The Danish producer, which currently only sells own-label fresh cream and butter to Sainsbury's, will begin supplying milk from October. It will be supplying 70 stores in the eastern region, which insiders claim will give it about a 5% share of the retailer's total milk business.
Dairy Crest is understood to have lost volume in the restructure, with its share dropping to 45% and Robert Wiseman remaining on 50%. "This is a strategic decision, which we believe will help build our supply chain for the future growth of the company and enable us to meet our customers' needs more efficiently," said Sainsbury's business unit director for fresh and frozen foods Simon Twigger.
Arla has been strongly pursuing new business recently and last year won an increased share of Tesco's own-label milk supply at the expense of Wiseman. The Sainsbury's decision follows Arla's announcement that it hoped to build a billion-litre super dairy on the outskirts of London.
But one industry source suggested Arla had hoped for more. "I don't think Arla or Dairy Crest will be pleased with this," he claimed. "It was looking for game-changing volumes with Sainsbury's. But it is a signal of intent Arla has an ambition to have a major portion of all the major supermarkets' fresh milk."
A Dairy Crest spokesman played down the move, claiming the loss was small and the company expected to rebuild volumes in Sainsbury's projected 15% increase in floor space and via the development of new lines with the retailer.
As part of the new supply arrangements, 25 Arla farmers will join Sainsbury's Dairy Development Group. Sainsbury's also revealed this week that it planned to inject £40m into the British dairy industry via the SDDG over the next three years, to be spent on herd health and husbandry, environment, energy, collaborative working and business improvement.