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28 August 2004
The Herald
Wiseman smiles as Tesco asks for more

ROBERT Wiseman Dairies scored its second big contract win in two days yesterday when Tesco announced it was dropping one of the big three milk suppliers, Dairy Crest, and giving its share to the other two, Wiseman and Arla.

Tesco buys more than 800 million litres of milk a year, almost twice the buying power of its three big supermarket rivals Asda, J Sainsbury and WM Morrison which all buy around 400 million litres. Wiseman has scooped the big prize of upping its supply share with Tesco from 40% to 60%, just 24 hours after Sainsbury said it was splitting its supply between Wiseman and Dairy Crest, squeezing out Arla.

Only Morrison/Safeway, supplied equally by all of the big three, has yet to announce if it will review its contracts.

The deals mean Wiseman has become the second biggest supplier to the supermarkets with a 31% share, ahead of Dairy Crest on 28% and behind Arla on 42%.

For Dairy Crest, the blow is similar to the one which hit Wiseman three months ago when Asda dropped Wiseman in favour of an exclusive deal with Arla, the former Express Dairies. Shares in Dairy Crest crumbled 18% as analysts said it could lose 15m of profit.

Wiseman shares powered ahead another 12.5p to 236p, completing a 12% rise this week. However, the company's broker Investec has not raised its forecasts, and has cautioned that Wiseman is being hit by increased energy costs.

Ingrid Hoon, at Investec, said: 'We assumed they would win new business, and these announcements are being made against a background of increasing costs. Fuel is set to rise by 25%, which also affects plastic (packaging) costs. Fin -ally, we just don't know how everything is going to turn out until we see Morrison's review, which is very important.'

A spokesman for Wiseman said: 'It is great news and we are very pleased but we are looking for a good reaction, not an over-reaction.'

At broker Bell Lawrie White, which two weeks ago advised buying Wiseman shares at 198.5p, analyst Ian McInally cautioned that the new round of contract negotiations had seen the retailers putting strong pressure on margins in return for bigger supply shares.

Wiseman's new contracts with Sainsbury and Tesco, which both come into force in January, will utilise its new depot in Worcestershire.


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