Given that Northern Foods plans to shut its Ethnic Cuisine factory in Swansea because it can't make a profit from the Sainsbury’s contract, it might not at first glance appear like a very attractive tranche of business, one analyst told FoodManufacture.co.uk.
However, with a different cost structure, the economics could be more appealing, he said. “The Swansea site was virtually a dedicated site for Sainsbury – it may be that if someone else with a larger site took on some of the business, it might be more appealing."
He added: “There are also desperate firms out there with spare capacity that would regard this in a different way to Northern Foods, which is quite rightly being very disciplined and assessing each bit of business individually, instead of subsidising loss-making or marginally profitable contracts from other parts of its business.
"Having said that, Northern only acquired the Swansea site in late 2007, so this isn’t a great outcome.
“There is still overcapacity in this market, so the retailers have the upper hand. They know that someone else will always be able to come in with a better offer.”
Mexican stand off
The fact that Sainsbury was prepared to let Northern Foods walk away from the contract was not necessarily proof that it had lined up a replacement, however, claimed another analyst.
“Look what happened with the Fenland Italian ready meals site [which Northern Foods mothballed in 2008 because it was unable to secure a price increase from Marks & Spencer]. It left M&S in a very difficult situation, scuttling around trying to find a replacement at very short notice. The way it’s come out looks to me like there might have been a bit of a Mexican stand off.”
Shore Capital analyst Clive Black said Northern Foods’ decision to close Swansea did at least take some capacity out of the market: “Beyond Northern Foods, the closure of Swansea will remove further capacity from a rationalising UK ready meals market. All of the major players have closed capacity, but particularly Northern.
"Hence, ethnic cuisine may be a modicum of good news for the remaining players such as Bakkavör, Greencore, Kerry Foods UK and Premier Foods.”
Job losses
The GMB union, meanwhile, said it was very concerned about staff at Swansea because company bosses did not recognise unions and many staff were not native English speakers.
Regional organiser Jeff Beck told FoodManufacture.co.uk yesterday that many staff at the site - which employs 234 people - were not even aware it was in trouble: "I don't think everyone knew it was losing money, certainly not a guy I spoke to this morning that had just come off a nightshift to discover that his job was going.”
He added: “GMB is particularly worried that the migrant workers on site will not understand their rights and that their lack of knowledge will allow them to be exploited by anti-union company management. Redundancy law is complex and workers need the advice and support of their trade union at this difficult time. The many migrant workers working there could be particularly vulnerable in this situation.”
Site is not viable
Northern Foods announced plans to close the site yesterday after failing to reach an agreement with Sainsbury, its biggest customer.
This is not the first time Northern Foods' boss Stefan Barden has taken the decision to close a site after failing to agree terms with the major supermarkets.
In 2008, the firm mothballed its Fenland Foods Italian ready meals plant in Grantham because it was unable to secure a price increase from Marks & Spencer.
In May last year, Northern also announced plans to close its Hull factory after losing a contract to supply chilled ready meals to Morrisons, at the cost of 349 jobs.