A Grocer investigation into a pricing row that saw Tesco delist a quarter of its branded Premier Foods products prompted the supplier to issue a shock profit warning yesterday, admitting the dispute had cost it £10m.

The Grocer discovered that between 26 March and 24 June, the number of Premier products stocked by Tesco plunged from around 560 to just over 400 in a swathe of cross-category delistings that affected brands including Hovis, Mr Kipling, Branston and Oxo.

In a trading statement issued on Thursday afternoon as The Grocer was going to press Premier admitted the delistings was one reason its profits were expected to fall from £94m in the first half of 2010 to between £65m and £70m year-on-year.

The company said a 14% hike in commodity costs forced it to seek better prices from its major retail customers. However the policy did not wash with Tesco. Premier said: "One of our major customers delisted a significant number of our grocery lines." It went on to say the issue had been resolved and the affected lines reinstated.

John Scouler, Tesco's commercial director for packaged goods and BWS, confirmed "there was a trading dispute with Premier, which has now been resolved".

Among the brands hit hardest by the delistings were Loyd Grossman and Sharwood's. Of the 42 Loyd Grossman products on sale in March, only 16 were stocked by 24 June, while the number of Sharwood's products fell from 44 to 18.

And the delistings appear to have taken their toll on value sales. In the 12 weeks to 18 June, sales of Loyd Grossman sauces fell 28.5% y-o-y, compared with a 10.9% decline across 12 months, while Sharwood's sauces fell 13.8% over the 12 weeks compared with an 11.9% decline across the year [SymphonyIRI].

Visits to Tesco stores by The Grocer this week provided evidence of the row, with many products still unavailable and countless shelf-edge labels saying the affected Premier products were temporarily out of stock. In some case the lines were back although the notices remained.

One industry veteran claimed Premier only had itself to blame. "Premier has a particularly poor trade strategy like they're stuck in the 1970s," he said. "They see the customer as an enemy rather than a partner. When it comes to negotiations, its attitude seems to be: 'Here's the price, take it or leave it'."

With Premier describing its re-pricing strategy as "successful", Shore Capital analyst Clive Black commented: "Quite what a failed re-pricing initiative would have been the Lord only knows." And one industry insider described the latest dispute as "Hovis all over again", a reference to last September when 12 Hovis lines were pulled.

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Editor's Comment: Tesco has run rings round Premier’s flabby conglomerate strategy (2 July 2011)
Tesco: supplier cull to benefit ‘power brands’ (1 July 2011)
Tesco in £40k poppy play after Hovis spat (1 November 2010)