Supermarket price war set to squeeze Finsbury Foods

With Tesco threatening to slash prices - at least on some goods - and others likely to follow, companies such as Finsbury face another punishing squeeze.

Chief executive John Duffy today declared: "It is as tough as it has ever been. And I've been in food for a very long time."

For the year to June he was able to report a near 13% rise in sales to £190 million. That profits went up at a much slower pace - 8% to nearly £6 million - shows how under pressure are margins, says Duffy.

Finsbury sells cakes and breads under the Memory Lane, Lightbody and Campbells brands. It also contributes to the Tesco Finest and Sainsbury's Taste the Difference range.

Duffy says negotiations with the supermarkets are lately "pretty intense".

"We are trying to get price rises. It is not easy," he said. "We all recognise that consumers have got a fixed amount of money to spend. Supermarkets are very conscious of it."

Into this already potent mix goes rising soft commodity prices. Added Duffy: "The difficulties we face should not be underestimated, the global commodities bubble has exerted unprecedented pressure on margins. Prices for butter, sugar and wheat have soared over the last 18 months."

Finsbury has gone through a fairly dramatic management and strategic overhaul in the last few years, with 26% shareholder Martin Lightbody moving from chief executive to non-executive chairman.

Said Lightbody: "We are emerging from a complex and exhaustive programme of reorganisation and despite the macro economic factors continuing to buffet the business and our customers, our structured approach has clearly started to bear fruit."

The company faced intense bid speculation two years ago, but the talks - if there were any - led nowhere.

Finsbury also owns the license to make WeightWatchers low fat cake slices and Thorntons cakes. Bank debts have been cut by nearly £4 million to £32.7 million.