The proposed merger between Northern Foods and Greencore will heap pressure on rival producers in the sandwich market and could spark a round of consolidation in the cake and desserts markets, according to analysts.

As reported in British Baker (19 November), Greencore and Northern Foods have agreed to join forces under the new name of Essenta Foods, which will have annual sales of £1.7bn and expects to make annual cost synergies of £40m. The deal, which is due to complete in the second quarter of next year, will make Essenta the largest player in the sandwich market, as well as strengthening its position in cakes and desserts.

"This is a good fit in terms of product range and customer base," said Chris Brockman, Mintel’s global food analyst. "It will create a dominant player in the sandwich market, with a strong presence in the multiples. This will put pressure on other operators in the sector, who could struggle to compete and will have to find distinct market niches. Smaller players will find growth opportunities in 2011 are taken up by Essenta, which will have the muscle to ramp up innovation and dominate the market."

He added: "The dessert and cake sectors are very fragmented and this could be the start of further mergers and acquisitions in 2011. Both sectors are ripe for consolidation, with rising ingredients costs and continued pressure from supermarkets on price."

Shore Capital head of research Clive Black said: "The merger gives the firm more scale and authority, but I think we will see an introverted process of reducing costs, rather than driving shares of other markets. Retailers will know there are opportunities for cost savings and will ask for contributions. It’s up to Essenta to get that balance right."

Essenta Foods will be headed up by Greencore’s CEO Patrick Coveney, with Northern Foods’ acting CEO Simon Herrick becoming finance chief. He has taken over from Northern Foods’ outgoing CEO Stefan Barden.

>>Northern Foods and Greencore announce merger