Up to 900 jobs are at risk at Bakkavor as it looks to close two sites amid economic turmoil.
The ready meals and fresh foods producer is to begin a 45-day consultation period with staff on the closure of Bakkavor Salads in Sutton Bridge, Lincolnshire and Bakkavor Desserts in Leicester.
Bakkavor said it would offer weekly paid staff comparable roles at alternative sites and, where this is not possible, help secure alternative employment locally.
“The macro-economic backdrop and in particular consumer sentiment in the UK remains very challenging,” the company said in a statement this week. “As reported in our half-year results announcement in September, the significant level of inflation and consumer headwinds we are continuing to face are expected to persist into next year.
“Recent investments across our UK operations to enhance our capacity and capabilities provide us with a strong platform on which to further leverage our scale and flexibility. Therefore, as we seek to protect our business, we have undertaken a detailed review of our UK footprint.
“We are proposing to close two sites: Bakkavor Salads in Sutton Bridge, Lincolnshire and Bakkavor Desserts in Leicester. Our other UK sites have the capacity and capabilities to continue to fully service our customers should these proposals go ahead.
“As a business that invests in the development of its people, rewards long service and invests in the local communities in which we operate, it is with great sadness that this difficult but necessary business decision may impact a number of our colleagues. Across the two sites, we employ over 900 colleagues.”
Bakkavor CEO Mike Edwards added: “As with businesses all over the UK, we are having to take decisive action to adapt to the challenging macro-economic backdrop.
“The decision to close any site is never taken lightly, and we do not underestimate the impact of this announcement on our colleagues and the local communities within which we operate.
“We remain committed to both protecting our business and doing everything we can to support our people through this difficult time.”
The proposed closures come after the business offered thousands of factory workers a pay rise of up to 14.8% in January this year.
Bakkavor has continued a recovery from food-on-the-go disruption throughout the pandemic, with revenues jumping 10.3% to £1bn in the first half to 25 June.
However, the increase was helped by the group pushing up prices with volumes under pressure as a result. Despite the growth in first-half sales, margins at the business were squeezed by soaring input cost inflation, pushing down operating profits 12.5% to £41.1m as a result.
Back in May, ahead of the publication of first-half figures, Bakkavor warned that price hikes could hurt volumes going forward.
Broker Peel Hunt noted pressure on consumers was “relentless”, creating a challenging environment for Bakkavor’s main customers Tesco, M&S, Sainsbury’s and Waitrose with volumes falling. In a note released as Bakkavor announced the potential factory closures, the broker slashed its profits forecast for Bakkavor by 9% and reduced the target price for shares by 10p to 115p.
Peel Hunt head of research Charles Hall expected Bakkavor to transfer the majority of the salads business to the Bo’ness site, with three other locations also taking product.
The desserts business would largely go to the Newark site, with Highbridge and Devizes also taking some business, he added.
“Bakkavor has a broad range of products and price points, which should ensure the company is able to respond to changes in consumer demand,” Hall said.
Shares in Bakkavor briefly rose 4% following the news but swiftly gave up the gains given ongoing pressure on margins. The stock is almost 30% down so far in 2022.
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