Golden Vale's acquisition of Rye Valley Foods has been given a broad welcome in the markets, as a solid indication that the Jim Murphy-inspired strategy of diversification from commodity dairy products is finally gaining momentum. But not everybody is totally convinced, and John O'Reilly of Davy Stockbrokers, is one who has sounded a cautionary note about Golden Vale's foray into the frozen, prepared-meals market.

There is no doubt that Rye Valley has been an outstanding success since it was set up 10 years ago. However, the Davy analyst warns that on its own it is too small and too narrowly focused to be a strategic investment in either the frozenor the chilled-foods sector.

He states that the acquisition is only strategic to the extent that it represents the beginning of a much bigger investment programme both internally and through acquisitions.

Jim Murphy has made it clear that he intends to expand the prepared-meals business and is looking for a doubling of Rye Valley's turnover within three years.

Rye Valley has established own-label customers in the form of the rapidly expanding Iceland, ASDA and Sainsbury. But a recent edition of the British trade magazine, The Grocer, posed the question whether the own-label market in Britain had peaked.

Only ASDA of the major multiples apparently is growing its ownlabel business, with Sainburys one of the pioneers in the sector reducing the own-label's proportion of its total sales.

There also seems to be a change in the consumer's perception of value to the extent that price is only one element in determining value and not price per se, which Mr O'Reilly says was the key driver in ownbrand growth in the past 20 years.

This, says Mr O'Reilly, will mean that own-label manufacturers will have to show a greater capacity for innovation. "The historic competencies of RB (retail brand) manufacturers for speedy imitation at low cost won't suffice in such an environment," he warns.

It seems to be a case of "not proven" in Davy House as to the Golden Vale acquisition and the expansion into a new sector.