Retailers may have to eat own margins

THE chilled convenience food market is ripe for consolidation. In recent years, the major players have lacked the scale needed to secure a decent return from powerful supermarket retailers. Investment has fallen, taking its toll on the quality of products.

For that reason, the marriage of the two leading chilled players in the UK market makes perfect sense. If the almost nil premium merger goes ahead, the rest of the compeition will pale in comparison. Icelandic Bakkavor has struggled since the island’s banking woes, while RF Brookes, the chilled unit of Premier Foods, is looking tired.

The pair expect to make some £40m in cost savings, 90 per cent of which will be achieved in the first two years. Crucially, these synergies are not based on a predicted surge in revenues, which might never materialise; instead, Essenta (as the new company will be known) will save £15m by cutting overheads; £20m on more efficient procurement; and £5m by moving Northern Foods’ tax domicile to Ireland (a rare piece of good news for that emerald isle).

However, the main advantage is the extra clout that Northern Foods and Greencore can expect in the future. The proposed merger will create a clear number one player in private label ready meals, coupled with a handful of successful brands. With annualised sales of around £1.7bn, it will be a force to reckon with: supermarkets might have to eat into their own margins instead of their suppliers’.

Shareholders should support the merger. Northern and Greencore would have a less certain future if they went it alone.