Northern Foods chief under fire after latest profits warning

Northern, whose brands include Fox's biscuits and Goodfella's pizzas, said sales in its chilled foods and biscuits division had plummeted 11 and 12 per cent respectively over the past two months, compared with the same period last year.

Although Pat O'Driscoll, the chief executive, insisted the company had done "everything right", and was the victim of a change in eating habits, analysts suggested a change in management should be considered.

Justin Scarborough, an analyst at Panmure Gordon, was one of the company's harshest critics yesterday. "We do not believe the company fully understands the dynamics of the UK food market, and despite all of management's best efforts, its survival must be seriously in doubt," he said.

As well as blaming a shift in eating habits for the decline in sales, Ms O'Driscoll said the company's biscuits division had been hit by a price war instigated by United Biscuits. She added that the company's energy costs had risen 60 per cent over the second half of the group's financial year.

Ms O'Driscoll said Northern Foods would begin an immediate strategic review to discover whether the changes in market behaviour were short or long term. She dismissed the suggestion that she should consider stepping down, insisting she had "the full support of my board". "Importantly, I believe, and the board believes, that we're doing the right things with the business," she said. "We've closed two factories, centralised our buying functions ... changes that have resulted in good operational performance.

"I think we've made some good progress, but I and the board recognise that these market changes are potentially quite significant, and that we need to respond to them."

Although investors had anticipated a cut in the dividend after January's warning, analysts suggested this was likely to be a larger reduction than had been expected. Ms O'Driscoll said she would not comment on the dividend until the full-year results on 31 May, adding that the group would unveil the results of its strategic review at the same time.

Jonathan Banks, at the retail analyst AC Nielsen, said he believed the shift to healthier foods was a long-term change in Britons' eating habits, warning that Northern Foods would need to adapt quickly to the changing environment. "There is a gradual move to people eating healthier."

Shares in the company fell 17 per cent on the news, closing at a five-year low of 107.75p, giving the company a market value of £529m.