Northern Foods Plc, the largest U.K. maker of prepared meals, will close a factory that supplies Italian cuisine to Marks & Spencer Group Plc and employs 730 people after failing to renegotiate a contract with the retailer.
The Fenland Foods plant in Grantham, eastern England accounts for about 15 percent of the food producer's total sales to Marks & Spencer, which runs Simply Food stores and also sells the ready meals at its clothing outlets. Two other plants that supply the retailer aren't affected, Northern Foods said today.
"The companies failed to find a business model that was profitable,'' Northern Foods Chief Executive Officer Stefan Barden said. The maker of Goodfellas pizza has tried to negotiate higher prices from retailers to recoup surging costs for commodities such as wheat and milk. Barden wouldn't say whether Marks rejected demands for higher prices.
"Northern decided the site was no longer economical and decided to close it,'' Marks & Spencer spokesman Dan Masser said. "Northern is an important supplier and we will work with them on a range of products around the country.''
Northern Foods fell 2.25 pence, or 2.5 percent, to 86.25 pence at 10:14 a.m. in London trading. Marks & Spencer declined 8 pence, or 2 percent, to 397.5 pence.
Northern gets a third of its revenue from supplying Marks & Spencer. The Fenland facility produces 25 percent of the ready meals that the food company provides for the retailer, worth about £45m in annual sales.
Reopening Plan
Barden said Northern plans to reopen the site by September 2010 and is trying to find replacement work for some staff.
The announcement comes three months after Marks & Spencer said it was talking with suppliers about changing contract terms. The retailer demanded lower prices from its 10 largest suppliers, including Northern Foods and Uniq Plc, the Daily Mail reported in February. Marks sought a 2% discount from suppliers and as much as 5.5% for larger purchases, the newspaper said.
The closure is ``in accordance with our strategy to continue with business only where terms generate an adequate return for shareholders,'' Leeds, England-based Northern Foods said.
One-time expenses for closing the site will be as much as £5m, mostly in payments to laid-off workers, Chief Financial Officer Jeremy Maiden said. There will also be an impairment writedown on the site, which has a value of £24m The costs will be reported in fiscal 2009.
"We felt that we can do better and different things with the facility,'' said Barden.
