Source: Alamy 

The supplier is claiming it has been ‘forced out of business’ after Freshways bought its biggest customer

Mid-market milk processor Braeforge, better known by its trading name Pensworth Dairy, is set to close, shortly after its biggest customer Kent Dairy Company was acquired by rival Medina Freshways.

The Southampton-headquartered business, which sold milk into the independent and foodservice channels and via a doorstep delivery service, has appointed Moorfields as administrators after being forced to end its long-standing supply deal with Kent Dairy. It means 47 jobs are at risk of being lost, while 10 farmers have had to find a new market for their milk.

In what appears to be a growing row between the two businesses, Pensworth is now claiming it has been “forced out of business” following Freshways’ purchase earlier this month of Kent Dairy and Freshways’ subsequent refusal to pay cash owed by Kent Dairy. Freshways is arguing Kent Dairy was at risk of folding due to trading terms that were ”very much balanced in Pensworth’s favour”.

Kent had a long-term purchasing deal with Pensworth, under which it bought about 70% of its milk output and supplied that milk and other products into foodservice.

Pensworth director Arthur Dunne told The Grocer Freshways had disputed a £10m debt liability to the business within 48 hours of its acquisition of Kent on 13 January. Kent had been paying the debt via a weekly invoice of £830,000, as part of an eight-year supply agreement with the right to renew for a further 10 years.

Dunne claimed Pensworth had explained to Freshways that failing to pay the amount would “severely jeopardise our business”. 

But with no payment forthcoming, Pensworth had been left with no choice but to terminate its milk supply agreement in line with a “change of control clause” in the deal with Kent Dairy, before appointing administrators due to the impact of the unpaid debt on the business, he said. “It basically paralysed our business.” Kent is now supplied by Freshways.

Dunne also took issue with claims by Freshways that Pensworth was already financially shaky - stressing it always “paid our bills to Freshways on time” and had “never traded outside our credit terms with them”. Pensworth had a separate contract packing agreement for some volumes of milk with Freshways, for which it said it had continued paying the processor on an agreed weekly basis.

Dunne’s comments came in response to a letter to customers and suppliers by Freshways – seen by The Grocer – that claimed it had grown “wary” of Pensworth’s financial position for some time. Freshways had already terminated a separate agreement with Pensworth – inherited when it purchased the milk brokerage Capital Milk – back in late 2021, and had further “de-risked the business” by reducing its contract packing volumes last September, the letter stated.

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Its acquisition of Kent Dairy was described as falling under the same “de-risking” strategy. The letter said it had quickly become apparent the business had been at risk of folding, after “trading with Pensworth on terms which were very much balanced in Pensworth’s favour”, which was a “key reason for Kent’s financial predicament”.

In the correspondence, Freshways MD Bali Nijjar said the move had secured over 150 Kent Dairy jobs and stressed Pensworth had pursued a business model that “involves reliance upon one customer, with what appears to be (at the least) aggressive, unsustainable, long-term pricing”.

The business had “acted ethically, in good faith and with full integrity” throughout the acquisition and its dealings with Pensworth, he claimed.

Pensworth registered retail sales of £9.5m last year, according to data for The Grocer’s Top Products report [NielsenIQ 52 w/e 10 September 2022]. This was down 37.6% on the previous year’s total of £15.3m, meaning it fell from 12th largest brand in the liquid milk category to 15th. Volumes fell by 14.7%.

The business said it was now looking to secure the position “of as many employees as possible and we are making good progress on this and we will do our best for all creditors”, Dunne said.

“The question to ask is why would a company acquire a major shareholding that it believes is failing, with a creditor of £10m, an eight-year supply agreement to run with an option to extend for a further 10 years, and in the same industry?” he asked.

Pensworth was established in 1975 had previously sold its foodservice distribution business to Kent Dairy in 2021. The business was owned by David Terry, a former Pensworth director.

The Grocer has approached Freshways for further comment.

Read more: Sheazad Hussain & Bali Nijjar: former rivals at Medina Freshways on working together