Healthy eating trend endangers Northern Foods

By Anita Awbi

- Last updated on GMT

Related tags Northern foods Nutrition Food

Like other convenience food producers in the UK, Northern Foods is
struggling amidst sliding sales - issuing its second profit warning
in two months as consumers shun biscuits, pastries and pizza.

The manufacturer of Goodfella's pizzas and Fox's biscuits said that profit for 2005 before tax and exceptional items will be around £45m, down 27 per cent from 2004's £62.2m.

Analysts had previously predicted a 10-12 per cent drop, so yesterday's news caused share value to plummet as the company attempts to deliver a rescue package to ailing divisions.

In the first two months of the fourth quarter, the bakery division suffered a 12 per cent decline in biscuit sales compared to the previous year "reflecting changing eating habits in certain product areas"​, the company claims.

And the pastry division also saw sales plunge by 11 per cent as a result of consumers' new healthier eating habits.

But the manufacturer insists it will turn performance around by undergoing a review of its business model, product portfolio and cost base.

"Whilst good progress is being made in addressing the underlying structural issues in the group, this is not yet being reflected in an improving financial performance,"​ the company said.

Northern Foods is not alone in being slow to respond to the changing market.

Fizzy drinks firm Britvic lost £136m in share value earlier this month as the company acknowledged the market for sugary drinks is in decline. And McDonalds plans to close 25 stores amid shrinking sales, despite the launch of McSalads and healthy-option Happy Meals.

"This is a critical time for brands and companies to consider their strategies and how they align to where shoppers are headed in their thinking and behavior toward health,"​ said Linda Gilbert of HealthFocus research group.

And with the average British waistline expanding, 61.6 per cent of consumers are now overweight or obese, compared with 54.2 per cent Europe-wide.

This is driving the diet and health food industry, which is expected to reach £5.3bn by 2009, representing an expenditure of almost £90 per head each year.

As the healthy eating habits catch on, and commodity costs continue to rise, companies like Northern Foods will have to work hard to maintain sales.

Even the firm's chilled division, which provides private label goods to Tesco and Marks and Spencers, suffered volume and margin erosion as the company failed to offset rising energy costs with price hikes.

CEO Pat O'Driscoll introduced a raft of new measures to streamline the under-performing chilled food sector last year, axing two factories, 30 management posts and 1,000 other jobs.

This action was part of a company-wide three-year 'Get Fit' efficiency drive to boost profits, following a succession of post-Christmas profit warning announcements over the past five years.

Results from the internal review, the latest addition to the efficiency drive, will be revealed in May.

Related topics Ingredients Health

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