Northern Foods wins Asda contract, Ferndale cries foul

While Asda has awarded the ready-made meals contract to Northern Foods, Ferndale has submitted a complaint to the UK's Office of Fair Trading (OFT) claiming that the supermarket chain had not giventhe company enough warning and that the decision represents an abuse of market power.

The Asda decision also indicates what can happen when a food processor is not able to keep up with the market in the eyes of its clients.

Asda says it is making the switch because it wants tore-launch its ready meals range this autumn with new recipes and new packaging.

"We have hand held Ferndale through the whole process, but unfortunately they couldn't deliver so we were forced to go elsewhere," Asda spokesman Dominic Burch toldFoodProductionDaily.com today.

"Other suppliers were prepared to invest to deliver even better quality and also share our vision."

The huge market power held by the UK's four biggest supermarkets has been an ongoing issue among consumer groups, food processors and competition regulators.

The UK's supermarkets are currentlyengaged in vicious price wars like their counterparts across Europe, putting price pressure on their food suppliers, who are also being squeezed by rising costs for raw material, petrol and packaging.

A survey report by research group TNS found that Morrison had its market share fall to 11.8 per cent from 14.2 per cent over the year to April 2005 and remains in fourth place among UK's "BigFour" chains.

The survey found Tescos' share jumped to 29.8 per cent from 27.6 per cent during the same period.

Asda market share fell to 16.5 per cent from 16.7 per cent while Sainsburys marketshare rose to 15.8 per cent compared to 15.4 per cent.

Many claim that this market share puts suppliers at the mercy of the big four and shuts out competition.

However an investigation earlier this year by the OFT on the country's Supermarkets Code ofPractice concluded that consumers had benefited from lower prices, a greater choice of product lines and no evidence of a reduction in the quality.

However the OFT also recommended that supermarkets be more transparency in their terms of dealing with suppliers when negotiating prices, volumes, discounts, overriders and promotions.

About 80 percent of respondents in an OFT survey last year said that the code had failed to bring about any change in supermarket behaviour toward suppliers.

The Asda contract is worth £40m, Ferndale Foods said in a statement.

The company is the supermarket chain's primary ready meal supplier.

The company claims it was only given a 12-week noticeperiod to start the delisting of its entire output and that the loss of the contract will put 600 jobs under threat.

Asda spokesman Burch countered that the chain had given Ferndale Foods 18 months notice that it was putting the contract up for bid.

Northern Foods said the contract award, worth £30m, will create 270 new jobs at the company.

Northern Foods will be making about 60 different products for Asda across four sites in the UK.

Production will be phased in from the 17 of September with full production in place by the end of October 2005.

The company already supplies a range of products to Asda, including chilled savourypastry, cakes, puddings, biscuits and frozen pizza.

James Logan, Ferndale's managing director claimed in a press release that there was no price tender and at the time Asda had assured the company it had done nothing wrong.

"However, while Asda has eventually agreed to go to mediation some five weeks after the OFT's request, it has still not agreed to do this under the Supermarket Code of Practice nor has itagreed to the OFT's request to suspend simultaneously the delisting notice, without which any mediation will be valueless as the business will be lost before the process starts," he stated.

Logan said Ferndale has already issued notices to staff about redundancies and the closure of its chilled ready meals plant.

"At the moment there appears to be a lack of reasonableness and good faith," Logan stated.

"This is the code's first real test, but its regulator appears to be powerless inenforcing the spirit of it on Asda."

Ferndale has been supplying Asda since 1996.

It claims it has invested millions of pounds in its production plant so it can offer 90 product lines.

Just over a week ago Ferndale Foods announced a £2.2m extension at its at a factory in Kent.

The extension was built to meet the demand for its pre-packed, ready cooked meals, Ferndale Foods said.

The work included a new cold and chilled store, a new packaging store, plus an extension to the site's storage facility.

The company is also building a new warehouse in Harlow, Essex.

The 6,440msquare distribution centre has ambient, chilled and cold storage facilities and is due for completion this month.

External links to companies or organisations mentioned in this story: Office of Fair Trading