A food business employing 125 people in Birmingham's Jewellery Quarter is set to close - because the area is becoming more residential.

Bakkavor Birmingham, on Carver Street, makes dips, salad dressings, sauces and stir-fries.

Icelandic firm Bakkavor, which bought the former Wine & Dine business in 2000, said the increasingly residential nature of the Jewellery Quarter made it unsuitable for a growing business.

It will be merging Bakkavor Birmingham with the recently-bought Welcome Food Ingredients company, based on a purpose-built site in Nottinghamshire.

A spokesman for Bakkavor, which is expected to announce its financial results today, said the company had been "extremely saddened" to announce the closure, and that it was no reflection on the performance of staff there.

He said: "Over the last 18 months it has become clear that the business, which has grown considerably, can no longer operate efficiently and effectively due to the present site's limited capacity and its location within the city, and in an area that has become predominately residential.

"Consideration was given to a number of alternatives to relocate the operation within the West Midlands but none of them were commercially feasible. Subsequently, it was proposed that Bakkavor Birmingham would merge with Welcome Food Ingredients. This will now go ahead and be completed in May 2008.

"We have completed the 90-day consultation process with all members of staff at Bakkavor Birmingham in relation to the merger and subsequent closure of the facility. Bakkavor has also been working closely with the affected employees and focusing on finding them alternative roles within its business."

Bakkavor was founded 20 years ago by the Gudmundsson brothers, originally centred on the manufacturing of seafood.

Last year it posted a half-year turnover of £723 million.

Bakkavor also employs about 325 people in Birmingham at its Pure Patisserie dessert facility in Garretts Green.