Northern Foods has indicated its intention to “mothball” its Fenland Foods factory, which makes Italian-style ready meals for Marks & Spencer, because it is not yielding high enough returns.

The company revealed today (13 May) that it has opened consultations with the 730 employees at its factory in Grantham, Lincolnshire.

Northern has been shedding unprofitable businesses as part of its effort to improve profit margins and shareholder returns. While Fenland has generated an annual turnover of GBP45m (US$87.71m) the business was only breaking even.

Northern CEO Stefan Barden said that he believed the group would win new business to enable the factory to be reopened, at which time Northern would invest in the facility.

“The Fenland facility would remain mothballed whilst we explore opportunities to secure profitable new business with other customers for the site.  We have plans to invest in the site so that it can continue to be a leader in its market,” Barden said.

Announcing the closure, Barden was keen to highlight the continued importance of the chilled ready meals sector to Northern Foods .

“We believe that chilled foods is an attractive growth market and that our ready meals are the best in the industry.  We have recently invested over GBP20m to acquire the Ethnic Cuisine ready meal business and the Grimsby soup plant, together with a GBP9m investment to expand our salads business,” he commented.

The Fenland business represented about 15% of the group’s sales to M&S, which in turn account for almost 30% of Northern Foods’ total turnover.

Marks & Spencer said that the closure is not part of M&S’s drive to rationalise its food supply chain, adding that the closure was Northern’s decision. However, the company has found a supplier who can provide the meals on a more cost-effective bases.

“Northern is an important supplier for us and we will continue to work with the company on a range of products,” M&S told just-food.

The move is not expected to impact materially the group’s profit before tax and restructuring items, Northern said.