Tesco: We will not drop suppliers

RETAILING giant Tesco yesterday denied having plans to drop any of its Irish-based milk suppliers after the company ended a €90 million contract with a major British dairy earlier this week.

Tesco Ireland said it had "no immediate plans" to consolidate its Irish milk supply even though the retailer's British parent will cut its milk suppliers from three to two from January.

Tesco Ireland currently sources own-brand milk from Glanbia, Kerry Dairies, Golden Vale, Cork's CMP and Donegal Creameries. It sparked a milk price war by aggressively cutting milk prices and significantly undercutting smaller retailers. Tesco branded milk is on offer in its Irish shops at 69c per litre, or €1.19 for a two-litre bottle.

Shares in British dairy group Dairy Crest slumped 19%, wiping £85 million (€128 million) off the company's value, after it was axed by Tesco in favour of rival suppliers Robert Wiseman and Arla Foods. The company said losing the Tesco contract would hurt profits by up to stg£15 million per year, although it would continue to supply other dairy products. Robert Wiseman shares, by contrast, rose by more than 7%.

Tesco's British operations buy 840 million litres of milk every year - about 12% of the total market - making it one of the biggest buyers in the industry. But the company is understood to be suffering from intense price competition in Britain driven by rival chain Asda, owned by leading US supermarket Wal-Mart, forcing it to cut buying costs wherever possible. Industry analysts said dealing with a smaller number of suppliers could be a financially viable option but Tesco said it had no intention of moving to a single supplier.