31 March 1995

Bottled milk front line in Northerns restructuring

By Philip Clarke

MILK market deregulation last November is not to blame for the current industry shakeout, according to Milk Marque chief executive Andrew Dare.

His comments came on the day Northern Foods – the UKs largest liquid milk supplier – announced a £91m restructuring plan to be implemented over the next two years.

Mr Dare said deregulation had little to do with it. "The vast majority of their rationalisation has occurred in their doorstep bottled milk business. This has been caused by the price wars in the supermarkets and discounters, which have been taking trade from the doorstep for several years."

But, speaking in London, Northern Foods chairman, Chris Haskins said his annual milk bill had risen by £45m since the demise of the Milk Marketing Board. Higher prices had accelerated the drop in doorstep sales, which had gone from a 4% or 5% annual decline to one of 12% or 13%.

Also to blame was the growth in discount stores and competition between the supermarkets which had seen drinking milk retail at 27p/pt compared with 39p on the doorstep.

Although some of the cost increase had been recovered from the High Street, this had not occurred on the doorstep. As such, dairy operating profits at North-ern Foods are expected to be £20m down on the £89m achieved in the year to Mar 31, 1994.

In total, £48m will be charged for rationalising Northern Foods dairy business, including the closure of 40% of the bottling capacity, a number of distribution depots and one manufacturing facility. Which sites are to go will not be revealed until the summer.

Mr Haskins said the Milk Marque selling system which had led to these closures was "fundamentally flawed".

"I am confident the system will be changed, either by the Office of Fair Trading or through farmers and buyers talking," he said. "It is farmers who will suffer the most if closures of this sort have to become more widespread."

But farm minister, William Waldegrave told the House of Commons that Northern Foods only had its own bad management to blame, having bid-up prices by offering to pay a guaranteed premium above Milk Marque.

This is hotly disputed by Northern Foods. It argues that, despite paying farmers 1.2p/litre more, its direct supplies are still costing less than the milk it gets from Milk Marque. &#42

Consumer demand for supermarket milk is the force behind rationalisation.