Dilger's bitter pill for lovers of confectionary as prices set to rise

Analysis:David Dilger had bad news yesterday for confectionary lovers who maintain a festive fondness for Christmas cakes, which it manufactures for the Tesco Finest range. Flour prices have doubled, while the price of the humble sultana has rocketed 65 per cent, writes Laura Slattery

Prices for most of Greencore's private label convenience foods seem set to rise, assuming the company can successfully win price increases from its major customers and the retailers can then pass them on to shoppers.

Dilger is confident about the former. On the latter, wary of the prison sentences for price fixing in the UK, he prefers not to comment.

When it comes to securing price increases, private label food manufacturers are said to be in a more vulnerable position than food companies who own popular brands with strong consumer loyalty.

But although it has not yet concluded its negotiations, Greencore is upbeat about its ability to claw back the full effect of its higher input costs next year.

The by now well-documented increases in the price of global commodities such as wheat and milk, or "the external headwinds" as Dilger calls them, are being managed, he says, although prices are not expected to come down.

The cold summer, along with the unrecovered price inflation, a fire at its Manton Wood facility and the loss of its sandwich contract with Starbucks, would have reduced profits in convenience foods to €56 to 58 million, Mr Dilger said, but growth in several categories meant it was able to achieve profit of €64.4 million.

Greencore either held or improved its market share in sandwiches, quiches and mineral water - the most exposed of its categories to poor summer weather, he added.

But while its convenience food business suffers when raw material prices soar, its ingredients division can capitalise.

Malt, which has benefited from much stronger global cereal market prices, was responsible for the bulk of a 372 per cent profit recovery in its ingredients and related property businesses.

It was quick to point out that this was not just due to the higher prices commanded by malt and grain, but by improved efficiency and customer relationships.

Sadly, in the context of rising raw material prices, it is the convenience side of things that accounts for 70 per cent of Greencore's operating profits. But the company is not alone in facing the problem and some of its competitors have fared much worse.

Greencore's "fundamental job" next year is to build on the growth in its convenience food businesses, including a long-mooted entry in the US market.

Conscious of the growing influence of healthy lifestyles, it has entered the sushi market, started to sell pasta salads through Spar and changed its entire range of cakes, removing all of the hydrogenated fats. It now manufactures a full range of foods under the Weight Watchers brand.

Despite the positive outlook and strong results - the first full-year figures since Greencore was forced to exit the sugar business - the company's share price fell more than 4 per cent yesterday.