Nearly 500 jobs are under threat today after milk producer Dairy Crest announced plans to close two dairies.
The closure of the company’s glass bottling plant in Aintree, Merseyside, will result in the loss of 220 jobs, with another 250 people facing the axe in Fenstanton, Cambridgeshire.
In a double blow, the company have also announced Tesco’s withdrawal of a large contract.
In a statement released today, Dairy Crest proposed the closure of its Aintree and Fenstanton dairies as part of its long term plan “to reduce costs and sustain profitability in an extremely challenging market environment for its liquid milk business.”
The company will now enter into consultation with employees and their representatives on proposals to close the two dairies later this year.
Dairy Crest has £75m worth of ongoing investment which it says has increased capabilities at other factories so that these closures can be taken, but anticipates, that in the short-term, the closures will cost around £15 m.
Work at the milk maker’s plant at Fenstanton, which packs milk into polybottles will now be transferred to other, more highly invested Dairy Crest dairies at Severnside, Gloucestershire, Chadwell Heath, London and Foston, Derbyshire.
Dairy Crest will continue to supply residential customers with milk in glass bottles from its Hanworth dairy in London should the Aintree glass-bottling plant close.
There has been a fall in the sales of milk in glass bottles as residential sales continue to decline overall and customers increasingly opt for plastic bottles and milk bags.
The board concurrently announced that its current contract to supply liquid milk to Tesco, which accounted for around 3% of Dairy Crest’s sales during 2011 to 2012 financial year, will not be renewed when it comes to an end in July 2012.
“While the loss of this supply contract is disappointing, it demonstrates the need for the group’s continuing strategy of investment in, and consolidation of, the dairies business,” the company said in this morning’s statement.
Tesco remains an important customer for the company across its UK brands Cathedral City, Country Life, Clover and Frijj, but the loss will impact Dairy Crest’s profit expectations for the year ending 31 March 2013. It confirmed today that overall trading for 2011/12 was in line with its expectations.
Over the fourth quarter, Dairy Crest’s cash collection has been stronger than anticipated and its net debt at 31 March 2012 will be around 5% lower than market expectations.
Mark Allen, chief executive of Dairy Crest, commented: “Our foods business has performed strongly. However, along with the rest of the sector, our dairies business is under sustained pressure and we have to continue to act decisively to protect its future. We believe that this proposed restructuring of our Dairies business is the right decision for the long-term.”
Mr Allen added: “The challenges in the liquid milk industry are further underlined by the disappointing loss of the Tesco liquid milk supply contract. However it represents just 3% of our total liquid milk volumes and has not driven the restructuring decisions which we are announcing.”
Photography: Graham Richardson