United Biscuits blames lost jobs on snacks war

The price war in the food sector yesterday claimed hundreds of jobs as United Biscuits announced the closure of its KP plant at Grimsby and warned that tough market conditions would hold back profits this year.

United is making a £21m charge in its 1994 accounts to cover the closure costs, and spending an additional £12m to transfer production of crisps and Hula Hoops to its sites in Teesside and Leicestershire.

The Grimsby factory employs more than 980 -730 of them part-time. However, about 460 jobs would be created at the two other sites, the company said.

United said KP had undergone a "thorough strategic review"; the move was aimed at cutting its cost base in Britain, where the snack market suffers from severe over-capacity.

Annual operating savings from the closure are estimated at £6m, and would lift investment in building core brands.

The company said full-year profits, to be announced on 16 March, would be close to the 1993 level of £181.8m. Analysts, who had been looking for £185m-£190m, also trimmed back their 1995 expectations from £200m to £195m.

Shares, down 8.5p at one stage, closed 2p off at 319p.

A company spokesman said the crisp market was under huge pressure.

"There is a price war going on. Eighteen months ago the average price of a six-pack of crisps was 86p, today it is 56p," he said.

Over the next five years United would have had to spend £15m to modernise production at the Grimsby plant, which makes 27,000 tonnes of crisps and snacks a year. "We were left with no alternative but to close the factory."

The company's move came as no surprise to food sector analysts, who have been predicting growing pressure on manufacturers because of the supermarket price war.

Verdict Research said margins would stay under pressure as consumer demand remained flat. "The price war has some way to go," a spokesman said.

Until now the competition has been mostly concentrated on own-brand products, but could intensify on manufacturers' premium labels.

Further bad news for manufacturers was the emergence of new-style premium own-label products, such as Sainsbury's cola.

At United's interim results in September the company warned that markets were weak, and yesterday John Warren, finance director, said Christmas trading had got off to a slow start but had picked up.

He said increased packaging costs would continue to affect United throughout 1995 and this would be met by higher prices on a range of products.

"Where we have strong market penetration and good products we will get price increases," Mr Warren said.

United's Spanish KP operation, which faces intense competition and recently went through a management shake-up, continued to disappoint.

However, Mr Warren said: "It is too early to talk about a withdrawal from Spain."