Arla, Dairy Crest to profit from UK milk shake-up

- Last updated on GMT

Related tags: Dairy crest, Sainsbury's, Tesco, Asda

UK milk processors Arla Foods and Dairy Crest have had their
lucrative contracts to supply fresh milk to UK multiple retailer
Morrisons extended - at the expense of rival dairy company Robert
Wiseman, Tom Armitage reports.

Under the existing arrangements, Arla and Dairy Crest each supply Morrisons with 35 and 30 per cent of its fresh liquid milk volumes respectively, while Wiseman accounts for the remaining 35 per cent.

From October later this year, however, the Bradford-based multiple retailer, also the UK's fourth biggest grocer, is set to "rationalise"​ its existing supplier line-up from three to two.

The reshuffle will see Wiseman dropped and Dairy Crest and Arla's shares increased to around 50 per cent each - costing Wiseman £40 million in turnover, while Dairy Crest will pick up about £30 million and Arla a further £10 million.

Drummond Hall, Dairy Crest's chief executive, commented: "We are delighted to have been awarded increased volume by Morrisons. This is not only good news for Dairy Crest but also good news for our farmer suppliers. We look forward to developing our relationship further with Morrisons in the future."

The company said that it had finalised a £16.9 million deal to acquire Derbyshire's Starcross Foods to help it meet its new processing demands.

"Starcross will significantly extend our geographical footprint across England and Wales to cover most of the major northern conurbations. This better aligns our business to Morrisons and our other customers' requirements and will strengthen Dairy Crest's competitive position,"​ said Hall.

Last week, Dairy Crest was also reported to be in "advanced discussions"​ to acquire Midlands Co-operative Society's (MCS) dairy operations - although it declined to give any indication of the cost.

Meanwhile, Robert Wiseman, the director of the eponymous Glaswegian dairy company, said that he was "disappointed"​ with the contract loss (which accounts for around 9 per cent of its current volumes) and added that the company would take "mitigating actions to minimize the impact."

The Morrisons contract announcement signals the last in a number of reshuffles involving the UK's major milk processors and grocers.

Last year, Dairy Crest had contracts to supply Tesco and Sainsbury's terminated - the latter alone cost the company £60 million - while Wiseman was awarded a contract to supply Tesco, helping to offset the earlier loss of a contract to supply Asda with fresh liquid milk to rival Leeds-based processor Arla.

Despite these changes, both Dairy Crest and Wiseman's contracts have flattened out and their respective volumes remain similar to those a year earlier - this has not, however, stopped analysts cutting their profit forecasts for both companies.

Dairy Crest, which notched up turnover of £1.27 billion in 2004, also manufactures Cathedral City, the UK's leading branded cheddar cheese, while its Frijj dairy drink and Petit Filous dairy-based dessert brands are also best-sellers in their respective categories.

Related topics: Manufacturers, Arla Foods, Fresh Milk

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