Wiseman sure it can overcome Tesco milk cut

Published on Wednesday 11 March 2009 20:16

ROBERT Wiseman Dairies yesterday promised its annual results would be ahead of expectations, despite revealing that Tesco is to cut its supplies from the East Kilbride company by 40 million litres a year.

In a trading statement for the 12 months to 4 April, Wiseman said Britain's largest retailer had informed it of changes to its milk supply structure which would cut the level of its own-label milk bought from Wiseman from 60 per cent to 50 per cent.

Danish dairy group Arla, which has previously unsuccessfully accused Wiseman and other Scottish dairy companies of price fixing, will raise its share of own-label supplies to Tesco from 40 per cent to 50 per cent.

Tesco yesterday described the move as a "strategic rebalance" of supplies without giving details. However, a spokesman said it was not a sign of dissatisfaction with Wiseman.

In isolation, the impact of Tesco's decision would cut Wiseman's milk volumes by 2.5 per cent, and its operating products by some 2 million a year.

Chief executive Robert Wiseman, whose father founded the group, said the news was unwelcome, but he still believed the business could grow in the short term. He added: "Whilst we are naturally disappointed with any decision that results in a reduction in the volume of milk supplied to Tesco, even in the short term, we are confident that, with our brands growing strongly, we can continue to develop our business with Tesco, and our other customers."

A leading supplier of branded products, Wiseman revealed more powerful growth within the higher-margin segment.

Wiseman said sales of "The One", a 1 per cent fat product which it claims tastes better than skimmed milk, had grown by 34 per cent so far this year.

That product has been boosted by the new Food Standards Authority campaign to encourage healthy eating, which mentioned it by name.

While Wiseman's own-label products represent less than 10 per cent of the total revenue, it has been growing sharply.

The group, which began supplying milk by horse and cart in 1947, believes that, including the branded products, it will still be supplying Tesco with around 55 per cent of its total milk supplies after the own-label cut.

Shares in the FSTE-250 company rose 3.5 per cent to 322.75p, after it said that it was confident of delivering profits ahead of market expectations.

Wiseman has recently announced extensions of supplies to the Co-Operative and Sainsbury's which will increase volume by 30 million litres, off setting most of the hit from Tesco.