Snowball-maker Lees Foods has provided fresh evidence of the scale of the challenges faced by manufacturers that supply retailers amid the cost of living crisis but its new owners have signalled confidence in the prospects for food sector players.

Lees, which has been making confectionery in Coatbridge since 1931, said it faced

an ‘unprecedented’ year in 2022 with costs increasing for raw materials, packaging, transport and energy.

The developments detailed in the latest accounts for Lees Foods highlight the impact of rises in commodity prices that started after restrictions imposed during the pandemic were eased and gathered pace amid the war in Ukraine.

In comments that could heighten concern about the possibility of an inflationary spiral developing, Lees noted input price pressures had also pushed up the cost of labour.

A range of other firms have voiced similar concerns in recent weeks.

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As a business that supplies goods to major supermarkets, Lees may have more reasons to be nervous than companies in some other sectors.

Supermarkets may put the squeeze on suppliers to help them keep prices down in order to encourage consumers to keep spending.

But Lees’ experience suggests firms that can adapt to ensure their offering helps supermarkets keep sweet-toothed customers onside can make progress.  

The company achieved strong growth in sales last year partly due to its success in winning business from what it described as a leading retailer, with which it launched a range of new products.

The growth may have helped to generate bid interest in Lees. The firm was acquired in January by London-listed Finsbury Food Group for £5.7m.

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In the interim results it announced in February, Finsbury said Lees has a UK market-leading position in the manufacture of meringues and significant capability in the sweet treats category, adjacent to the group’s existing markets. 

It said the acquisition was in line with the group’s strategy to diversify its product capability into areas with high growth potential.

Finsbury grew first half sales revenues by around 15 per cent, to £190m, after raising prices while managing to keep volumes broadly in line with the same period last time. It noted that the UK cake market was valued at around £1 billion. Demand for personalised products has been increasingly strongly.

The group has launched new products, such as Harry Potter and Peppa Pig celebration cakes, in recent months.

In advance of issuing a scheduled trading update on Wednesday July 19, Finsbury has not given any indication that its trading performance has worsened significantly since its interim results announcement.