The loss of the Asda liquid milk business to Arla Foods last summer has cost Dairy Crest an estimated £20m a year. But now it has won a £40m-a-year contract that will double the amount of own-label cheese it supplies to 30,000 tonnes a year.
The processor will technically become Asda’s sole supplier of own-label Cheddar and territorial cheeses when the contract kicks in later this year. Milk Link and Glanbia’s joint-venture subsidiary The Cheese
Company currently supplies Asda with significant volumes but will now be squeezed out.
A spokesman for The Cheese Company said existing business with the retailer was less than 10% of its total sales, with the majority of that “at the lower margin value end”.
Dairy Crest insisted the deal was done at “prevailing market prices”, and that it did not undercut its major competitor.
It is, however, understood that all of the tendering was done at extremely competitive prices.
The key element of the deal was sustainability, said Dairy Crest’s milk purchasing director Arthur Reeves. “This was a significant factor in Asda’s decision - more so than price.”
Asda said the switch meant less imported cheese would be sold in its stores.
But one sceptical industry source said it was difficult to believe that the supermarket would not gain financially as a result of the new deal.
He claimed that, following last year’s liquid milk contract reshuffle, Asda had “siphoned off considerable extra margin from farmers and processors.”