More own-label manufacturers could follow Ferndale Foods in facing sudden ruin because they do not have agreed notice periods with retailers, lawyers warned.
Most manufacturers do not have written contracts, let alone formal termination agreements, said Andrew Smith, a partner in the food sector team at legal firm Wragge. “There seems to be a perception that the lack of written contract terms creates flexibility, but in reality it can mean uncertainty for both sides, leading to risk and cost,” he said.
Asda’s switch of ready meals business from Ferndale to Northern Foods, with what Ferndale said was 12 weeks’ notice from the end of June, has been widely criticised.
Asda’s insistence that Ferndale had been “kept fully informed” through the 18-month tender process did not ring true, said a senior executive at another major own-label firm. It was “stretching credulity” to believe that Ferndale would have invested £3m over the last year in the knowledge that it was losing its biggest customer, he said. “It’s an absolute disgrace.”
One sales director added: “This stinks, no matter how you look at it, and it will further damage the relationship between the multiples and the UK manufacturing base. Retailers are constantly talking about partnerships with suppliers. They don’t understand the meaning of the word.”
He said that most ready meals contracts for autumn launches closed in early June. “Being de- listed at the end of June was really at the worst possible time.”
Business adviser Grant Thornton said Ferndale had been put into an “appalling situation”. Duncan Swift, head of food and agribusiness recovery, said: “When you look at the key drivers of financial distress in food companies, it’s nearly always because retailers have materially changed the terms of business on an unreasonable basis.”