off the threat from private labels.
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