Premier Foods, the supplier of iconic brands such as Mr Kipling cakes and Bisto gravy, is in talks with its major retail customers about lifting prices due to a double whammy of weaker sterling and higher commodity costs.
City A.M. can reveal that the listed food manufacturer last month opened discussions with the likes of Tesco, Sainsbury’s and Asda due to growing cost pressures from the weaker pound in the wake of the EU referendum.
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A spokesperson for Premier Foods said: "The situation on pricing differs between our different categories and brands and is currently under discussion with our individual retail customers. However, on average we are considering rises around the mid single digit mark."
The effects of the fall in the value of the pound for supermarkets and suppliers first reared its head last year as Unilever demanded higher prices for its products, including Marmite and PG Tips. Tesco, the UK's biggest supermarket, initially refused to pay the higher price, resulting in a short stand-off between the two companies.
Premier Foods, which has revenues of more than £750m, hopes to reach a conclusion to the crunch talks by the end of this month. The wholesaler said it was doing all it could to limit any price increases and was only taking such steps as a "last resort".
“We take a blended approach to managing cost increases driven by currency and commodity factors,” the spokesman said.
Aside from potential price hikes, the company also hopes to adjust its promotions and will be making other efficiencies within the business.
The exact nature of the deals emerging from the “robust” discussions will depend on the mix of products being sold to each retailer.
Price increases on cakes and cooking sauces, for example, will differ. Premier’s products include Ambrosia Milk, Cadbury cakes, Oxo cubes, Angel Delight and Homepride flour.
"Quite clearly there are a number of upward pressures on the input costs of all the manufacturers, including the food manufacturers, and therefore it doesn't come as a surprise that suppliers are looking to recoup that from the supermarkets," said Clive Black, retail analyst at Shore Capital.
However, he said the supermarkets will be "alive to the pressures that consumers are under", with inflation set to rise this year.
He added any price rises being passed onto consumers will be going through a "fine mesh" with the supermarkets. It remains to be seen whether the price increases for them will push up prices for consumers.
With German discounters offering cut-price groceries, the price of a typical shop might remain low.
Independent retail analyst Richard Hyman said: "Many would have us believe we are going to see price rises after the pound devaluation. Overall, I can't see prices going up materially. Aldi will not be beaten, so anyone increasing prices risks widening the gap between itself and Aldi, and losing further market share."