Arla to close two UK plants

Related tags Arla foods Milk

Arla Foods UK, the milk processor and dairy product manufacturer,
has announced plans to close two production facilities as it
continues to integrate its business following last year's merger
with Express Dairies, reports Chris Jones.

The closure of the plants in Ruislip, west London, in January 2005, and in Newcastle-upon-Tyne, northeast England, in May 2005, will mark the end of the integration process, and see the loss of some 400 or so jobs across the two sites.

Arla Foods said that the costs related to the merger - including those incurred by the closures - were in line with its initial expectations (around £15 million). The merger is expected to bring pre-tax costs savings of around £20 million a year by the end of 2006.

With dairy processing in the UK in the hands of just a few companies (Arla and main rivals Robert Wiseman and Dairy Crest supply the majority of the milk and dairy products available in Britain's supermarkets), dairy closures have become an inevitable part of the consolidation process, with the main companies investing the cost savings in new, more efficient 'super dairies".

Arla Foods operates one such facility in Leeds - which it claims is "the UK's most technologically advanced fresh milk dairy"​ - and much of the business of the Newcastle plant (and the old Leeds dairy which the company has already closed down) will transfer to this unit, which will feed Arla's multiple retail customers in the northeast.

Arla recently won new supply deals with Tesco and Asda, the country's two leading supermarket chains, and unveiled plans for another new dairy, in Lockerbie, Scotland, to supply its growing customer base there. The wholesale changes to the UK's milk supply arrangements have left the company with orders for an additional 80 million litres, with the new deals offsetting the loss of a previous contract to supply Sainsbury's stores.

Although supplying the multiple retailers with milk accounts for the largest part of most dairy processors' business in the UK, the high volumes are not generally matched by high margins. Dairy Crest, the biggest loser in the recent changes to supply arrangements, has already announced plans to increase its presence in the branded dairy product sector in a bid to offset the losses, and it is clear that the added-value dairy market will play an increasingly important role for Arla Foods UK as well.

The company will publish its first set of full-year results in November, and highlighted in particular the performance of it branded operations over the last 12 months. The Lurpak butter brand posted an 11 per cent increase, while the Anchor brand saw a more modest gain of 1 per cent.

But it was the Cravendale milk brand - the only mainstream fresh milk brand in the own-label dominated UK market - which showed the strongest gains, rising 34 per cent and taking its share of supermarket milk sales to 3.5 per cent.

With increased production capacity for Cravendale due to come on stream later in 2005, the company clearly has big plans for the brand, and while the chances of it taking a particularly large share of the milk market remain small, the difference in margins between branded and own-label products mean that just a small increase in volumes is needed to generate significant profit growth.

Related topics Manufacturers Arla Foods

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