Morrisons is exploring a sale of its cherished food manufacturing arm as the Iran war fuels British businesses’ fear of inflation.

The Telegraph understands that Rami Baitiéh, the chief executive, has entered into talks with at least one private equity firm about a deal to sell its entire manufacturing operations as pressure builds on the supermarket to reduce its debt burden.

Discussions were still ongoing as of last week, with the bidder having lined up a fully financed offer. Other interested parties are said to be standing by with rival offers for some or all of DEL Manufacturing, one of the country’s largest food suppliers.

The surprise move was triggered by an ongoing need to bring the supermarket’s debt burden, which totalled £7bn in its last set of filed accounts, under control. However, the crisis in the Middle East could weigh on management’s thinking as boardrooms face up to a new era of runaway costs.

The destruction of parts of the region’s energy infrastructure by Iranian forces has spread panic through British companies amid growing expectations of a sharp new inflation shock.

Manufacturers are braced for a fresh surge in energy prices, while farmers have warned that rising raw material costs could spark a jump in grocery bills and even food shortages. Oxford Economics believes events in the Middle East could push inflation to 4pc later this year, double the Bank of England’s target.

One retail boss cautioned that negotiations could fall apart because of Morrisons’ high price expectations. “The problem is, Rami, wants too much for the business,” said a senior figure.

It was understood negotiations were prompted by an unsolicited approach.

Bradford-based Morrisons, which trades from 500 supermarkets and 1,600 convenience stores, is the only British supermarket with full food production capabilities. A quarter of the fresh food found in its stores comes from its own factories.

News of the talks will come as a shock to Morrisons employees after Mr Baitiéh said in January that manufacturing was part of the “DNA of Morrisons – it’s going to stay”.

The manufacturing operations have long divided opinion among Morrisons executives.

Some argue that having its own food supply gives it a distinct competitive advantage.

However, others have said it handicaps the supermarket’s ability to fight food price inflation because Morrisons is unable to demand better terms from suppliers in the way rivals can.

Morrisons’ food division has 10 manufacturing sites spread across the UK, supplying produce such as eggs, meat, chilled food, flowers, seafood and baked goods. It is so large that it operates as a separate entity, trading under the name Myton Food Group.

Morrisons’ debt woes are a hangover from its £10bn takeover at the hands of private equity giant Clayton, Dubilier & Rice (CD&R) in 2021. Five years later, the costs of servicing billions of pounds of loans that CD&R used to finance the deal continue to weigh heavily on the business, obliterating profits every year.

Accounts filed at Companies House reveal that Morrisons has spent nearly £2.5bn in debt financing costs since the private equity firm’s swoop. A £281m interest bill helped push the supermarket to a £381m loss last year.

In an effort to alleviate the strain on its balance sheet, Morrisons bosses have undertaken a series of asset sales. Its petrol stations were offloaded in a £2.5bn deal in 2024 to Motor Fuel Group, a business owned by CD&R, with most of the proceeds used to pay down borrowings.

It has also raised hundreds of millions of pounds by offloading scores of supermarkets and renting them back. Proceeds from so-called sale-and-leaseback deals under CD&R’s ownership reportedly total more than £3bn.

The financial strain has been exacerbated by a steady slide in market share that has seen Aldi overtake it to become Britain’s fourth-largest supermarket. It is now fighting to hold on to fifth spot as Lidl continues its rapid growth.

Morrisons’ debt pressures stand in stark contrast to the conservative management of Sir Ken Morrison, the late chairman. In his final report before retiring in 2008, he boasted that net debt had fallen by more than £200m that year to £543m, while profits had jumped to £612m.

The spendthrift Yorkshireman was proud of telling people that he hadn’t redecorated its headquarters for more than three decades.

Morrisons declined to comment.

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