Kerry Group lost Tesco contract worth €80m prior to UK plant closure

Irish food company suffered setback after UK grocer cancelled ready meals contract

Kerry is   due to publish its full-year results in February

Kerry is due to publish its full-year results in February

 

Food ingredients giant Kerry lost a contract estimated to be worth €80 million with supermarket chain Tesco prior to closing its production plant in Staffordshire in England last year.

The Tralee-based company was forced to close a factory in Burton-on-Trent, which employed some 900 people, in 2019 after Tesco cancelled the contract to supply ready meals.

At the time Kerry would only confirm that a major customer had pulled the plug on its chilled meals business produced at the Burton site in favour of another supplier.

The Irish Times has learned that the contract to supply Indian and Oriental chilled dinners was worth up to €80 million and that Tesco opted to switch supplier from Kerry to rival food firm Bakkavor.

Exposed

Irish food firms rely heavily on the UK food market and are increasingly exposed to consolidation in the UK’s grocery sector.

Tesco recently completed a €4.5 billion acquisition of wholesaler Booker while a proposed merger between Sainsbury and Asda has been blocked by the regulator.

Deutsche Bank has forecast that organic sales in Kerry’s consumer foods division will be down by about 8 per cent year on year, principally due to the loss of the Tesco contract. In its latest advisory note on the group, it also included a €24 million financial hit in the fourth quarter connected with the loss. Kerry is not due to publish its full-year results until February.

Ireland’s largest food company by market capitalisation has had a bumpy few months.

In December, it emerged that it had narrowly missed out on the opportunity to buy the nutrition business of US chemicals group DuPont.

Kerry had engaged Goldman Sachs to help it seal the €23.5 billion deal, which would have been the biggest ever secured by an Iseq-listed company. It would have seen Kerry effectively double in size.

Investors seem unperturbed, however, with the company’s shares remaining strong at €112. In its most recent trading update, Kerry reaffirmed its full-year guidance of adjusted earnings per share growth of 7 per cent to 9 per cent on a constant currency basis.