The Knighton Foods Staffordshire business and plant, located in the town of the same name in England’s West Midlands region, “is not aligned to the group’s branded growth model strategy and is marginally unprofitable at trading profit”, Premier Foods said as it announced third-quarter results.
Following a “comprehensive review”, the company plans to enter consultations with Knighton Foods’ staff on the proposal to close the facility. Non-branded contracts of about GBP27m (US$33.2m) “will be carefully managed for exit” from the middle of the year, Premier Foods said today (19 January).
The Knighton Foods plant manufactures private-label powdered drinks, accounting for 60% of its sales, with the remainder comprised of ingredients and branded products under the Birds, Angel Delight, SMaSh and Marvel lines, a Premier Foods spokesperson confirmed.
The London-listed business, which owns brands including Batchelors and Mr Kipling, anticipates incurring costs of around GBP10m associated with the closure in its new financial year starting in April. However, Premier Foods expects to boost group trading profit on the back of the decision, with a 270 basis-point increase in branded sales mix.
“It is recognised that this will be an unsettling time for those circa 300 colleagues who are potentially affected by these proposals, and they will be fully supported and consulted with throughout the process,” Premier Foods said in its trading statement.
A decision on where production will be switched to for the branded products will be made after the consultation with employees and if the plan goes ahead, the spokesperson added.
Premier Foods took over Knighton Foods in 2016, when it acquired the remaining 51% in the business it did not already own.
Spice Tailor acquisition
The company has been transparent on its plan to focus more on brands. As far back as November 2021, finance chief Duncan Leggett said: “We’re no longer chasing after very margin-thin private-label contracts because, obviously, the focus of the business is on continuing to build the brands.”
With that in mind, Premier Foods made its first acquisition in more than a decade last summer. It snapped up The Spice Tailor, a London-based business supplying meal ingredients for Indian and south-east Asian dishes.
The Spice Tailor contributed GBP3.7m in sales in Premier Foods’ third quarter to 31 December, growing at a double-digit pace. The business sits within the group’s grocery division, which saw sales rise 17.4% to GBP235.6m – GBP201.6m for branded and GBP34m for private label.
Premier Foods noted “pricing contributed a significant proportion of [grocery] revenue growth in the quarter” amid what CEO Alex Whitehouse called “elevated” input-cost inflation.
Sales for Premier Foods as a whole, including the sweet treats business, climbed 12% in the quarter to GBP318m.
Group-wide year-to-date sales were up 8.6% at GBP737.8m. Grocery revenue increased 11% to GBP539.6m and sweet treats rose 2.6% to GBP198.2m.
“The group has delivered another strong quarter of trading, further demonstrating the strength and resilience of its branded growth model, set against the backdrop of a particularly challenging consumer environment,” the company said in today’s results commentary.
“Input cost inflation remains at elevated levels and is being offset through a combination of cost savings and annual price increases.”