Retailing squeeze forces closures at Northern Foods

Northern Foods axed more than 1,000 jobs yesterday, closing two factories as part of a cost cutting drive at the business.

Northern Foods axed more than 1,000 jobs yesterday, closing two factories as part of a cost cutting drive at the business.

The company, which supplies chilled and frozen ready meals to most supermarket groups, warned that its trading environment remained "extremely competitive" as the major retailers continued their squeeze on suppliers.

Northern's Evesham Foods factory in Evesham and its London Road plant in Carlisle are to close in the spring, with production transferred to other locations. About 200 jobs will be created as part of this transfer, bringing net job losses to about 850. John Hannett, the general secretary of the union Usdaw, said: "This announcement has left the workforce stunned. We want to find out exactly why this decision has been taken."

News of the closure came as Northern reported improving sales. Underlying sales rose 5.5 per cent in the 11 weeks to 18 September, improving on a 1.5 per cent increase in the 13 weeks to 3 July. Sales through Asda, Tesco and William Morrison have been particularly good. But the company said its costs, from materials to labour, were rising at faster levels than its sales. Costs are increasing at more than 2 per cent, while the average price rise it can pass on to customers is at less than 2 per cent. This year's poor harvest will also put further pressure on raw material costs and the company said it needed to improve operating efficiency to increase profitability.

The move comes five months after the appointment of Pat O'Driscoll as the chief executive. She has been reviewing the management structure of the company, cutting 30 senior management posts and streamlining the company from 16 operating divisions to four.

Sean Christie, the finance director, said the loss of 1,000 jobs was part of a programme to remove duplication from Northern's production. This and other cost cutting initiatives will save £10m a year, but the company will take a £45m charge. The City responded positively, shares in Northern closing up 5.5p at 150p.