Northern refuses to budge on contract policy

NORTHERN FOODS' tough stance on low margin contracts has led to a fall in sales in the first quarter, but the group is confident it can replace the work with better business and be back in growth by the end of the year.

Under the leadership of chief executive Stefan Barden, the Leeds-based company has refused to continue with low margin contracts just to keep its retail and foodservice customers happy.

The most recent example is the closure of a ready meals factory in Swansea in April after Northern failed to agree a new contract with supermarket chain Sainsbury's.

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"When it comes to low margin contracts, our policy is we don't do bad business," said Mr Barden. "We expect to win more business than we walk away from. We expect group sales to grow now, we'll be back in growth by the end of the year."

The company, which supplies Marks & Spencer, Leeds-based Asda, Bradford-based Morrisons, Sainsbury's, Tesco and Aldi, said like-for-like sales fell 1.6 per cent in the three months to July 3.

Northern stopped making Birds Eye frozen pies in June last year. The impact of this and the planned exit from some marginal business led to a 25 per cent fall in frozen like-for-like sales.

It hopes to improve the trend in frozen food with its 5m 'pizza fairy' advertising campaign to support its Goodfella's pizza brand.

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"We exited a number of frozen private label contracts, but we plan to be back to break even by the end of the year," said Mr Barden.

Despite the fall in like-for-like sales, Northern said that trading is in line with expectations in challenging conditions.

Bakery sales were down 5.6 per cent on a like-for-like basis. This was in line with expectations after it reduced promotional activity for its Fox's biscuits brand during the World Cup.

"Promotional space during the World Cup is at a premium. It is auctioned off and goes to beer makers, vuvuzelas and all the football paraphernalia," said Mr Barden. "We took the decision not to bid, it's exceptionally expensive. We think bakery will be back to normal by the second quarter."

HOPING FOR 'PIZZA FAIRY' TO CAST SPELL

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A 5m relaunch of Northern Foods' Goodfella's pizza brand has received "very positive" customer feedback, the group said yesterday.

The group is 10 weeks into a complete relaunch of the frozen pizza brand, backed by new recipes, new packaging and a marketing campaign supported by 'The Pizza Fairy'.

Northern has ramped up advertising on the flagging Goodfella's brand in an attempt to replicate the success of Fox's biscuits, which is now second in the market.

Goodfella's has been hit hard by competition from German pizza maker Dr Oetker, which owns Chicago Town.

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"It will take time. We are expecting any improvement in sales in the second half," said Northern's chief executive Stefan Barden. "It will be a slow burn to start with – we are turning the downward trend around.

Goodfella's was relaunched in April in a range of 33 varieties. Advertisements featuring a Pizza Fairy ran during the World Cup.

The company has previously invested in Fox's biscuits through a series of adverts featuring Vinnie, a cross between a panda and a dog, and its relaunched Rocky bar.

In chilled foods, like-for-like sales rose 14.3 per cent after sales of sandwiches and salads were boosted by strong demand in the warm weather.

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"We're winning business here and there in the chilled sector, but our customers would rather we didn't say," said Mr Barden.

Ready meals also showed an improvement on the back of new contracts. Northern said that the phased introduction of a 10-year contract to supply British Airways short-haul flights is now fully operational.

"The BA contract has gone very well," said Mr Barden. "We are pleased with the customer feedback – despite strikes, the ash cloud – we are building strong relationships. We've had fantastic feedback from BA flyers, they've been overwhelmingly supportive."

He said he expects trading conditions to remain challenging.

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Analysts at Panmure Gordon stockbrokers kept their forecasts for profits this year unchanged at 40.7m following the trading update.

Shares in Northern Foods closed down 1.6 per cent last night, a fall of 0.75p to 46p. The shares have underperformed the UK food producers' index by about 29 per cent since the start of the year. But Mr Barden cheered investors with the news that the group has no intention of cutting the dividend.

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