Suppliers blame aggressive retail pricing for driving down quality

Nearly three-quarters of food manufacturers believe that the quality of own-label food is threatened by an unprecedented focus on price by leading supermarkets.

A massive 72% of respondents to this year's Food Manufacture survey of readers claimed that pressure from the multiples to cut costs risked compromising the quality of own-label products.

Although overall confidence remained fairly high, with 60% of respondents claiming to feel more positive about the future of their businesses this year than last, only 32% agreed that profit margins would improve in the coming year.

Likewise, although 62% of the manufacturing people taking part in the survey planned to invest more in product development this year than last, only 52% said they would increase capital investment and only 31% planned to recruit more staff this year than last.

One respondent said: "Much of the industry is running at a marginal level of profitability. Potential for gross under-investment could lead to serious difficulties in the future."

Another added: "Margin erosion by major retailers is an increasing threat to product innovation."

He accused the multiples of creating adverse conditions for manufacturers "with the eradication of true partnerships and emphasis on cost, not quality". That was against a backdrop of substantial increases in raw material, wage and utility costs, he added.

While some welcomed the prospect of lower sugar prices following reform of the European sugar subsidy regime, they did not expect the reform to deliver improved profitability in the long term. One manufacturer said: "The benefit [to us] will be short-term only; it will all be passed on to the multiples."

However, it was not all doom and gloom among survey respondents, with 88% believing that pressure on manufacturers to develop healthier products represented a significant business opportunity, while 56% believed that they would do more business with the foodservice sector this year than last.

See next month's Food Manufacture for a detailed analysis of the survey results.