Consumers tighten their belts

Indeed, soft commodities prices have soared this year, inflating the goods producers' cost bases. Most have passed the extra costs on to customers with contrasting results. Premier Foods for instance was quite successful at securing price increases, but sales volumes of Hovis - its leading brand - fell as its competitors traded on lower price points.

And with inflationary pressures in all of the supermarket aisles, this might increasingly put consumer loyalty to the test. Supermarket brands could subsequently see their volumes grow. But while these might provide a satisfactory alternative for consumers, capitalising on that trend might prove trickier for investors. Higher input costs are generally more difficult to recover for manufacturers of own-label products, even if retailers increase the price tag to close the gap with branded products.

That said, there are noticeable exceptions. McBride, the largest manufacturer of private label household products in Europe, is one of them. Rising input costs in the chemical industry have arguably put pressure on profit margins. However, the group supplies 70 per cent of the UK retailers and subsequently has reasonable pricing power as retailers have limited supply alternatives. What's more, household products are easier to reformulate with less expensive ingredients than food. "It is much simpler to replace various surfactants and enzymes in shampoos and cleaners than it is to reformulate food products, where a uniform taste and texture is expected," points out Victoria Watson, analyst at Dresdner Kleinwort.

Cranswick, which manufactures sausages as well as cooked meat and bacon for supermarkets, is another exception. The group is positioned in the fast-growing premium segment of private labels, which is one of the key drivers of supermarket sales and margins. And since Cranswick does not have any serious contenders in branded products, the group is well placed to pass on inflationary pressures to customers.