Glanbia under pressure as it loses UK contract

Glanbia's liquid milk business in the UK has come under renewed pressure following the decision by the British supermarket group, Safeway, to withdraw Glanbia's supply contract.

Glanbia has, however, won a contract to supply milk to 44 of Somerfield's 1,400 stores in the UK, although industry sources said this would not be sufficient to cover the lost Safeway business.

Increasingly, the British multiples are rationalising their suppliers. In Safeway's case, the supermarket chain reduced the number of milk suppliers from four to three - with Glanbia losing out. Dairy Crest picked up Glanbia's Safeway business and now supplies 45 per cent of its milk, with Express and Robert Wiseman supplying the balance. It is understood that Glanbia supplied around 13 per cent of Safeway's milk.

A Glanbia spokesman would confirm only that the Safeway contract had been lost and was unable to put figures on the effect of the lost contract. However, the company has indicated that the Safeway loss will have only a marginal effect on profitability over the next year.

Even so, the loss of Safeway and the growing inclination of the multiples to cut their number of suppliers will inevitably put a question mark over Glanbia's liquid milk business in the UK and the need of the dairy industry in general to rationalise itself.

More and more milk in the UK is now being bought in supermarkets, with doorstep sales falling. The multiples now account for more than half British liquid milk sales. This move away from the doorstep has given the multiples increased purchasing power.

Industry sources believe that rationalisation in the industry is unlikely to come from straightforward acquisitions, but more through asset swaps or mergers between companies operating in the same region. In that context, most attention will probably focus on a link-up between Glanbia and Robert Wiseman in the north-west or between Glanbia and Dairy Crest in the midlands.