The world’s best-known shortbread-maker yesterday blamed “downward pressure on prices”, unhelpful currency exchange rates and economic stagnancy in Europe for a fall in profits.
Walkers Shortbread’s profits were squeezed despite a near-3% increase in turnover during 2014.
Joint managing director Jim Walker said cost pressures were not as bad as expected last year.
But highly competitive private label market conditions, currency rates and struggling economies combined to knock 9.7% off margins.
He added: “As always, limiting the effects of food and raw material inflation whilst maintaining the quality of the ingredients we source remains at the top of our agenda.
“After some very challenging year-on-year variances in the first half of 2014, the pricing of many of our key ingredients softened in the latter part of the year and this proved helpful in limiting the extent of the margin erosion suffered.”
Under pressure from discount chains like Lidl and Aldi, grocery giants are battling for shoppers.
Mr Walker said an ongoing war on prices would “limit the extent to which our margins will ultimately recover”.
He added: “Given the nature of the cost and economic pressures we continue to face, it is likely that our margins will remain close to their current level for some time.
“The downward pressure on customer prices has both broadened and intensified, and the quantitative easing programme now effective in the eurozone has pushed sterling to its highest level since 2007, making it significantly harder to trade profitably in this area.”
Mr Walker, who runs the family shortbread empire with older brother Joseph, said unfavourable exchange rates for other major currencies were also having an “appreciable” effect on margins and this was likely to increase in 2016.
And he highlighted the new national living wage, announced in the summer Budget, as another cost increase that Walkers and other firms would “have to get to grips with”.
It would present a “significant challenge” on top of the other pressures faced by the company as it continues with policy of steady growth and investment, he said.
The firm launched a range of gluten-free shortbreads during 2014, and it expects the new product line to play an increasingly bigger contribution to overall sales.
Walkers, which makes more than 42% of its turnover from export sales, reported pre-tax profits of £10.9million for 2014, down from £14.5million the year before.
Turnover grew to £140.8million last year, from £137.1million in 2013.
The company is currently gearing up for its annual manufacturing peak, setting a new record of 1,750 employees in the Christmas run-up.